The query is with respect to X Ltd.
A Ltd. is in the business of letting out its godowns to state govt & private parties. In respect of stocks stored by state govt.,X Ltd. stands as a gurantor for payment of rent to A Ltd. by virtue of an MOU with GOI/X Ltd/A Ltd. This MOU also provides that X Ltd upon payment will raise claim bills with GOI for reimbursement of the sum paid. X Ltd is not entitled for any remuneration under this MOU.
X Ltd passes the following entries
1) Claims with GOI ----Dr
To A Ltd
(Being rentals payable)
2) A Ltd----Dr
To Bank
(Being rentals paid)
The settlement of claims take some time from the GOI. Also, in respect of bills not yet received but stocks are kept by state govt in A Ltd godowns, X limited creates estimated liability by passing entry no.1 above.
The auditors have commented that year end claims are overstated in respect of those transactions for which payments have not been made. Their logic is that as per MOU, claims can only be raised upon payment to A Ltd.
My query is
1) Whethet the accounting treatment of the transaction is correct keeping in view the audit observation
2) Whether TDS provisions are applicable u/s 194I
CAclubindia
