A director of pvt co. purchased a cell phone costing Rs.44,000 & company accounted the same under Indirect expense head Say Staff welfare expense.
Is company liable to account it as Fixed Asset.
Or will it come under head personal expense/Drawings of director.
it should be accounted as fixed asset of the co.
It depends upon for what purpose the Cellphone has been purchased. If It is allowed under Company's policies and for official purpose as well as the cellphoe is in the name of the company then it can come under the head Fixed Assets. If it is purchased by director for his personal use from company's funds then it shall be classified as Drawings.
Further, practically it depends upon how much controlling power do the director have and what explanation for the transaction he provides to you.
Thanks.
Assume the company policies allows to meet the expenses of director.
Since the cost of Cell phone is Rs.44,000 can it be accounted as revenue expense or Accounting it as fixed asset is mandatory.
Accounting as fixed asset is not mandatory in my view.. I have came accross a similer scenario in a company I have audited... There they have accounted it as a revenue expenditure not as fixed asset... They have said it is reimbursement of expenditure on mobile and the same can only be accounted as welfare expenditure.. similarly they can also account it as drawings.... The question of taking it to Fixed asset mandatorily does't arise
How purchase of cell phone is justied to be accounted as a revenue exp to be charged to be P&L a/c...
Simply by saying it as reimbursement of expenses on mobile rather than purchase of it
In my opinion , it is revenue expense if the cell phone is brought for personal use of director because it will form part of his salary as gifts/reimbursement of personal expenses forms part of salary. However, if the cell phone is brought in the name of the company then it can be capitalised as it would amount to fixed asset of the company being given to director for business use.
See whether the invoice is raised in the name of Director or in the name of company. If it is raised in the name of company you cannot say it as reimbursement of expense and should be capitalied... If it is in the name of Director, then you can take it to P&L is what I have found out
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