Prior period items
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
10 May 2014
Dear Experts,
Please siggest whether the following situation would cover in Prior Period ambit:- ??
A compliance Cert. issued by the Company Secretary for Rs. 10,000/- during the current year ..i .e. bill dtd 15/Mar/14, which pertains to financial year ended 31/March/2013.
Whether provision of Prior Period Items would apply in this situation (Ref to AS-5).
Hoping for a prompt response in this regards.
Thanks
Please siggest whether the following situation would cover in Prior Period ambit:- ??
A compliance Cert. issued by the Company Secretary for Rs. 10,000/- during the current year ..i .e. bill dtd 15/Mar/14, which pertains to financial year ended 31/March/2013.
Whether provision of Prior Period Items would apply in this situation (Ref to AS-5).
Hoping for a prompt response in this regards.
Thanks
10 May 2014
yes as its due to ommission in FY 12-13 and if its affecting the finanacial statements then needs to be disclosed sep as per AS 5.
Message likes :
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Querist : Anonymous
Querist :
Anonymous
(Querist)
11 May 2014
I also agreed with your suggestion, Please also advise how would this expense make impact on relevan Taxable income of the respective Financial year, per Income Tax Regulations ??
10 August 2024
In the situation you've described, the compliance certificate expense of Rs. 10,000/- issued during the current year, but pertaining to the financial year ended 31st March 2013, falls under the category of **Prior Period Items** as per accounting and taxation norms. Here’s a detailed breakdown of how this should be handled:
### **Accounting Treatment**
**1. Prior Period Items (AS-5):**
- **Definition:** According to **Accounting Standard (AS) 5**, Prior Period Items are income or expenses that arise in the current period but relate to prior periods. They are not usually included in the financial results of the current year but are disclosed separately.
- **Accounting Treatment:** For the compliance certificate cost incurred during the current year but related to the financial year ending 31st March 2013, you should disclose this as a **Prior Period Item** in the financial statements for the current year. This is done to ensure that the expense is properly classified and does not distort the current period’s financial performance.
**In the Financial Statements:**
- **Expense Recognition:** The expense should not be charged to the current period’s Profit & Loss Account directly.
- **Disclosure:** It should be disclosed in the notes to accounts under the heading "Prior Period Items" to separate it from the current period’s expenses. This ensures that users of the financial statements are aware of the nature of the expense and its impact on the financial results.
### **Impact on Taxable Income**
**2. Income Tax Regulations:**
- **Allowability of Prior Period Expenses:** According to the Income Tax Act, expenses related to prior periods are generally not allowed as a deduction against the income of the current year. The tax regulations typically focus on the principle that only expenses related to the current financial year are deductible unless specific provisions apply.
- **Tax Implications:** Since the compliance certificate expense pertains to a period ending before the current financial year, it would generally not be deductible in the current year’s tax return. This means:
- **Expense Disallowance:** The amount of Rs. 10,000/- would likely be disallowed for tax purposes as it pertains to a prior period.
- **Tax Adjustment:** You should add back this amount to the taxable income of the current year while preparing the tax computation.
**3. Reporting and Adjustment:**
- **Tax Computation:** When preparing the tax return for the current year, adjust for this disallowed expense by adding it back to the income, ensuring that the prior period expense is not deducted from the current year’s taxable income.
- **Documentation:** Keep documentation and proof of the nature of the expense and its relation to the prior period, as this can be important for tax assessment and any potential queries from the tax authorities.
### **Summary**
- **Accounting Treatment:** Record and disclose the Rs. 10,000/- expense as a Prior Period Item in the financial statements for the current year, as per AS-5.
- **Tax Treatment:** Disallow the expense for tax purposes in the current year, adding it back to the taxable income while preparing the tax computation.
This approach ensures that both accounting and tax treatments are handled in compliance with the respective standards and regulations.
### **Accounting Treatment**
**1. Prior Period Items (AS-5):**
- **Definition:** According to **Accounting Standard (AS) 5**, Prior Period Items are income or expenses that arise in the current period but relate to prior periods. They are not usually included in the financial results of the current year but are disclosed separately.
- **Accounting Treatment:** For the compliance certificate cost incurred during the current year but related to the financial year ending 31st March 2013, you should disclose this as a **Prior Period Item** in the financial statements for the current year. This is done to ensure that the expense is properly classified and does not distort the current period’s financial performance.
**In the Financial Statements:**
- **Expense Recognition:** The expense should not be charged to the current period’s Profit & Loss Account directly.
- **Disclosure:** It should be disclosed in the notes to accounts under the heading "Prior Period Items" to separate it from the current period’s expenses. This ensures that users of the financial statements are aware of the nature of the expense and its impact on the financial results.
### **Impact on Taxable Income**
**2. Income Tax Regulations:**
- **Allowability of Prior Period Expenses:** According to the Income Tax Act, expenses related to prior periods are generally not allowed as a deduction against the income of the current year. The tax regulations typically focus on the principle that only expenses related to the current financial year are deductible unless specific provisions apply.
- **Tax Implications:** Since the compliance certificate expense pertains to a period ending before the current financial year, it would generally not be deductible in the current year’s tax return. This means:
- **Expense Disallowance:** The amount of Rs. 10,000/- would likely be disallowed for tax purposes as it pertains to a prior period.
- **Tax Adjustment:** You should add back this amount to the taxable income of the current year while preparing the tax computation.
**3. Reporting and Adjustment:**
- **Tax Computation:** When preparing the tax return for the current year, adjust for this disallowed expense by adding it back to the income, ensuring that the prior period expense is not deducted from the current year’s taxable income.
- **Documentation:** Keep documentation and proof of the nature of the expense and its relation to the prior period, as this can be important for tax assessment and any potential queries from the tax authorities.
### **Summary**
- **Accounting Treatment:** Record and disclose the Rs. 10,000/- expense as a Prior Period Item in the financial statements for the current year, as per AS-5.
- **Tax Treatment:** Disallow the expense for tax purposes in the current year, adding it back to the taxable income while preparing the tax computation.
This approach ensures that both accounting and tax treatments are handled in compliance with the respective standards and regulations.
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