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Prior period expenses

ANJALI NEGI (Chartered Accountant) (1263 Points)

18 October 2012  

Can anyone explain the treatment of Prior period expenses in Accounts and In taxation....???


 23 Replies

know your self (knowledge is power of student)   (98 Points)
Replied 18 October 2012

Meaning

prior period items are income or expenses, which arise, in the current period as a

result of errors or omission in the preparation of financial statements of one or more prior periods.
 
Accounting Treatment
As per para 19 of AS 5, prior period items are normally included in determination of net profit or loss for the current profit,
they can be added (or deducted as the case may be) from the current
profit.
 
An alternative approach is to
 
show such items in the statement of profit or loss after determination of current net profit or loss.
 
Conclution
In either case, the objective is to indicate the effect of
such items on the current profit or loss

ANJALI NEGI (Chartered Accountant) (1263 Points)
Replied 18 October 2012

okk then what about treatment in Tax..

CA Abhilasha Bhagat (ACA) (466 Points)
Replied 18 October 2012

Prior period exp. are diallowed in Income tax. As per section 37,  exp. should be incurred in current year.

2 Like

know your self (knowledge is power of student)   (98 Points)
Replied 18 October 2012

I hope so tax will be calculated after such adjustment.

(sorry this ans may be a wrong)wink

ANJALI NEGI (Chartered Accountant) (1263 Points)
Replied 18 October 2012

Okk then can u explain me in which year they are actually allowed??

 

1 Like

CA Abhilasha Bhagat (ACA) (466 Points)
Replied 18 October 2012

It can be allowed in the year in which exp was actually incurred by way of revised return.


(Guest)

Prior period expenses are not allowed as deduction for income tax computation purpose.

ANJALI NEGI (Chartered Accountant) (1263 Points)
Replied 18 October 2012

but u said that they are disallowed while computing taxable income then how thay are allowed??? i didnt get it ??

ANJALI NEGI (Chartered Accountant) (1263 Points)
Replied 18 October 2012

Rakesh sir, 

i understood that they are added back to profit for the purpose of computing taxable income but ..i just want u know whether in any year can we avail the benefit of such expense if not in the current year??

ANJALI NEGI (Chartered Accountant) (1263 Points)
Replied 18 October 2012

Dear mam how can i show the expense in revise return which i actually didnt paid..As i pai

d the same in the current year

1 Like

CA Abhilasha Bhagat (ACA) (466 Points)
Replied 18 October 2012

Suppose an exp. is incurred in F.Y. 2010-11 and it was omitted and not recorded in that year. And you record it in 2011-12, then exp. can be allowed in the year 2010-11 return.

CA Abhilasha Bhagat (ACA) (466 Points)
Replied 18 October 2012

U hav to book exp. on accrual basis, so u can Dr. in earlier year on accrual basis even if it is not paid..

CA Abhilasha Bhagat (ACA) (466 Points)
Replied 18 October 2012

I hope it solves your doubt...?

Nitesh Matta (Nothing) (198 Points)
Replied 19 October 2012

depends if prior period item is expense and u havent taken the deduction it will be deducted from p&l a/c..

and in accounts, if salaries is the peior period item then it will be

 

prior period salaries a/c ... dr

         to banka/c


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