Vat entry in accounts

A/c entries 1977 views 5 replies

Nilesh Kedia

JOB

53 Points Joined April 2009

While reviewing financial statements of a listed company, I found "VAT paid a/c" in debit side of P/L and "VAT realised A/c" in credit side of P/L and both are having same figures. On further investigation I discovered that the company is treating VAT Input ( in case of purchases) as its expense and naming it as "VAT paid A/c" while VAT output ( in case of sale) is treated as income and naming it as " VAT realised A/c". thats why both the accounts are shown in the P/L a/c. Now the excess of "VAT realised" over "VAT paid" is paid to the govt. and the entry is passed through "VAT paid A/c". this makes both the balance of "VAT paid" and "VAT realised" equal and thus the effect in P/L is nullified.

I want to know that whether the accouting treatment followed by the company is correct and if not, please sujjest the correct accounting treatment.

Replies (5)

Deepak Dargad

Chartered Accountant....

9787 Points Joined June 2010

No Accounting Treatment is not correct

1) When purchase

Purchase A/c ..........Dr

Vat receivable A/c .......Dr

To Party A/c

2) When Sale

Party A/c .............Dr

To Sale A/c

To Vat Payable

3) At the time of Vat payment

Vat Payable A/c ........Dr

To Vat Recivable

To Bank (In case of excess Vat Payable)

Giridhar S Karandikar

Team Lead

7558 Points Joined November 2011

The accounting treatment followed by the entity is not proper for recording the transactions relating to VAT. Please refer to the Guidance Note given below. Refer pages 249 onwards for the treatment of VAT Paid & Collected:

https://220.227.161.86/23635research13.pdf

jyoti rani

secnderabad

1852 Points Joined October 2011

The treatment followed by the firm is not correct and i also satisfy with second one .

Nilesh Kedia

JOB

53 Points Joined April 2009

When I questioned the company about their accounting treatment, they replied that they are doing this accoording to provisions of section 145A of Income Tax act which says that "the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head “Profits and gains of business or profession” shall include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation."

The section also says that "any tax, duty, cess or fee (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment."

Please explain the relationship between section 145A and the accouting treatment and also the significance of section 145A.