Entry for advance received against asset forfeited

it is capital receipt because its against capital asset & its not ordinary activity. therefore it should transfer to Capital Reserve.

dear friend

there is no standards and guidance notes relevant to your query, the logical answer is as follow

If capital asset is fixed assets, it can not be the revenue income , but the extra-ordinary income. the advance received might  be for sale of capital capital and subsequently neither  transfer of capital asset take place nor refund of advance, so the entries is for writting off the advance in the statement of profot and loss account by passing the following entries

Advance from Mr. .................A/c .........................Dr.

       To Profit or loss a/c

(Being forfeiture of amount received in advance for sale of capital asset)

and should be shown as extraordinary income

If the person is engaged in the business of hire-purchase sale, this income may be in nature of operating activities

According to me, the income should form a part of capital reserve firstly as it is of a non recurring nature and secondly the income is much similar to that of a sale of capital asset in a very short span of time

Thanks to all for posting and sharing the views..

I Would request experts to please throw some light as two diferent opinions are there and consensus is difficult to reach..

Regards