A Public limited Co. has earned a profit of Rs.20 crore on sale of its various fixed assets( mainly land and building). How can the same be accounted for? Can it be transferred to Capital reserve? Are there any provisions regarding such transfer?
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Capital reserve
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To the extent the gains relates to recovery of depreciation it has written off it is revenue profit. Any recovery over and aboe what it has written off as depreciation is a cpital profit, to be transferred to capital reserve.
| Originally posted by :S.Srinivasaraghavan | ||
| " | To the extent the gains relates to recovery of depreciation it has written off it is revenue profit. Any recovery over and aboe what it has written off as depreciation is a cpital profit, to be transferred to capital reserve. | " |
Sir under which provision it should come
As per Accounting Standard 10 - Accounting for Fixed Assets, it is necessary to recognise profit or loss on sale of assets in the Income Statement.
Profit or loss on sale of assets is to be calculated as follows
Profit/(Loss)=Sale Proceeds - [WDV as at the beginning of the year + Depreciation upto the date of sale]
Should the figure so arrived is negative, it indicates the loss on sale of assets, otherwise it is a profit on sale of asset.
Therefore Profit on Sale of Fixed Assets cannot be recognised as Capital Reserve.
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