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Car purchase

Nisha Yadav (Accounts exe) (455 Points)

17 May 2012

Dear All,

We have purchase a car for company use purpose.Now my problem is that how i entre invoice?

I have two invoice

No.1)Car Price+vat=Rs. 487295

No.2) amount of first bill+road tax+insurance+service charge=Rs.530186/-

Now Quession arrived that-

1) on which amount post car a/c ?

2)Can i take input service which charges on insurance?

Pleaes help me??

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20 Replies

Giridhar S Karandikar (Team Lead) (7543 Points)
Replied 17 May 2012

If you are claiming VAT as input credit on Capital Goods, then trasnfer the VAt of Rs 54k to a separate account under the head current Assets as V AT Input Credit(Capital Goods). If you are not availaing the input credit then show the VAt paid as cost of the car. Insurance charges will be debited to prepaid insurance and not to the cost of the car. road tax will be debited to the cost of the car

@ CA. $ahar$h @ (Student) (338 Points)
Replied 17 May 2012

agreed with mr girdhar

Z ( ) (2960 Points)
Replied 17 May 2012

First time insurance charges should be capitalized in the cost of car.

Subsequent renewals of insurance should be charged to revenue account in the manner mentioned by Mr. Giridhar

Reason being one can not put the car in use before getting it insured

AS-10 requires that all cost directly attributable for bringing asset to its inteneded use should be capitalized.

ABHISHEK (Student) (412 Points)
Replied 18 May 2012

sorry mr girdhar

will first insurance not added to cost

Nisha Yadav (Accounts exe) (455 Points)
Replied 18 May 2012

Still didnt get ans.......Please help me expert

irfancpa (Accountant) (59 Points)
Replied 18 May 2012

	Your Solution: Entry
Dr	F.A.G.B: Car A/c Rs. 1017481/-
Cr	Party Name(as mentioned in the Invoices) Rs. 1017481/-

	Definations:
Clause :1	Vat amt. : if car purchase for the purpose of Direct Operation related to business then Vat will be claimed as Vat Capital
	otherwise it will be include in the cost of car
	Direct Operation related to Business Example:
	For Pizza Hut: the car Which used in the delevery & A Crane which used in Loading Unloading for a mfg. Concern.
Clause :2	amount of first bill+road tax+insurance+service charge:
	Amount of First Insurance & Road tax will sure add in the Cost of Car
	and Second time when Insurance will renew Than Entry will be
Dr.	Insurance Exp. Rs………
Dr.	Prepaid Exp Rs……..
Cr.	Insurance Co. Name Rs………
	(Being amt. …………………………………………………….

Clause 3	service charge: Input
	This concept also same as mentioned in Clause 1 (for a manufacturing Co. , which manufactures goods Input claim on
	Motor Vehicles is prohibited other than Vehicles Used in Direct Mfg. Opeation Such as : Mobile Crane which used in Loading
	& Unloading in the Factory)

Nisha Yadav (Accounts exe) (455 Points)
Replied 18 May 2012

Thanks for reply ,,,,i have a car insurance in which service tax input avilable ,,,,can i avail this

Ramanuj (Accountant.) (834 Points)
Replied 18 May 2012

Agree with irfancpa

i think service tax input is not avilable becouse Insurance charge has been Capitalised .

Z ( ) (2960 Points)
Replied 18 May 2012

An output service provider shall be allowed to take credit of the service tax paid on such input services, which fall in the same category of taxable service as that of output service

If not then you are consumer not entitled to claim the credit. In your case it doesn't appear that credit can be availed

I think its clear but still

car [cost and non refundable taxes (VAT+ ST) + insurance + road tax etc)

subsequent insurance

insurance exp (current period)

prepaid insurance

to bank

insurance exp

to prepaid insurance

irfancpa (Accountant) (59 Points)
Replied 18 May 2012

Z
╭∩╮（︶-︶）╭∩╮

Ya, Agree whith him, as Output service Provider only claim Input Tax on Vehicle Insurance Chg.

irfancpa (Accountant) (59 Points)
Replied 18 May 2012

Yes I Agree with Z's answer, as Output service Provider only claim Input Tax on Vehicle Insurance Charges.

But, Still You hav'nt mentioned your Orgnisation Structure is this Manufacturing Or Service Industry

Arka Bose (None) (313 Points)
Replied 18 May 2012

Amount to be capitalised = Rs 530186 less car insurance.

Also,the service charge is to be deducted if and only if in terms of agreement there is future service/maintainance charges which the company had paid it now.
That would also be treated a pre paid expenses as well,and would require to be deducted from the amount.

No input credit on car VAT available since you puracse this fixed asset not for resale but for your company's use,thus,it will include under the cost of asset.

insurance will be a revenue expense.

vinod kumar (Chief Accountant) (21 Points)
Replied 18 May 2012

Insurance is an annual reccurring expenditure. Also, not only for the first time, every year, without insurance the car cannot be used. Therefore i feel, the insurance to be charged to revenue and not to be capitalized.