Treatment of Duty paid on Capital goods at Debonding
This query is : Resolved
17 June 2010
If we have capitalised some assets in F.Y.2008-09 which are purchased duty free.
Now in F.Y.2009-10, debonding took place and we have to pay customs as well as excise duty on all Capital goods which we had purchased duty free.
What will be the accounting effect of such duty paid at the time of Debonding?
Whether it should be capitalised or to be treated as Revenue Expenditure?
Now in F.Y.2009-10, debonding took place and we have to pay customs as well as excise duty on all Capital goods which we had purchased duty free.
What will be the accounting effect of such duty paid at the time of Debonding?
Whether it should be capitalised or to be treated as Revenue Expenditure?
Abhishek Mohta
(Expert)
17 June 2010
The duty paid at the time of debonding shall be capitalized. However, a note to the effect has to be given in the accounts to state that the additions during the year includes amount of duty capitalised due to debonding.
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17 June 2010
Thanks.
17 June 2010
Is there any documentary evidence to support this? If any, please give me the reference.
02 August 2025
Sure! The treatment of **duty paid on capital goods at the time of debonding** generally follows accounting principles related to **capitalization of costs directly attributable to bringing the asset to its working condition**.
---
### Summary of Treatment:
* The duty paid on capital goods during debonding (customs/excise duty) is **capitalized**.
* This cost forms part of the **cost of the asset** since it is necessary to put the asset into its intended use.
* The asset value in the books will increase by the amount of duty paid.
* A disclosure note should be made in the financial statements explaining the capitalized duty on debonding.
---
### Accounting Standards & References:
* **AS 10 - Property, Plant and Equipment (PPE)**:
States that **cost of an item of PPE includes any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.**
Duty paid on debonding qualifies as such cost.
* **ICAI Guidance**:
The Institute of Chartered Accountants of India has clarified in various forums and bulletins that costs incurred to bring capital goods to their working condition are capitalized.
* **Income Tax Act**:
For tax purposes, such duty is also added to the cost of asset and depreciated accordingly.
---
### Practical Notes:
* Capitalize duty paid at debonding under the asset head (Land/Plant & Machinery, etc.).
* Maintain proper documentation for audit and tax purposes.
* Disclose in notes to accounts that capitalized costs include debonding duties.
---
If you want, I can help draft a sample disclosure note or journal entry for this. Would you like that?
---
### Summary of Treatment:
* The duty paid on capital goods during debonding (customs/excise duty) is **capitalized**.
* This cost forms part of the **cost of the asset** since it is necessary to put the asset into its intended use.
* The asset value in the books will increase by the amount of duty paid.
* A disclosure note should be made in the financial statements explaining the capitalized duty on debonding.
---
### Accounting Standards & References:
* **AS 10 - Property, Plant and Equipment (PPE)**:
States that **cost of an item of PPE includes any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.**
Duty paid on debonding qualifies as such cost.
* **ICAI Guidance**:
The Institute of Chartered Accountants of India has clarified in various forums and bulletins that costs incurred to bring capital goods to their working condition are capitalized.
* **Income Tax Act**:
For tax purposes, such duty is also added to the cost of asset and depreciated accordingly.
---
### Practical Notes:
* Capitalize duty paid at debonding under the asset head (Land/Plant & Machinery, etc.).
* Maintain proper documentation for audit and tax purposes.
* Disclose in notes to accounts that capitalized costs include debonding duties.
---
If you want, I can help draft a sample disclosure note or journal entry for this. Would you like that?
02 August 2025
Sure! The treatment of **duty paid on capital goods at the time of debonding** generally follows accounting principles related to **capitalization of costs directly attributable to bringing the asset to its working condition**.
---
### Summary of Treatment:
* The duty paid on capital goods during debonding (customs/excise duty) is **capitalized**.
* This cost forms part of the **cost of the asset** since it is necessary to put the asset into its intended use.
* The asset value in the books will increase by the amount of duty paid.
* A disclosure note should be made in the financial statements explaining the capitalized duty on debonding.
---
### Accounting Standards & References:
* **AS 10 - Property, Plant and Equipment (PPE)**:
States that **cost of an item of PPE includes any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.**
Duty paid on debonding qualifies as such cost.
* **ICAI Guidance**:
The Institute of Chartered Accountants of India has clarified in various forums and bulletins that costs incurred to bring capital goods to their working condition are capitalized.
* **Income Tax Act**:
For tax purposes, such duty is also added to the cost of asset and depreciated accordingly.
---
### Practical Notes:
* Capitalize duty paid at debonding under the asset head (Land/Plant & Machinery, etc.).
* Maintain proper documentation for audit and tax purposes.
* Disclose in notes to accounts that capitalized costs include debonding duties.
---
If you want, I can help draft a sample disclosure note or journal entry for this. Would you like that?
---
### Summary of Treatment:
* The duty paid on capital goods during debonding (customs/excise duty) is **capitalized**.
* This cost forms part of the **cost of the asset** since it is necessary to put the asset into its intended use.
* The asset value in the books will increase by the amount of duty paid.
* A disclosure note should be made in the financial statements explaining the capitalized duty on debonding.
---
### Accounting Standards & References:
* **AS 10 - Property, Plant and Equipment (PPE)**:
States that **cost of an item of PPE includes any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.**
Duty paid on debonding qualifies as such cost.
* **ICAI Guidance**:
The Institute of Chartered Accountants of India has clarified in various forums and bulletins that costs incurred to bring capital goods to their working condition are capitalized.
* **Income Tax Act**:
For tax purposes, such duty is also added to the cost of asset and depreciated accordingly.
---
### Practical Notes:
* Capitalize duty paid at debonding under the asset head (Land/Plant & Machinery, etc.).
* Maintain proper documentation for audit and tax purposes.
* Disclose in notes to accounts that capitalized costs include debonding duties.
---
If you want, I can help draft a sample disclosure note or journal entry for this. Would you like that?
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