Provision for expenses

This query is : Resolved

Prashant (Querist)
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23 May 2009 We have made ad hoc provision of Rs 2 lakh at the time of finalization of books for the year 2007-08. Now while finalizing books for 2008-09 some expenses pertaining to 2007-08 are incurred but for which there was no specific provision made in the books in the previous year. So we adjusted these expenses against this ad hoc provision but now auditor is not accepting this treatment and they say that since there is no specific provision for that expenses it is a prior period expenses. So now eventhough there is balance in the provision but still the expenses for 2007-08 are booked as prior period expenses. So is it correct treatment. I don't agree with the stand of the auditor.
To elaborate I am giving following example

F.Y.2007-08
Ad hoc provision under Miscellaneous exps Rs 200000

F.Y.2008-09

Freight expenses Rs 35000/-for 2007-08 to be deducted from this ad hoc provision. So provision balance will be Rs 165000/-
But audtior is not allowing this treatment and transferring this freight outward expenses Rs 35000/- to prior period expenses saying that there is no provision for freight exps but the provision is for misc exps.

Can anyone help me in the matter and if my view is correct then how do i tell this to the auditor

Thanks in advance

CA.BHARAT BHUSHAN

CA.BHARAT BHUSHAN (Expert)
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23 May 2009 I think your treatment is correct. But you also have to see the quantum of Misc.Exp.If we cannot include the Freight in Provision made because it is not specifically made,auditor cannot arbitrarily presume that provision is for Misc.exp because it also not specifically made for Misc.Exp. However, your past practice for dealing like this issues also matters.

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