ACCOUNTING TREATMENT OF NON-REFUNDABLE DEPOSITS

after  giving a notice to the person from which it has been received it should be transferred to general reserve 

Non-refundable deposit should be part of revenue corpus and therefore should be recognized as Income.

If its directly related to trading activity (Main Activity) of the concern, Its Direct Income, Else its Indirect Income.

You can't transfer it direct to General Reserve.. Tax kon dega bhai !!!

Dear Nimesh,

With due respect to experts, my views are as follows - 

I want to know what kind of "Non refundable deposit" it was? {Since the amount which u r talking runs near 250 crores}

Case 1 : Was it an advance received for any work to be done under a contract?

In this case, answer will depend upon the future events rather than past, whether entity is willing to do its part under the contract & in that case revenue will be recognised as per AS-9. {Till then it will be carried as Advance from Customers} 

If the contract has been called off by the contractee & as a result of which contractor gets a right to forfiet this amount then entire amount will be treated as income of the current year.

Case 2 : Was it a kind of donation/ cash assistance or something, which does not require any specific act to be done (or not to be done) by the receipient. (i:e without consideration)

Transfer it to Free Reserve.

Agree with Dashrath Sir that Tax authorities will not excuse this transaction.

Actually co. has made a management buy out & co.does not have information regarding deposit.

Previous mangt.had took deposit in 1990s & they are not giving information.

And also it is purely a Supplier ,co.has not involve in any charity business.

The co.is Largest capacity in Asia to produced a XYZ product.

Originally posted by : NIMESH
	And also it is purely a Supplier ,co.has not involve in any charity business. The co.is Largest capacity in Asia to produced a XYZ product.

Nimesh ji,

It means, its not "NON-REFUNDABLE DEPOSITS", its credit, which you want to write off.

I suggest you to write off only after due enquiry with the respective party. As, at the time of writting it off, you have to pay taxes on it, at the same time, afterwards party can ask for payment giving proof of that deposit to you...

Be careful and do the needful..

Yours in service,
DM

Originally posted by : NIMESH
	And also it is purely a Supplier ,co.has not involve in any charity business. The co.is Largest capacity in Asia to produced a XYZ product.

You can write off in phases... but it should be full proof... (Keeping applicability of taxes and future liability of payments)... You also have to disclose this transaction in notes..

I think you understood

Dear Nimesh,

Since u have mentioned that the business was acquired from a different management, I would say refer  Due diligence report (If it was done before acquisition)  before writing back this deposit and see if it has any information about this advance.

Hi Nimesh,

If the deposit received for the purpose of the business of the company and if it is NON REFUNDABLE, the same would have been already taxed in the year of receipt since in case of Income tax, all non refundable deposits received are treated as income / expense in the year of receipt / payment.

Check out the previous period's Income tax returns and confirm whether the same has been offered for tax. If it is the case, then you can take tat amount as Income in the books. But kindly check the details of the party from whom u received the deposit and confirm the existence of tat party before taking to income. This may serve as a back up for your treatment.

Also evaluate the various possibilites as explained above by others.

what if it is refundable security deposit received from telephone subscriber. but till date it is not claimed for refund by customer after permanent disconnection. even the where about is not known of that customer.

can company can transfer this SD into revenue ?

if Yes then whether GST is applicable on it ?