Journal entry

Same accounting treatment as sale of fixed assets

Is it correct:::::

Cash 3000 Dr

Loss on death of horse 7000 Dr

Horse 10000 Cr

Is it correct::::

Cash debit 3000

Loss on death of horse debit 7000

Horse Credit 10000

Yes. It is.

For horse business people, the single horse is not an asset. 

Thank u Sir for reply. 

Continuing with this,

1 If it is a only one horse used to transport goods by a seller.

2. In case it is a horse business what would be treatment in that case.

Regards,

Thank u Kurup Sir,

Replacing horse as an asset by building::

Suppose purchased a building for Rs 10000 and next day it got demaged by quake completely. What treatment accounting suggests here

Regards,

@ Rama Chary.

Sir,

A business organization may be holding an animal either as a means of earning income or for trade. Since in the first case, income will be generated from that animal for more than one accounting period, it is an asset and certainly in the second case, it is inventory.

We cannot assume one will hold an animal as investment since the value of such investment will reduce on a continuous basis (ie. as the animal gets older). No one would like to hold a depleting investment.

 Moreover, if we look at the annual reports of many zoos, we could see that they are classifying livestock under Property, Plant and Equipment..!!

@ Khalid Masroor

It would have the same accounting treatment

1. Loss of asset    Dr        10,000

    Building            Cr        10,000

2. P&L                  Dr        10,000

    Loss of asset    Cr         10,000

(Assuming there is no insurance claim available)

I didn’t have your exact point. Are you asking whether loss has to be recognized immediately?? Or do you have suggestion for any other accounting treatment??

Sir

Treating loss from building as capital loss. Does it mean we can transfer all capital losses from building to P&L a/c in single year. Is it permissible

It is not only permissible, but it’s somewhat essential.

We cannot postpone the recognition of a loss, otherwise than in very exceptional circumstances whereby we have to prove that such loss has an effect on earning the income for the future periods also. But in normal circumstances, loss is always something unexpected and hence it may not have any relation to earning income of t he subsequent years; but that is not the case with an expenditure.

 An expenditure can be incurred purposefully for earning income, not only for the current period, but for future periods as well (For instance, advt exp). In such cases, we will defer a certain portion over a period on which we derive benefits of incurring such expenditure.

But since we can neither prove that a loss has resulted in any benefits for any accounting period nor can we prove that such loss has any relationship with the income of the future accounting periods, we have to recognize the full amount of loss immediately.

So, to your question, such losses has to be recognized immediately.

Thankful to you Mr. Kurup

Thanks to Mr R Chary

yes, it is permisable any loss from sale of an asset is chargeble in the year it is incurred. But as per AS 5 if an item is of non recurring in nature then its impact on profit or loss should be made clear by seprately disclosing it.