Treatment of cenvat on finished goods ?

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CA Abhishek Singh (Querist)
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22 September 2011 i was reading guidance note and got stuck regarding entry for provision of excise duty on finished goods. as per guidance note following entry shall be passed on 31/03
p&l dr
to provision for Excise duty

suppose goods are sold on 15/04
debtors a/c dr
to sales
to excise duty payable

on payment
excise duty payable a/c dr
to bank a/c/cenvat
how to close provision for excise duty account. should it be reversed if yes then when .

urgenlty waiting for your reply
thanks in advance

CA. Nitin Agrawal

CA. Nitin Agrawal (Expert)
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22 September 2011 Dear Abhishek

Liability for excise duty arises at the time of manufacturing of goods but its collection is postponed till the time of removal from the factory, so the provision for excise duty on closing stock of finished goods to be do and the same is in line with the AS issued by our institute.

Entry are as follows:

1. When creating provision for Ex. duty:
Excise duty (P&L) A/c Dr.
To Ex. duty Payable

[So when you create this entry then valuation of the FGS should in inclusive of excise duty, so to nullify the provision effect in P&L a/c]

There will be no effect on the P&L whether you make provision for excise duty or not, its net effect is Nil.

2. At payment time:
Ex. duty payable Dr
To Cash/Bank/PLA

3. At sales time:
Customer A/c Dr.
To Sales A/c
To Excise duty (output)
To VAT A/c

Hope the query is clear

Now i a sure you can solve it at exam if you got this question.

Best of luck