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Cut in capital equipment price

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JAYANTA KUMAR BANDYOPADHYAY

professional service

102 Points Posted on 25 November 2021

We have placed one import PO.

There is a loss of roll life due to minor mistake in dimension. But usable with a lower economic life

The shipper wants to compensate importer by 1% cut in price

This being a Capex item-whether compensation to be treated as Revenue or a reduction in capitalisation value.

What Accounting Standard states-please guide.

Thanks in advance

Replies (3)

Quick Summary

A company has received a 1% price cut on imported capital equipment due to a minor dimensional error affecting its economic life. The discussion explores whether this compensation should be treated as revenue or a reduction in the capitalised value of the asset, referencing Accounting Standard 10 for guidance on price adjustments.

yasaswi gomes

My grammar is 💯 good I

5110 Points Posted on 25 November 2021

The cost of an item of property, plant and equipment is the cash price equivalent at the recognition date. So cost - discount in price = capitalised value.

Next, because we have paid upfront the cost of machinery without discount, credit 1% to profit and loss as discount received.

Finally, if you did not pay for the machinery yet, make an error entry and reduce 1% from creditors account.

As 10 standard covers this. getdocument (mca.gov.in)

Manish

869 Points Posted on 25 November 2021

AS 10, para 9.1

"The cost of a fixed asset may undergo changes subsequent to its acquisition or construction on account of exchange fluctuations, price adjustments, changes in duties or similar factors."

This could be a price adjustment, which will lead to a reduction in capitalised value.