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Prior period item

Accounting Entries 177 views 1 replies

Sachin Limba

Student

22 Points Posted on 25 December 2017

Respected Sir/Madam,

I have a querry relating to accounting and tax treatmnent of prepaid expenses not recorded in previous year.

For example: Insurance exp paid on 01/02/2017 for one year. Thus this exp pertains to P.Y. 2016-17(2 months) and 2017-18(10 months). Now if such exp is not recorded in P.Y. 2016-17 (omission) and return for the year has been filed without taking into effect such exp, what are the remedies available for treatment in P.Y. 2017-18 in terms of accounting and tax aspect?

Request to accounting and tax expert brains to solve it early.

Replies (1)

satish

teaching

2046 Points Posted on 25 December 2017

as per accounting, we need to recognise total 12 months exp in the current year. but 10 months exp as normal exp. and balance 2 months as prior period items. as per AS 5, 2 months exp is to be disclosed in Profit and loss a/c separately.

As per Income Tax Prov:

Case1: if you have not filed the return for the Finanial year of 2016-17 (assessment year 2017-18). you can consider this 2 months exp as allowable exp even thought no entry in the books, to assess taxable income.

Case 2: if you have filed the return, you can revised the return by considering this 2 months exp. you can claim the benefit.

as per income tax act, whatever the situation 2 months exp (prior period) is not allowed for the financial year 2017-18. this is allowed in the year exp is incurred (i.e. 2016-17).