Plz help!

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I am auditing accounts for a MBA institute which is run under a charitable trust for FY 2011-12. The institute expelled 9 students due their misconduct in the institute premise. The students together filed a writ petition for refund of their fees. They had paid the fees in FY 2010-11 of around Rs.250000. The court ordered refund of Rs.150000 has lumpsum payment to each student. How should this payment be shown in the Income & Expenditure Account?
Replies (2)

No change in accounts of F.Y 10-11 in which you offrered 2.5 Lacs as income. Accounting Standards are applicable to the above concern. Please check AS -3 & 4. In the year 11-12 debit the account as " REFUND OF FEE" with adequate disclosures required by AS. Accordignly check for tax treatment as " APPLIED INCOME".

 

GOOD LUCK

Dear Abhishek,

         Litigation Settlement A/c Dr.             (150000 x 9)

                 To Bank                                                     (150000 x 9)

 

As told by Narish singh Negi that "Refund of Fee " A/c should be debited , which is wrong because Co. have lost a petition in which they to pay the claims to the Plantiff. If we Debit the "Refund of Fees "  A/c then it may be construed that it's a Refund in the nature of Normal business which will be misleading to the Reader of the Financial Statement that is why the entry should be aforesaid mentioned should be passed & then Transfer it to P&L A/c)

& Remember show it on the Face of the P&L A/c under the head of "Exceptional Items" (Revised Schedule VI)

As per AS 5 ,when Income & Expenses in profit & Loss from Ordinary activities are of such size & nature that their non- disclosure will mislead the financial Instrument although it is from Ordinary activities of the co, seperate disclosure is required.

Litigation Settlement is one of those type of Income & Expense (For more detail Refer AS 5)

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