Capital items

When any Fixed Asset is being purchased, then all the expenses that are incidental to the purcahse of asset are to capitalized alongwith the cost of the asset.  These expenses include, prof fees, freight, duties & taxes if they are not subsequently recoverable from the taxing authorities and other expense incurred. If the asset is taken on loan then the interest paid till the asset is installed and put to use shall also be added to teh cost of assets and dpereciation can be claimed. subsequent interest paid shud be expensed out.

There would be only one journal entry for the purchase of asset as follows:

If Asset is taken outright:

Asset A/C      Dr

To- Bank/Supplier

Supplier A/C  Dr

To- Bank A/c

If Asset is taken on Loan:

Asset A/c    Dr

To- Loan

If any input credit is being availed on the taxes paid on purchase of asset such as VAT, Excise, then the below shud be posted:

Asset A/c       Dr

VAT  A/C      Dr(As per the Invoice)

Cenvat Credit  Dr(As per the Invoice)

To-    Bank/Supplier

when the VAT/Excise Duty liability is to be paid the above accounts shud be credited & balance shud be paid from bank.  In case of Excise Duty paid on capital goods the same can be utilized to the extent of 50% in the furst eyar & the balance in subsequent eyars.  Same way for VAT also, but the treatment of VAt paid on capital goods differes from state to state. So you need to get the information about it in the state you are residing.

Then each year depreciation entry would be passed on the last day of each  eyar as follows:

Depreciation A/C   Dr

To-  Asset.

To-Bank

Thanks a lot Giridhar.