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Accounting treatment of items purchased in auction

Nitesh (Woking) (29 Points)

29 December 2011

Hi people..i had recently given a interview and was asked the following question..

A company purchased a pen signed by Amitabh Bachan in an auction, market price Rs.100 and payment made for the pen was Rs. 5,00,000. What is the accounting treatment for the above transaction.

if recorded as an asset under which bolck should it be classified?

and on what justification would we charge depreciation.??

Thanx & regards

Nitesh Todi

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4 Replies

Manmohan ACA, CS (Chartered Accountant ) (14243 Points)
Replied 29 December 2011

Depreciation refers to decrease in the value of assets due to fear of obsolete and use, in-fact most of the assets have limited useful life. but there are some examples like land value of which almost not depreciate because value of land not decreased and it has its unlimited life. so we can say that if the value of assets not decreased due to impact of time then its value should not be depreciated, item mentioned above like antique, trophy or pen signed by Big B normally increase or remain same as they pass the time so in my opinion it should not be depreciated.

Rama chary Rachakonda (Master in Accounts & Lawyer email ID:ramachary64@gmail.com voice no:9989324294) (3293 Points)
Replied 31 December 2011

Mr.Nitesh

The pen is an antique for the company. It is an asset for the company. But no depreciation. The antique value increases day by day. Therefore appreciation value to be calculated.

Rajesh (student) (167 Points)
Replied 01 January 2012

As per AS-6

"Depreciable Assets"are assets which

(i)are expected to be used during more than one accounting period;

(ii)have a limited useful life and

(iii)are held by an enterprise for use in the production or supply of goods and services , for rental to others, or for administrative purpose and not for the purpose of sale in the ordinary course of business..

There for it shall be write off to P&L A\c

it is not an Asset..

Income tax benefit also not available.. because the expenditure is not related to company