Accounting for Fixed Asset

Others 1080 views 3 replies

sivaram

Asst Mgr-Taxation

6918 Points Joined April 2009

There is a Machinery which is to be purchased by us and it has to be delivered by the supplier within the time frame .If not Liquidated damages will be levied and this is governed by the terms of the contract.The supplier supplied the machine after the time frame and hence Liquidated damages are invoked.state with reference to guidance note or compedium of opinion guidelines whether this liquidated damages will go to reduce to the cost of the Asset ?

Note : I know that AS-10 does not speak about this so please do give ur views and this is urgent

Replies (3)

kamal kishor sen

STUDENT Rajasthan

2156 Points Joined November 2009

I think this liquidated damages charged from supplier, and no need to reduce from cost.

CA SOURAV KUMAR GANDHI

B.com (H) CA

133 Points Joined June 2010

According to AS 10 Recognition in case you have purchased assets should be as below:

Purchase Price xx

Taxes (non refundable) xx

Transportation Charges xx

Installation Charges xx

Trial Run Exp les income xx

Borrowing Cost - AS16 xx

AMT. TO BE CAPITALISED: xx

Net amount payable by you will be Contract Price - Liquidated damages, i.e. purchase price, so it should be deducted.

Hope I succeed to satisfy you.

Thanks & Regards

Sourav

CA.B.Sivakumar

162 Points Joined September 2008

Dear sivaram,

you've uploaaded file by name "Components of Cost of Fixed Assets". and in

that you have mentioned "incomes which reduce the cost" should be deucted from the total cost.

Referring the above,you'll raise debit note to the vendor for the liquidated damages and pay the balance amount.

While capitalising the asset , this amount of liquidate damages should be reduced from the total cost.This is same as that of the reduction of the subsidy amount from the cost of asset.