correct entry of car purchased

registration charges should be capitalised

loan sanction charges will be treated as expense 

the following entries should be passed

parsoli motors ac - - -- - - - - - -  -- - dr.5

          to bank ac     5

(advance given)

car ac - -- - - - - - - - - - - -- - - - -- - - dr.  43.75(40.8+3.8- 0.85)

                            to parsoli ltd      5

                             to bank loan ac. 38.75

(being car purchased and loan taken)

bank charges ac- - - - -- - - - - - dr.  0.25

             to bank loan ac.

(being loan processing charges)

rectify me if i am wrong

Originally posted by : Aditya(future ca)
	the following entries should be passed parsoli motors ac - - -- - - - - - -  -- - dr.5           to bank ac     5 (advance given) car ac - -- - - - - - - - - - - -- - - - -- - - dr.  43.75(40.8+3.8- 0.85)                             to parsoli ltd      5                              to bank loan ac. 38.75 (being car purchased and loan taken) bank charges ac- - - - -- - - - - - dr.  0.25              to bank loan ac. (being loan processing charges) rectify me if i am wrong

i think u r almost right but 1 query... can discountreceived  be treated as  income and debiting car a/c with 44.6 lacs.??????

Originally posted by : Rikin Patel
	my question is 1.  it is correct to capitalise 3.80 lac as registration exps in car a/c.....????????i think it should be written off as an expense.. 2. bank had senction loan of  40 lac..but  showrooom has rece only 38.75 lac......where should we entered 1.25 lac(1 lac first installment+25000 loan processing charges)????????????? 3. what amount to be capitalised   in car a/c .i.e 40 lac or 38.75 lac??

The answers to your questions are:

1- Yes, you need to capitalize the registration charges along with the cost of Car.

2- Rs.1 lakh will be accounted towards the repayment of loan and Rs.25k need to be accounted as bank charges.

3- the amount of car to be capitalized will be Rs.43.75 lakhs (Rs.40.80 lakhs + Rs.3.80 lakhs - Discount of 85k).  This answers your further question too that discount received can not be shown as income and will be deducted from the cost of car to be capitalized.

all the expenses incured in respect of purchase and installation expenses can be capitalized...in that way y we cant capitalize the bank charges??

Dear Hemanth,

I agree with you on the logic.  But please segregate all the expenses which are incurred in bringing the asset to the place including installation expenses and the ones we incur to fund the asset. 

The expense for funding the asset broadly include interest and other costs incurred by an enterprise in connection with the borrowing of funds as per AS-16.  Further, a qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. Accordingly, AS-16 will not be applicable here since in case of purchase of a car there is no substantial time is taken and the processing charges has to be expensed off.  This is my interpretation and understanding. 

Thanks!

so what should be d asset value in d financials bhaskar sir.??