Treatment agst.amount recd. by real state co.

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

07 June 2012 treatment of amount recd.(not refundable) by real estate co. for incurring exp. in future for power,which is deposited by co. in fdr.

whether it is liability or income. and if it is a liability what is the treatment of interest. please explain in brief

Ca Anand Dubey

Ca Anand Dubey (Expert)
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07 June 2012 Please explain the nature of receipt whether it is capital ? the interest earn on investment will be credited to capital WIP

Querist : Anonymous

Querist : Anonymous (Querist)

07 June 2012 sir actually a real estate co. has received a fixed amount for power and maintenence which is to be incurred by the co. in future. the amount is non refundable.the company has invested the amount in FDR.
tREATMENT BY cO.

TREATED AS LIABILTY IN BALANCE SHEET
INTT. ON FDR CEDITED IN PROFIT & LOSS A/C

IS THIS TREATMENT IS RIGHT OR WRONG ?
WHAT IS THE CORRECT TREATMENT

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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02 August 2025 In the case you described, where a real estate company receives a **non-refundable amount** from customers to cover future power and maintenance expenses, here is the appropriate accounting treatment:

### 1. Nature of the amount received:

* Since the amount is **non-refundable** but relates to expenses to be incurred in future (power & maintenance), it is **not income** yet.
* It is considered a **liability** (deferred income or advance from customers) because the company has an obligation to provide the related services/benefits.

**So, the amount received should be recorded as a Liability in the Balance Sheet under a suitable head like "Advance from Customers" or "Deferred Income."**

### 2. Treatment of interest earned on FDR:

* The company invests this non-refundable amount in a Fixed Deposit Receipt (FDR).
* The **interest income earned** on this FDR **does not belong to the customers**; it is earned by the company and hence should be treated as **income of the company**.
* Therefore, the interest should be **credited to the Profit & Loss Account** (not capital work in progress).

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### Summary:

| Item | Accounting Treatment |
| ------------------------------ | --------------------------------------------------------------- |
| Non-refundable amount received | Recognize as a **liability** in Balance Sheet (deferred income) |
| Interest earned on FDR | Recognize as **income** in Profit & Loss Account |

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### Additional notes:

* As the company incurs power and maintenance expenses, it should **debit the liability account** and **credit expenses**.
* This matches income and expense recognition as per the matching principle.

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