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Purchase of car against additional warranty charges

manik (ca in practice) (420 Points)

24 May 2011

what should be the treatment of payment made at the time of purchase of car against additional warranty charges paid to the car dealer, will it be treated as an expense( under what head) or capitalize

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42 Replies

Asif Khan (Taxation executive) (410 Points)
Replied 24 May 2011

it should be capitalised as per my view

CS Bijoy (Expert) (6394 Points)
Replied 24 May 2011

I am agree with Mr. Asif Khan

GEETA MISTRY (ca final Student) (171 Points)
Replied 24 May 2011

it should be capitalize

rachit jain (chartered accountant ) (635 Points)
Replied 24 May 2011

capitalized to asset

RoopesH SharmA (ACCOUNTS EXECUTIVE) (27 Points)
Replied 24 May 2011

As per my op you should not capitalise this extra amount and post should be in Insurance or repairs and maint cost,

mayur (Ca final student) (141 Points)
Replied 24 May 2011

addition warranty charges....can be aptly be described as expenditure expended for maintaining the asset,rather than increasing earning capacity...so it should be routed through p/l...under head repair and maintainance cost.

CA Asfar Hashmi (Research Associate) (81 Points)
Replied 25 May 2011

I guess since the additional warranty charges are levied to effect a contract of sale, which is necessary and expedient for the purpose of the business, the same should be considered as cost component. Therefore, the same should be capitalized.

(Guest)

At the time of purchasing an asset , whatever you incur the expenditure it should be capitalized to the asset.

Amit Surana (Student CA/CS-Professional) (268 Points)
Replied 25 May 2011

Definetly it should be capitalized couse it is done at the time of purchase & before the assets is put to use..........

CA Rakesh Garg (Asst. MGR Taxation) (510 Points)
Replied 25 May 2011

this will be capitalised

Pavan Bharadwaj (Practicing Chartered Accountant) (353 Points)
Replied 25 May 2011

I think it is a deferred revenue expenditure and it should be written off over the period of warranty. Even though they are paid at the time of buying the asset, there is no obliagation on the buyer to make payment for warranty charges. So there is no need of capitalising it.

AMIT JHA (Trainee) (52 Points)
Replied 25 May 2011

Agreed with Mayur...it should be charged to P/L..

Vikash Patodia (CA, CS, B.Com) (32 Points)
Replied 25 May 2011

Additional warranty charges paid at the time of purchase is for the future maintenance of the the asset. So, it is an expense and should be debited to P/L A/c. It cannot be capitalised......

ASH (nil) (77 Points)
Replied 25 May 2011

While normal warrnty provided when asset procured do not normally carry any specific price and hence it is indirectly capitalised as part of asset price.

Addtional warrnty is not meant for asset aqusition but an insurance for breakdown during usage, hence it has to be charged off either as expnese or if it is material treat it as deffered revenue expenditure.