waiver of loan

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deepak kumar (Querist)
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10 April 2008 a company has taken a loan to finance its fixed assets but due to financial crisis financial institutes waive some amount of loan and interest outstanding.m what should be the treatment whether it should be deducted from fixed assets and depreciation should be charged on balance amount or it should be shown A profit or some alternative if any

pushpendra

pushpendra (Expert)
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11 April 2008 for principal part it should be adjusted in cost of fix assests and depreciation will be charged on adjusted price. and for interest part no adjustement is required because only , which co. pays will be charge as expenditure.

R.V.RAO

R.V.RAO (Expert)
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11 April 2008 A.) IF THE FIN. INSTITUTION (F.I) , HAS SEPARATELY STATED THE AMOUNT WAIVED AS PRINCIPAL AND AMOUNT WAIVED AS INTEREST , THEN TREATMENT IS AS FOLLOWS.

THE WAIVER OF PRINCIPAL IS TREATED AS REDUCTION OF ASSET AND HENCE DEP. CHANGE SHALL BE EFFECTED(FROM DATE OF WAIVER) AND GIVEN EFFECT TO P& L ACCOUNT.(LOSS OR PROFIT ).FUTURE DEP. CALCULATED ON REDUCED VALUE OF ASSET.
LOAN ACCOUNT(F.I) WILL BE DEBITED AND ASSET ACCOUNT CREDITED FOR WAIVER AMOUNT.

INTEREST ACCOUNT IN BOOKS OF ACCOUNTS IF ALREADY DEBITED AS REVENUE EXP.WITH FULL INTERST DUE ON LOAN TILL DATE OF WAIVER , SHOULD BE REVERSSED AND EFFECT OF DIFFERENCE SHALL BE SHOWN IN P& L ACCOUNT( LOSS OR GAIN).

B.)IF THE F.I IN ITS LETTER OF WAIVER HAS NOT DISTINGUISHED AMOUNT OF WAIVER OF PRINCIPAL AND AMOUNT OF WAIVER OF INTEREST SEPARATELY, THE WHOLE AMOUNT OF WAIVER MAY BE TREATED AS CAPITAL RESERVE.
R.V.RAO

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