Error in Sale of Fixed Asset

301 views 8 replies
one of my client had mistakenly shown sale of fixed asset as regular sales and not written off asset from books of accounts last year i.e. 2020-21?
Then how to rectify entry in the current year i.e. 2021-22.....
Replies (8)

If they have done it simply like this, 

Dr. Bank

Cr. GST

Cr. Sales

then calculate how many days you have kept the asset in Held for Sale classification, take out depreciation, derecognise asset, recognise gail or loss on sale and finally, derognise any liabilities associated with the asset. Or better, use prior period adjustments and reverse he sale and tax consequences. Then redo the sale transaction leaving a disclosure. 

Can you please give more explanation for the above correction

If asset is sold for100 with dismantling liability of 10 included in it + gain 10 included + 10 tax additionally paid over the sale.

Dr. Bank 100

Dr. Dismantling liability 10

Cr. asset 100

Cr. Gain 10

This would be the normal sale entry. So you must have posted it like

Dr. Bank 100

To Sale 100. 

so reverse this entry by reducing opening Retained earning by 100 and make adjustments for tax as per the provisions.

Dr. Retained earnings

Cr. Bank

Then post the first entries. This is complex and make disclosures. 

 

This is because I heard ERP software's don't allow changes once accounting period is closed. If you can make changes in the software then post rectification entries during last year itself and no need for the above process. 

These are prior period items so has to comply with icai guidelines as such.
journal entries are obvious.
@ Vishvesh Shukla,

Since asset was considered as revenue, corresponding amount should have adjusted in Reserves and Surplus..

So you can do the following entry to adjust above

Reserves and Surplus A/c Dr

To Asset A/c

Eswar Reddy's answer is easier. I was just expounding the whole transaction for your idea and this transaction doesn't have to incorporate gain into it. I think there are other treatments. 

Thank you all


CCI Pro

Leave a Reply

Your are not logged in . Please login to post replies

Click here to Login / Register