As-10 clarification

The accounting treatment given is correct. But it is not taxable under income tax  has it is capital profit and not trading profit.

The amount equal to depreciation on Rs.5,00,000 claimed will be credited to P/L account and for balance following entry:

Creditors 

    To Machinery

It is the most logical treatment

I do not Agree with the Treatment provided by Mr. Abhey Gupta,

The query posted above in fact is not at all related to the AS - 10 but it shall be dealt with under AS - 5

As per AS - 10 Accounting for Fixed Assets

Fixed Assets should be valued either at the historical price or Revalued price, though if the assets are valued at revalued price then such revalued price should not exceed its Recoverable price.

As per AS 28 Impairment of Assets;

Recoverable amount is Higher of

• Net Selling Price of Asset  OR
• Value in Use of Asset.

The fact that the supplier of Machinery waived off the Amount Outstanding towards him will not result in decrease in Either Net Selling Price of Asset or Value in Use of Asset .

Hence Reducing the Value of Machinery by Rs. 500000/- is not the Correct treatment.

The Correct treatment of the same should be as per AS 5 Net Profit or Loss for the Period, Prior period items & Changes in Accounting Policies,

As per AS 5, Any item of income or expense which is incurred due to activities which are not ordinary business activity are termed as Extra Ordinary Items.

Hence this should be treated as Extra ordinary items and should be shown in Statement of P&L as Extra Ordinary Item.