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Accounting treatment/ entry

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Priyanka Kumar

Delhi

24 Points Posted on 03 August 2014

Can anyone plz tell me the treatment of Earnest Money Deposit in the below situation:-

A Fixed Deposit is made of say Rs 1,00,000 and the same Fixed Deposit is given as security for the tender of subscriptttion of books and articles.

My question is if we recongnise Fixed Deposit in our books than how to recongnize that such fixed deposit is given as earnest money deposit against a tender. And do, we have to book accrued interest on such Fixed Deposit in the above case. Plz provide me with the entry for giving Fixed Deposit as Earnest Money Deposit. Plz rply urgently.

Thanks In Advance

Replies (1)

Daivik Shah

Student CA Final

24 Points Posted on 04 August 2014

Dear Priyanka,

In the above case the fixed deposit is only provided as a security and it has not been transffered yet. So no asset on acoount of providing the the fixed deposit as security arises. the liabilty against the deposit arises only in case if there is any breach of contract or cancellation of tendor.

Thus only the fixed deposit will be recorded on the asset side of the balancesheet. And no entry will be passed for the security provided against the deposit as the earnest money deposit.

Regards,

Daivik Shah.