Save Rs 499 on a 2-Year Ad-Free CAclubindia Pro Membership. Subscribe Now!

Valuation of Assets and its impact on Depreciation of RWA

1062 views 1 replies

Abhijit Ganguly

Chief Manager (F)

21 Points Posted on 14 August 2021

A peculiar case I need to share and an honest opinion is required.

A Resident Welfare Association (RWA) was formed after the builder failed to handover the Assets and Liabilities of the Builder Group. The Association took over the management of the building suo-moto from say beginning of June 2019. The first Statutory Audit Report (2019-20), showed the F/A as NIL and hence no depreciation was there in I&E Account.

The second year, the earlier auditor was removed and a new statutory auditor was appointed. The new Auditor, in his Audit Report of 20-21, included a valuation of the F/A which are physically there in the premises, and included the same as valued at end of 2016-17 and charged depreciation for 4 years starting from 2017-18 to 2020-21 and thereby reflecting the same in the B/S and I&E Account and giving a contra effect on the Liabilities side.

My question is:

What is the system of valuation? and whether this procedure can be adopted

Replies (1)

yasaswi gomes

My grammar is 💯 good I

7306 Points Posted on 16 August 2021

Irrespective of what ever business it is, where there is a commercial transaction, AS must be followed. Here when assets are disposed, it must be valued at lower of carrying amount or FVLCD. I did not understand failed to handover and took over. However, if someone occupies a property from a contractor, the transaction cost you paid= asset cost. This value is recognised in the balance sheet. Hence depreciation was charged if you purchased an old asset.