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Capital gain

Fenil Gupta (Student) (55 Points)

09 August 2013

1 party ne aug. 1992 me house property purchase kiya tha rs. 6.72 lakh

2 party ne doosra house property purchase kiya rs. 45 lakh me sep. 2012

3. party ne 1992 me purchase kiya hua property jan 2013 me 17 lakh me bech dala. ab uska capital gain/imdex/and b/sheet me kaunsi value se house property batayenge .

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7 Replies

CA LOVELY ARORA (C.A. B.Com (H) Graduate) (2151 Points)
Replied 09 August 2013

Dear Fenil,

Capital Gain:-
Sales consideration = 17,00,000
Less: Indexed Cost of Acquistion = 6.72 lakh X 852/223 = Rs. 25.67 lakh
Less: Indexed Cost of Improvement (if any) = assuming 0.00

= Long Term Capital Loss of Rs. 8.67 lakh, which can be carried forward for 8 years.

In Balance Sheet, show the 2nd property, which you purchased you in Sep. 2012 as Fixed Asset (provided it is being used for buinsess of assessee, and if its for own residential purpose, don't show it in B/s)

Best Regards,
CA Lovely Arora
ca.lovelyarora @ gmail.com
+91-9891400405

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Shivani (Learner) (1881 Points)
Replied 13 September 2013

Lovely Sir

What entries will be passed at the time of sale?

Thanks

Shivani

CA Pallav Singhania (IT System Auditor) (33678 Points)
Replied 13 September 2013

If the property is revalued in 2013,

Then there would be gain in revaluation...

The fixed assets are shown in the balance-sheet at the revalued amount, and depreciation thereon is provided (on the revalued amount), and thus the income statement contains depreciation in current value terms.

Accordingly, networth and capital employed of the enterprise increase by the amount of revaluation reserve; and the depreciation charge in the income statement is in terms of current values of the assets, and thus the resultant profit is reduced.

Accounting Entry will be as follows:

Fixed Asset A/c Dr.
To Revaluation Reserve
{On revaluation of the Asset}

Revaluation Reserve
To Accumulated Depreciation
{For Depreciation in the end of every year}

CA LOVELY ARORA (C.A. B.Com (H) Graduate) (2151 Points)
Replied 13 September 2013

Dear Shivani Mam,

The accounting treatment and taxation aspects of the same entry would be different....

and yes, as said by Mr. Aryan, the revaluation entry is required to be done with (Rs. 25.67-6.72 lakhs = 18.95 lakhs) and then sale entry...

Bank A/c Dr......... Rs. 17 lakh
LTCL Dr.............. Rs. 8.67 lakh
To Property A/c........... Rs. 25.67 lakh

However, only one revaluation entry is required to be done... not the depreciation impact will be seen... just revalue the property and sale it... that's all.. Note:- Revaluation is required to be done only if the property is required to be revalued in real terms.... it's not like u do it because it requires in taxation.. as said earlier, both are different.....

Shivani (Learner) (1881 Points)
Replied 14 September 2013

lovely sir

so it means that we need to pass following entries only and no entry is required for depreciation as Aryan sir mentioned.

Entry 1

fixed asset 18.95

To revaluation reserve 18.95

Entry 2

Bank A/c Dr......... Rs. 17 lakh
LTCL Dr.............. Rs. 8.67 lakh
To Property A/c........... Rs. 25.67 lakh

No entry for depreciation on property sold. just revalue and sell as u said. Right?

I have following questions:

1. what happens to Revaluation Reserve? It keeps showing in our Balance Sheet year after year?

2. You revalued property based on Indexation i.e. CII.

do we consider CII for revaluation or property needs to be get valued from a Valuer.

thanks

shivani

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CA LOVELY ARORA (C.A. B.Com (H) Graduate) (2151 Points)
Replied 14 September 2013

Dear Shivani Mam,

I am saying no dep. entry because that asset is to be sold this year only, and as the asset will be sold, thus, no such impact will be seen in the books...

1. Revaluation reserve is to be treated as like as in normal accounting practice i.e. as like any other capital reserve.

2. As i said earlier, in note, that property is required to be revalued only when it is necessary in real terms... i was just taking an example of revaluing on the basis of CII.. the amount was just taken for example purpose, e.g. you say that property is not required to be valued in real terms... i.e. its FMV/valuation by valuer comes out to be same as it was purchased... e.g. Rs. 6.72 lakh in this case... then, do not revalue the property and then the loss in the books would be differentiated with the amount of loss as in Capital Gains Tax purposes.