JOURNAL ENTRY FOR PURCHASE OF ASSET( INCLUDING INDIRECT TAXES)


Journal entry for purchase of Asset (Not ready to use)

Purchase of machinery of Rs.10000/- including excise duty of Rs.1400/-

               Machinery (WIP) A/C                      Dr        8600
Excise Duty received (50%) A/C     Dr          700
Excise duty receivable (50%) A/C   Dr          700
                                       To Sundry Creditor A/C               10000


(Narration:- Being Machinery Purchased on credit vide bill no:01)
The rules for passing Journal Entry
Debit
Machinery (Fixed Asset) is coming into business. There is increase in fixed asset.
As per Real account rule (machinery) “Debit what comes into business"
Debit
As we are paying duties on purchase are eligible for Input credit and treated as asset.(I.e. the taxes paid to creditors are not expense and it has to be treated as asset and can be set off against the duties payable, But before treating it as asset the input eligibility should be checked. Normally the purchase related to manufacture Except Factory building items Ex-Cement& steel can be availed as Input credit)Ex: - EXCISE DUTY, VAT & SERVICE TAX.
As per Real account rule (Duties and taxes) "Debit what comes into business"(Current Assets)
As per excise CENVAT rules the excise on machinery which is eligible can be availed by the business in two parts first 50% in the year of purchase and the balance 50% in the next year.
Debit
As we are paying duties on purchase are eligible for Input credit and treated as asset.The balance 50% of excise duty will be treated as current asset and the same will be used to set off any liability in the beginning of next year.
As per Real account rule (Duties and taxes) "Debit what comes into business"(Current Assets)
Credit
Due to credit purchase we are liable to him. And he is giving us the goods on credit.The creditors balance will increase.
As per personal account rule(sundry Creditor) "Credit the giver account"(Current Liabilities)

Journal entry for capitalization of asset WIP to asset a/c
Capitalisation of machinery from WIP to asset A/c.

                 Machinery A/C  Dr      8600
                   To Machinery WIP  A/C     8600

(Narration:- Being Machinery WIP transferred to Machinery A/c)

Note:-The cost of capitalization should not include the CENVAT amount (i.e. Excise duty received) it in include the interest on loan borrowed if it satisfy the rules of Accounting Standard 16 ‘Borrowing Cost’
The rules for passing Journal Entry
Debit
After installation of asset which take some days will be capitalized by debiting the balance in Machinery WIP account to Machinery account.
Credit
The balance in machinery WIP will be cancelled by crediting it only after completion of installation.

Journal entry for purchase of Asset (ready to use)

                            Machinery  A/C                        Dr         8600
                    Excise Duty received (50%) A/C Dr       700
                    Excise duty receivable (50%) A/C  Dr     700
                                    To Sundry Creditor A/C                   10000

(Narration:- Being Machinery Purchased on credit vide bill no:01)
The rules for passing Journal Entry
Debit
Machinery (Fixed Asset) is coming into business. There is increase in fixed asset.
As per Real account rule (machinery) “Debit what comes into business"
Debit
As we are paying duties on purchase are eligible for Input credit and treated as asset.(I.e. the taxes paid to creditors are not expense and it has to be treated as asset and can be set off against the duties payable, But before treating it as asset the input eligibility should be checked. Normally the purchase related to manufacture Except Factory building items Ex-Cement& steel can be availed as Input credit)Ex: - EXCISE DUTY, VAT & SERVICE TAX.
As per Real account rule (Excise Duty received (50%) "Debit what comes into business"(Current Assets)
As per excise CENVAT rules the excise on machinery which is eligible can be availed by the business in two parts first 50% in the year of purchase and the balance 50% in the next year.
Debit
As we are paying duties on purchase are eligible for Input credit and treated as asset.The balance 50% of excise duty will be treated as current asset and the same will be used to set off any liability in the beginning of next year.
As per Real account rule (Duties and taxes) "Debit what comes into business"(Current Assets)
Credit
Due to credit purchase we are liable to him. And he is giving us the goods on credit.The creditors balance will increase.

As per personal account rule(sundry Creditor) "Credit the giver account"(Current Liabilities)


In our next topic we are going to learn how to pass journal entry for exchange of machinery.

Comments

  1. Chadils Valuations LtdMay 28, 2019 at 11:42 PM

    Nice article, which you have described very well about the Machinery. Your article is very useful for those who are looking to Industrial Valuation Services at online. thanks for sharing...

    ReplyDelete
  2. meme128playFebruary 2, 2021 at 4:10 PM

    cool stuff you have got and you keep update all of us. https://europa-road.eu/hu/gepszallitas.php

    ReplyDelete

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