Treatment of prior period items

Hi sir/madam,

I found a situation where the company issues purchase order for hiring labour charges.... i m listing the details below the details of purchase order and bill details and other details please elaborate me wheather it will be treated as prior period expense or not:-

Purchase order period for Labour supply- April, 2012 to March 2013

total contract  amount- 60 Lakhs

It has been observed in this case that company is billed more or less (60/12)= 5 lakh in each month.

bill for the month of march amounts to 5.09 Lakh. Bill recevied on 5th may 2013,

No provision has been made for the bill of March

MY QUESTION IS............

1) can the company treat the bill of march, 2012 as current year expense on the ground that they receive the bill in current period rather than previous year?

2) If it needs to treat it as prior period item, then how will it be disclosed under revised schedule VI?

                                                                                                                                    Thanks in Advance

Replies (1)

Hi

 

Since the bill has been received in April and it pertains to March, you should create a provision for the same in your books.

 

If the Financials have been finalized and there is no provision in the books for the same, you can treat the same as current year's expense and book it in Profit & Loss Account.

 

Also, during tax audit, the said expenditure would not be disallowed (by virtue it not being  a Prior period Item).

 

Regards

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