Expenses write back

Interest on loan  & Repayment of Principal.

Principal amount is a liability. depending on short term or long term the amount will be credited to liability account.

Interest on loan is an expense. As per  Accrual Concept (The moment an expense is incurred or income is earned, it has to be charged to p& l a/c). Interest on loan is a chargeable expense not written off expense.

For an additional information, on long term Loans, current portion is Current liabiltiy according to US GAAP, but I think Indian AS do not treat like that!!!

I understand that the loan and interest was receivable and the same was written off in earlier year due to non-recovery.

Now, on receipt of the same it will be treated as other income and will be shown as seperate line item under other income schedule.

In Income tax, it will be chargeable to tax u/s 41 if the write off of the same was allowed as an expenses in that year.

At the time of grant of loan & booking of intt. income:

1) Loan A/c Dr.------------B/s

             To Bank A/c-------B/s

2) Accrued Intt Dr.--------B/s

              To intt. income A/c-------P&L

At the time of write off of loan and intt.:

Debit balance w/o A/c Dr--------P&L

               To Loan A/c-------------B/s

               To Accrued intt A/c -----------B/s

At the time of receiving  back amount :

                Bank A/c Dr.-------B/s

                          To Amount w/o earlier now recovered A/c ----P&L

Plz correct me if m wrng

Thanks Neha. what abt the principal amount received now which was earlier shown as assets and wriiten off as non-recoverable?

the principal amount recd will now be taxable as the same would hav been allowed as deduction at the time of write off......

Sumit, that is logical. but do you have anything to support it?

Entries given by Sumit are absouletely correct.

Give me a small clarification Mr.Manas Bhatt whether you are asking this doubt for banking company or Finance company if so what type of loans you are giving why I have asked I will explain you

Dear Manas,

Principal amount is never allowed as a deduction (unless it is a trade receivable like Trade Debtors). It is a capital loss and therefore it is to be transferred to Capital A/c (non-co. assessee) or to Reserves (Co. assessee).

Therefore, interest received in the next year will be taxed as Other Income and Principal amount received should be transferred to Capital Account or Reserves. If at all the principal amount was wrongly claimed and allowed as deduction, it will be Other Income during the year it again becomes receivable.