Accounting entry PF Trust

Shriram (Professional) (628 Points)

28 March 2023

Small Company invested its contribution to EPF trust in unsecured debentures with private company. Now company is defunct and loss is now to be booked into small company books.

How to account the same. your views please

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Ayush (Executive ) (4162 Points)
Replied 28 March 2023

When a small company's investment in an EPF trust in unsecured debentures with a private company becomes defunct and a loss is incurred, the loss should be accounted for as follows:

First, the company should recognize the loss in the income statement as an expense under the account group "Investment loss" or "Other losses and expenses." This will reduce the net income of the company for the period in which the loss is recognized.
Next, the company should also recognize the loss in the balance sheet as a reduction in the value of the investment. The investment account should be debited and the account group "Investment loss" should be credited for the amount of the loss.
If any interest income was received from the investment, it should be recognized in the income statement as interest income under the account group "Other income." Any unpaid interest on the investment should also be recognized as a receivable in the balance sheet.
If the investment was made using funds from the EPF trust, the company may also need to account for any interest or penalties imposed by the EPF trust for the loss of the investment. This should be recognized in the income statement as an expense under the account group "Penalties and fines" or "Interest expenses."