Audit Doubts

Others 964 views 8 replies

Srinath

Chartered Accountant

166 Points Joined March 2011

QUESTION 1

A newly set up Private Company has incurred the following expenditure during construction period..Please classify as Capital or Revenue:

Sundry Expenses such as stationery , Printing, postage, telephone & local conveyance.

ANSWER IN PADUKA PUBLICATIONS

They constitute an expenditure indirectly which is indirectly related to construction & HENCE capitalized..

IS THIS CORRECT??

QUESTION 2

A minor fire occurred to a machinery cost of repairing is 5000/- estimated.

But company instead used new technology to replace burnt part with new part which will increase efficiency..total cost 50000/-

ANSWER IN PADUKA PUBLICATIONS

Entire 50000 should be capitalized.

I feel only 45000(50000-5000) should be capitalized.

Please assist.

Thank you

K R Srinath

Replies (8)

Guest

answer to question no.1 is correct ... indirect exp during construction period has to be capitalised... you should follow accounting standards while reading AUDIT and auditing standards..it will help you a lot .

whats your doubt in question no.2 ?

sukhpreet

study

67 Points Joined November 2010

Question 1:In my view ques 1 is wrong in that book..its a revenue expenditures....

Question:2 is correct ..its a capital expenditure.....

if i m wrong plz reply me ...

CA. ANKUR JAIN

CA.....

2800 Points Joined December 2007

Answer to q-1 should be :- capital expenditure padhuka is right

Ashima Aggarwal

CA Final Student Articled Assistant

809 Points Joined July 2009

answer to question no. 1 is correct...any type of expenditure incured while construction is to be capitalised, after completion of construction process as well its period, then such expenses incured is to be taken as revenue expenditure...

answer to question 2 is Rs. 50000 is to be capitalised....Capital expenditure is relatively large (material) expenditure, which has benefits (service potential), expected to last for more than 12 months. In addition to new assets capital expenditure includes renewal/replacement and expansion/upgrade of existing assets. Capital renewal/replacement is expenditure on an existing asset, which restores the service potential and extends the life of the asset beyond that which it had originally. As it extends the life of the asset any income generated from it will likewise be extended.

SANJAY

CHARTERED ACCOUNTANTS

943 Points Joined January 2011

I agree with Ms.Ashima...

lokesh maheshwari

partner

62 Points Joined September 2009

Answer 1- All expenditure during the construction periods will be treated as a capital expenditure so amount will be treated as a CAPITAL EXPENDITURE

Answer -2 if company sold out the part/ machine for Rs. 5000/- and purchase new machine then 45000 Rs. should be capatalised otherwise 50000 rs will be capatalised

Guest

hey you can also take help of the notes availbale at www.coursemateonline.com

CA Anand B.com, ACA, ACMA, CS

Practising Chartered Accountant

52 Points Joined September 2010

sir, icame to know about this revision onl;y by the end of march.... i hav already studied the old notes .....even things like qualified opinion, adverse opinion has got many new definitions where as i re4ad all the old definitions.... wat am i suppoosed to do now....... will dey accept the old definitions in the exam//////////////// so please tell me how far this revised sa will hav an impact in may 2011 ipcc exams................. giv me suggestions wer i need to improve............................it's very urgent.... pls reply as early as possible/.......................................................