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Capitalization

vijay singla (learner) (340 Points)

23 September 2011

dear friends . company "A" sold a machine to co "B' . in term and condition it was there that if comany B sells prescribed number of pieces, produced by this machine, in the market then co A will give back 55% cost of the machine to co B. my query is

is the 55% cost of the machine will be reduced from the machine price or it will betaken as income in prfit and loss account of that year in which it is received . pls reply if sure and with reasons. thanks in advance.

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Nalin Bhandari (Manager-Financial Accounting & Tax) (24 Points)
Replied 23 September 2011

Dear Vijay,

The 55% amount should be credited to Profit & Loss a/c. This 55% can't be treated as subsidy bcoz subsidy generally has condition that if Company will invest X amount then they will be eligible for subsidy.

This is the case of Sale Incentive and pre-condition is sale.The incentive amount is measured on the basis of cost of machine.So it should be credited to P/L a/c..

In case of further query, you can revert to me.I will elaborate in detail.

Thanks

Nalin Bhandari

Originally posted by : vijay singla
	dear friends . company "A" sold a machine to co "B' . in term and condition it was there that if comany B sells prescribed number of pieces, produced by this machine, in the market then co A will give back 55% cost of the machine to co B. my query is is the 55% cost of the machine will be reduced from the machine price or it will betaken as income in prfit and loss account of that year in which it is received . pls reply if sure and with reasons. thanks in advance.