Treatment of ld chargs in procurement of capital asset

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

24 September 2013 What should be the accounting treatment for Late Delivery Charges recovered from Supplier of Capital Asset? Should it be deducted from the cost of Asset or Credited to P&L A/c.

CA Simarpreet Singh Gulati

CA Simarpreet Singh Gulati (Expert)
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24 September 2013 A fixed asset cannot be capitalised at an amount higher than that paid/incurred by the company. In this case, late delivery charges are recovered from the supplier i.e. the amount paid to supplier is invoice value of asset less late delivery charge.
Therefore, the amount to be capitalised is asset cost - late delivery charge.

Querist : Anonymous

Querist : Anonymous (Querist)

25 September 2013 if the late delivery charges are recovered after capitalization of asset..should the asset be Decapitalize.??

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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02 August 2025 If the late delivery charges are recovered **after** the asset has already been capitalized, then:

* You **cannot retrospectively reduce** the asset's capitalized cost directly (i.e., you don't debit the asset and credit supplier/receivable unless you want to adjust the asset value retrospectively).

* Instead, the **late delivery charges recovered should be recognized as income** in the Profit & Loss account, usually under “Other Income” or a similar head, because it is a recovery related to the purchase of the asset.

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**Summary:**

| Situation | Treatment |
| --------------------------------------------------------- | ------------------------------------------ |
| Late delivery charges recovered **before** capitalization | Reduce capitalized cost of asset |
| Late delivery charges recovered **after** capitalization | Recognize as income in P\&L (Other Income) |

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Would you like a journal entry example for the scenario when the amount is recovered after capitalization?

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