Immense Industries - FY 2017-18: FACTS OF THE CASE

Immense industries brought only Rs 1,079,978 worth of assets to the FY 2017-18 as compared to Rs 10,086,746 worth of Assets in FY 2016-17.

It wrote off Rs 61,07,371 worth of assets (excluding depreciation) during the year.

Other than that, it wrote off the following assets including depreciation:

• Car for Rs 2,264,481
• factory shed for Rs 570,720
• Air conditioner for Rs 20,700
• Office Equipment for Rs 23,181
• Scooter for Rs 788

Total Written off assets: Rs. 90,06,769 (including Depreciation)

Total Depreciation: Rs 718,197

Total Written off assets (excluding depreciation): Rs 82,88,572

Correct Accounting Treatment

Charge the Loss on Obsolescence to P/L and write off the value of assets by the same amount, ie Rs 61,07,371.

Total amount charged to P/L : 718197 (depreciation) and losses on Obsolescence {including Rs 61,07,371 (loss on obsoletion)}.

Accounting treatment in the ITR:

In the Income tax return, IIPL has written off assets worth Rs 61,07,371 and reduced the amount of Reserves and surplus by the same amount.

Net effect In ITR Balance sheet: Decrease in value of assets and Reserve & Surplus.

Side note: No impact of loss w/o in P/L.

Accounting Treatment in the Books

In the books of Accounts, IIPL has written off assets worth Rs 61,07,371 and reduced the amount of Reserves and surplus by the same amount. (same as ITR)

But, it also showed loss on Obsolescence debited to P/L and other Income credited to the P/L by the same amount: Rs 61,07,371.

Net Effect in Balance sheet: Decrease in value of assets and Reserve & Surplus.

Net Effect in Profit and Loss: Charged loss on Obsolescence (debit) and transfer of loss (credit) as other Income in the P/L.