Expert Advisory Committee
ICAI-Expert Advisory Committee
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1.7        Query

            

Charging to revenue assets valuing less than Rs. 10,000/-.

 

1.A public sector corporation, registered under the Companies Act, is following the straight line method of depreciation for all the items of fixed assets at the rates derived on the basis of life of assets estimated by the Board of Directors. Fixed Assets Schedule shows Gross Block as well as provision for depreciation, as at the beginning of the year, additions/ transfers during the year, deductions/transfers during the year, as at the end of the year, and written down value of the previous year and current year. With effect from the financial year 1984-85, the accounting policy has been revised to the effect that all assets (excluding immovable assets like land and buildings) whose written down value or purchase cost is less than Rs. 10,000/- are charged-off to revenue account named “Sundry Assets Charged-off” in that financial year.

 

2.Accordingly, the following treatment is given in the accounts of the enterprise:-

 

(i) In respect of those assets which are acquired during the year and whose value is less than Rs. 10,000/- are directly booked to ‘Sundry Assets Charged-off Account’.

 

(ii) In respect of those assets whose written down value becomes less than Rs. 10,000/- in the financial year, the written down value is booked to Sundry Assets Charged-Off Account. However, the details of assets charged to the said account are maintained in a separate register, for the purpose of working out the depreciation as per the Income-tax Rules. Under the Fixed Assets Schedule, the following notes are given:

 

(a) Deduction/Transfer column under Gross Block includes Rs. _______(P.Y. Rs.___________) being the value of assets of smaller value charged to ‘Sundry Assets Charged-Off Account’.

 

(b) Deduction/Transfer column under Provision for Depreciation includes Rs.____________(P.Y. Rs. _______) being the accumulated depreciation in respect of assets charged off to ‘Sundry Assets Charged-Off Account’.

 

(c) Addition column under Gross Block excludes Rs. ____________(P. Y. Rs._________) assets of smaller value purchased during the year directly booked to ‘Sundry Assets Charged-Off Account’.

 

(d) The impact of charging-off such fixed assets to profit and loss account is as under:

 

F.Y.

P.Y.

Assets charged

Rs.________

Rs.________

Normal Depreciation

Rs.________

Rs.________

Amount charged-off                (Addl.)

Rs.________

Rs.________

 

3. The querist has stated that a doubt has been raised by the Govt. Audit Party during the audit of the company’s accounts for the year 1986-87 regarding the exhibition of fixed assets which have been charged-off during the year in the Fixed Assets Schedule. In the opinion of the Govt. Audit Party, the original cost of each item of fixed assets, additions thereto and deductions written-off or provided upto the end of the year are to be stated as required under Part I of Schedule VI to the Companies Act and no asset value should be removed from the gross block unless and until they are disposed-off or abandoned.

 

4.The querist has sought the opinion of the Expert Advisory Committee on whether the accounting method followed by the corporation in respect of assets whose cost or written down value is below Rs. 10,000/- is in accordance with Part I of Schedule VI to the Companies Act and the normal accounting standards.

 

  

                                                                               Opinion                                                        December 29,1988

 

1.The Committee notes that Part I of Schedule VI to the Companies Act, 1956, has given ‘Instructions in accordance with which the assets should be made out’. One of the instructions appearing against fixed assets requires that “Under each head the original cost, and the additions thereto and deductions therefrom during the year, and the total depreciation written off or provided upto the end of the year to be stated.”

 

2.The Committee is of the view that fixed assets acquired during a particular year should be included in the Gross Block even though these are to be written off on grounds of materiality. Thus, it is not proper to directly book to ‘Sundry Assets Charged-Off Account’ the assets acquired by the company during the year whose value is less than Rs. 10,000/-.

 

3.On the basis of the above, the Committee is of the opinion that the accounting method followed by the corporation in respect of assets whose cost or written down value is below Rs. 10,000/- is not in accordance with Part I of Schedule VI to the Companies Act, 1956. In view of this, assets acquired during the year and whose written down value is less than Rs. 10,000, should not be removed from the Gross Block unless and until they are disposed off or retired. However, on the grounds of materiality, these could be written-off in the profit and loss account, which would mean that in the balance sheet these have to be shown in the ‘Deduction’ column under ‘provision for depreciation’ every year in order to comply with the requirements of Schedule VI to the Companies Act.

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