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Shoumitra Bhowal (Proprietor)     27 July 2016

Accounting for plant and machinery

If at the time of capitalization of plant of machinery the duty portion was not capitalized as it was not paid with the purpose of making some exports which was not correct. The department has to be paid the duty now along with interest. In the accounting treatment will the duty portion be allowed to be reinstated as the cost of plant and machinery and interest treated as period cost. Request your comments on the accounting treatment.

 2 Replies

Saliq Ansari

Saliq Ansari (CA_Final Student)     03 August 2016

In my opinion the duty could be added to the cost of the Fixed asset.

Prathik Lenin

Prathik Lenin (Chartered Accountant)     05 August 2016


As per Acounting Standard 10 The cost of an item of fixed asset comprises its purchase price, including import duties and other non-refundable taxes or levies and any directly attributable cost of bringing the asset to its working condition for its intended use; any trade discounts and rebates are deducted in arriving at the purchase price.

Therefore the Customs Duty shall form part of Cost, however the interest element, as you said should be written off in the concerned period.  Interest should not be capitalized as it was incurred due to our mistake and not directly relatable to the acquisition of the fixed asset.

Further, I would also like to inform you that the penal interest would be disallowed under the Income Tax Act, i.e. you won't be able to claim the interest expenses as a deduction (Section 37 Income Tax Act, 1961).


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