Any body clarify doubt....

ask why does bank charges come into effect ??? only the cost price of the asset must be capitalised... emi is not considered into account... totally cost +reg fee+ins+interest should be capitalised... so totally asset must be capitalised at Rs.1030000/= ... bank charges will not be capitalised...

Asset     DR  1030000

   to Bank                          1030000

But in narration it must be classified and shown that various expenditure hasbeen made

And bank charges seperate entry must be passed

as u said u ve paid advance to the supplier ... the entry is

supplier        DR         150000

         To   Bank                            150000

Once the asset has come to u...  and it is no more an advance  then

Asset              DR        150000

       To Supplier                         150000

 Correct accounting entry will be

assets Dr 915000

to supplier Account 915000

(Being Asset Purchased)

Cost of Asset      800000+80000+35000     =915000

Interest on loan    dr        115000

to Profit & loss Account  115000

(Being Interest on loan charges to profit & loss account)

supplier Dr    765000 

to Bank          765000

( being balance amount paid)

1. Asset should be capitalized at cost plus all incidental expenses relating to that asset to bring it into ready to use (as per As 12). So Registration Expenses will be capitalized. Insurance premium paid for the first time should be capitalized but from next year it will be debited to P & L A/c. For Bank Charge, you may capitalize it or not. So the J/E will be as below:

Assumption - 1) Bank has also financed Registration Exp & Insurance Exp

Asset A/c   ...Dr. (800000+80000+35000) 915000

To  Supplier A/c      150000

To Bank Loan A/c   765000

Assumption 2)  Bank has financed only  Rs.650000  and  your client has paid 150000+80000+35000 from his own pocket.

Asset A/c    ...Dr.    915000

To  Supplier A/c  150000

To Bank A/c  80000+35000=115000

To Bank Loan A/c    650000

When payment is made to supplier:

Supplier A/c   ...Dr.   150000

To Bank A/c     150000

2.  When loan is taken from bank against an asset, the bank provides a statement seggregating the EMI amount into repayment of loan and interest amount. on the basis of this EMI statement, on the date of payment of EMI you will pass the following J/E

Bank Loan  A/c  -   figure will be taken from EMI statement

Interest A/c     -       figure will be taken from EMI statement

To Bank A/c       Rs 26000

No entery should be passed today for the total interest of Rs. 115000. Alternatively you may credit it to the Interest suspense A/c and Dr. the Interest A/c. But in this case, at the time of EMI payment you will Dr. Interest Suspense A/c instead of Interest A/c

Interest may be capitalised as per AS 16, if it fulfills the condition mentioned in that AS e.g.  if your asset is not ready to use.

1. Asset should be capitalized at cost plus all incidental expenses relating to that asset to bring it into ready to use (as per As 12). So Registration Expenses will be capitalized. Insurance premium paid for the first time should be capitalized but from next year it will be debited to P & L A/c. For Bank Charge, you may capitalize it or not. So the J/E will be as below:

Assumption - 1) Bank has also financed Registration Exp & Insurance Exp

Asset A/c   ...Dr. (800000+80000+35000) 915000

To  Supplier A/c      150000

To Bank Loan A/c   765000

Assumption 2)  Bank has financed only  Rs.650000  and  your client has paid 150000+80000+35000 from his own pocket.

Asset A/c    ...Dr.    915000

To  Supplier A/c  150000

To Bank A/c  80000+35000=115000

To Bank Loan A/c    650000

When payment is made to supplier:

Supplier A/c   ...Dr.   150000

To Bank A/c     150000

2.  When loan is taken from bank against an asset, the bank provides a statement seggregating the EMI amount into repayment of loan and interest amount. on the basis of this EMI statement, on the date of payment of EMI you will pass the following J/E

Bank Loan  A/c  -   figure will be taken from EMI statement

Interest A/c     -       figure will be taken from EMI statement

To Bank A/c       Rs 26000

No entery should be passed today for the total interest of Rs. 115000. Alternatively you may credit it to the Interest suspense A/c and Dr. the Interest A/c. But in this case, at the time of EMI payment you will Dr. Interest Suspense A/c instead of Interest A/c

Interest may be capitalised as per AS 16, if it fulfills the condition mentioned in that AS e.g.  if your asset is not ready to use.

ok thankyou