... this be the case, the MtM value of the arrangements should be used by UCITS for the calculation of the In all … In other words, the effective tax payable on sale of repossessed goods would be the rate of tax provided in Notification No.08/2018-Central Tax (Rate) on the amount of margin. As per IAS 16, the cost of the asset less the residual amount should be allocated in a systematic manner over the useful life of the asset. IFRS 15 refers to a “performance obligation” as a promised good or service (i.e., promise in a contract) that is distinct. If not, please justify your position. On foot of Finance Act ... persons in respect of the supply of the underlying goods concerned and on the subsequent sale of such goods if repossessed by them. ... ACCOUNTING FOR FACTORING AGREEMENTS. Applying the legal maxim “Generalia specialibus non derogant” which means specific provision shall over general provisions in a statute it can be concluded that Rule 32(5) of the CGST Rules, 2017 shall apply when the repossessed goods is sold to related party since it is a more specific rule as compared to Rule 28 of the CGST Rules, 2017. over here on EduRev! 60,000 – (60,000 * 5% * 5)], considering 5 quarters from the date of purchase. General Manager-Taxation in a renowned NBFC) for sharing Industry insights. Accounting treatment in case of repossessed goods on default? 2 Person Arrested in case of fake invoice of Rs. Since the manner to determine purchase price has not been explicitly provided for such transactions, by logical reasoning, one can consider the extent of default to be the purchase price of the repossessed goods. Person must be dealing in buying and selling of second-hand used goods (including repossessed goods), 2. CDS Credit Default Swap BCBS Basel Committee on Banking Supervision BoE Bank of England FASB Financial Accounting Standards Board ... Repo Repurchase and Reverse Repurchase transactions The Boards The Board of the IASB and the Board of the FASB ... repurchase agreements (which, in many cases, are secured by cash collateral or similar security interests). Similarly, in the case of repo buyer, the Reverse Repo Account is debited for the amount of securities purchased (funds lent) and the same is reversed in the second leg when the securities are sold back. accounting consequences of contract terms: Classification & Measurement limited changes in classification overall. Where the buyer makes default in the payment of any installment the vendor has a right to reposses the goods sold on hire purchase and forfiet whatever amount he has already recieved considering it as a hire charge. In case of inflation, the RBI may increase the repo rate, thus discouraging banks to borrow and reducing … The standard requires that entities shall apply the same method consistently for all purchases and sales of categories of financial assets. This was further clarified by Question No.63 in FAQ issued by the CBIC on Banking, Insurance and stock brokers sector dated 27.12.2018. As discussed earlier, the main provision under Rule 32(5) of the CGST Rules,2017 would cover the transaction of sale of repossessed goods within the meaning of the term ‘buying and selling of second hand goods’. Sale of repossessed goods is made for a consideration in the course of business, therefore, it would be conveniently covered within the scope of supply. Provided that the purchase value of goods repossessed from a defaulting borrower, who is not registered, for the purpose of recovery of a loan or debt shall be deemed to be the purchase price of such goods by the defaulting borrower reduced by five percentage points for every quarter or part thereof, between the date of purchase and the date of disposal by the person making such repossession. This discussion on Accounting treatment in case of repossessed goods on default? agree to the. It would also correlate with the accounting treatment provided in the books of the lender, where the outstanding loan from such defaulting borrower would be transferred and accounted as repossessed goods. By continuing, I agree that I am at least 13 years old and have read and EXAMPLE: SHIPPING TERMS 30 … 9. Whether the same would be treated as supply and GST would be attracted has to be evaluated. For instance, a vehicle is purchased in January 2019 for Rs.60,000/-, under finance by a lender. Promised Goods or Services . Accounting for Ineligible Input Tax Credit under GST You can record purchases of stock items on which tax credit cannot be claimed, by setting the option Is ineligible for input credit? Required fields are marked *, Notice: It seems you have Javascript disabled in your Browser. This was because treasuries are the most commonly used collateral in the US repo market, and as a default would have downgraded the value of treasuries, it could have resulted in repo borrowers having to post far more collateral. Rule 32(5). There has been a true sale of collateral and they must be ignored ... default, even if that asset had remained in the ownership of the seller, rather than being repoed out. Whereas Rule 32(5) of the CGST Rules, 2017 specifically provides valuation mechanism for repossessed goods. The buyer agrees not to sell the collateral unless the seller defaults on their part of the agreement. In the case of nonUS repo, the status - of the assets is clear. As per Section 2(28) of the Motor Vehicles Act,1988 the term ‘motor vehicle’ has been defined to mean any mechanically propelled vehicle adapted for use upon roads whether the power of propulsion is transmitted thereto from an external or internal source and includes a chassis to which a body has not been attached and a trailer; but does not include a vehicle running upon fixed rails or a vehicle of a special type adapted for use only in a factory or in any other enclosed premises or a vehicle having less than four wheels fitted with engine capacity of not exceeding twenty-five cubic centimetres. Taking over of goods by the lender from the defaulting borrower is termed as repossession and accordingly known as repossession of goods. In the case of a repo, a dealer sells government securities to investors, usually on an overnight basis, and buys them back the following day at a slightly higher price. The identification and measurement of non-performing assets: a cross-country comparison 3 Section 1 – Introduction 1. Accrual accounting requires recording the revenues as for and when they are earned whether payments in cash is received … All Rights Reserved. A member … Canadian Repo Market Ecology by Corey Garriott and Kyle Gray . This article analyses various implications under the GST law and the possible interpretations, on the activity of sale of repossessed goods. On a prima facie view, it appears from the above rule that it shall be applied only in respect of “person dealing in buying and selling of second hand goods”. The Questions and Answers of Accounting treatment in case of repossessed goods on default? ... the default recognition of gains and losses in profit or loss which could lead to income statement volatility. more practice questionsthan expected: ... probability of default occurring in next 12 months. ... ACCOUNTING FOR PRODUCT RETURNS 24 . are solved by group of students and teacher of B Com, which is also the largest student Where such margin is negative, no tax would be payable. Classification of Alcohol Based Hand Sanitizer, Applicability of GST on Extra Neutral Alcohol (‘ENA’) – The Mystery Continues, Refund under GST Regime Up To Date 12-03-2021 – Detailed Analysis, No bar on investigation by different officers independently investigating different matters without any overlapping, GST on printing of content provided by customer on PVC banners, Assessee can rectify or revise Form GSTR-3B or GSTR- 1. Notification No.08/2017-Central Tax (Rate), RCM implications on Services provided by Directors – A Circular with hidden challenges. AccountingTools. to Yes in the group/ledger or stock group/item. We believe that the most effective … Its function is to carve out an exception or exclusion to the main provision, which otherwise would have been in the main section. Under the Companies Act, 2013 (2013 Act) section ... As is the case each month, we also cover a regular round-up of some recent regulatory updates in India and ... to produce goods or services, charge a price for others to use it, use it to settle liabilities, hold it, or distribute it to owners. In general, the rate of GST on sale of motor vehicles is 28%. In most cases, lenders require personal guarantees from the company’s owners. (3) In the case of a purchase money security interest in consumer goods, if a consumer borrower has paid 60 percent of the cash price or 60 percent of the loan in the case of another security interest in consumer goods and, after default, has not signed a statement renouncing or modifying the consumer borrower's rights under this subsection, a credit grantor who has repossessed the consumer goods … Treatment of interest, dividends, gains and losses and other items Financial assets and financial liabilities - initial recognition ... (Indian Accounting Standards) Rules, 2015. Budget 2021 – Goodwill, no longer a depreciable asset [effective from April 1, 2021], SEBI Master Direction to get KYC updation to Legal Entities (LES), Competition Commission of India (CCI) – February – 2021 Updates, Logic of Minimum Board Meetings In A Company, Prior Approval of RBI for Management Change of NBFCs, Conversion of Unlisted Public Company Into LLP, Join Self-Learning Certification Courses on GST, Customs & Income Tax by Taxguru Edu, 16 Bullet Points on GST HSN Code Requirements wef 01.04.2021, FAQs on Submission of Online GST Registration Application, Mandatory to mention 4/6-digit HSN/SAC Code w.e.f. This principle was also upheld by the Hon’ble Supreme Court in the case of Corporation of Calcutta v. Liberty Cinemas [AIR 1965 SC 1107]. 2 Bank of Canada Staff Discussion Paper 2016-8 March 2016 ... simplified presentation of its accounting treatment. Patel [1995 (1) TMI 311 – SC] has held that it is settled law that the proviso and the main part of the Act or Rule are to be harmoniously read together and interpreted to give effect to the object of the provision. It is well settled principle that a statute never waste words in a statute as held by the Hon’ble Supreme Court in the case of Visitor Amu v. K.S.Misra [2007 (8) SCC 594]. Since, the entire goods are not repossessed, Asset Account will have a balance for the goods not repossessed which will be equal to the depreciated value of the assets not repossessed and, naturally, Vendor’s Account will show a balance which will represent the amount due … Summary of provisions For VAT purposes, there is a supply by the dealer of the goods to the finance … REPOSSESSION AND PARTIAL REPOSSESSION (HIRE PURCHASE ACCOUNTING) Default and Repossession ... To Goods Repossessed A/c Note: In case of profit, a reverse entry will be passed. While repo is legally structured as a sale, it is not a ... buyer of collateral provides cash and holds a security as collateral in case the seller should default. Step 2: Calculate Agreed Value of Goods Repossessed Step 3: Loss on default = Book … Sir, Lender will be having Original invoice, when he is financing a new Asset and Valuation Report, when he is financing for purchase of a second hand asset. 08/2018-Central Tax (Rate) dated 25.01.2018 provides specific exemption in respect of old and used vehicles from so much of tax as in excess of tax computed on the margin. RBI has prescribed vide circular DNBS(PD)CC No.16/2000-01 dated June 27, 2001, accounting procedure for repossessed assets for NBFCs after the deliberations in the meeting of the Informal Advisory Group on NBFCs. into reverse repo agreements, the guidelines leave the possibility for the cash to be recalled on an accrued basis or on a mark-to-market basis. In fact, it means that there are no exceptions carved out for the said transaction and the valuation has to be determined on the basis of the main provision itself i.e. In other words, there may beno real value in an initial margin/haircut to ... accounting for repo. In case of supply made to related parties, the value of supply shall be determined as per Rule 28 of the CGST Rules, 2017. If the answer is not available please wait for a while and a community member will probably answer this Join our newsletter to stay updated on Taxation and Corporate Law. An illustrative accounting treatment could be as under. Human Beings Equated to Property – Supply of Implants to In-Patient Treated as Works Contract!!! • Financial instruments to be classified as per substance rather than legal form. In a repo, one party sells an asset (usually fixed-income securities) to another party at one price and commits to repurchase the same or another part of the same asset from the second party at a different price at a future date or (in the case of an open repo) on demand.2 If the seller defaults during the life of 01/2017-Central Tax (Rate) dated 28.06.2017. To use the same example, ABC Corporation gives away the machine after eight years, when it has not yet depreciated $20,000 of the asset's original $100,000 cost. Any balance left in hire-purchaser’s account is transferred as profit or loss, as the case may be, on repossession of goods to Profit & Loss Account. Summary of the effective rate of tax under the said notification is as under. Taking outstanding amount as Purchase price, will be contested by the Department.. Going by the above principle of interpretation, though one can argue that the provision primarily applies only to a reseller of used goods, it may be concluded that Rule 32(5) has a deeming fiction to include within its ambit sale of repossessed goods also. 25 . amount of loan in default). In situations where damaged or impaired property is subject to a nonrecourse mortgage and the entity intends to default on the mortgage and relinquish the property to the lender, the property loss should be computed in accordance with ASC 360 without regard to any potential gain on extinguishment of debt. Rule 32 of the CGST Rules, 2017 is a non-obstante clause under the valuation chapter, which provides the valuation mechanism in respect of certain specified supplies. Copyright © TaxGuru. In fact, the standard accounting treatment is to retain the collateral on the … A variation on the first situation is to write off a fixed asset that has not yet been completely depreciated. are solved by group of students and teacher of B Com, which is also the largest student community of B Com. Based on historical experience, evaluate the degree of likelihood that the borrowers will not pay, the amount of funds lost when the borrowers default, and the total amount the Bank may lose, or the Banks' financial exposure to at the time of default. The Questions and The taxable value under Rule 32(5) of the CGST Rules,2017 for the said transaction would be Rs.5,000/-. Under the circumstances, Vendor’s Account is debited and the Asset Account is credited with the agreed value of goods repossessed. In general, eligible inventory includes finished goods and marketable raw materials and excludes work-in-process and slow-moving goods. Specifically, Rule 32(5) of the CGST Rules, 2017 reads as follows: Where a taxable supply is provided by a person dealing in buying and selling of second hand goods i.e., used goods as such or after such minor processing which does not change the nature of the goods and where no input tax credit has been availed on the purchase of such goods, the value of supply shall be the difference between the selling price and the purchase price and where the value of such supply is negative, it shall be ignored: Provided that the purchase value of goods repossessed from a defaulting borrower, who is not registered, for the purpose of recovery of a loan or debt shall be deemed to be the purchase price of such goods by the defaulting borrower reduced by five percentage points for every quarter or part thereof, between the date of purchase and the date of disposal by the person making such repossession. If the answer is not available please wait for a while and a community member will probably answer this soon. 04 - Accounting Test Time - Goodwill Treatment 2. In such cases, the goods/assets would be repossessed or attached as a part of recovery of the outstanding loan amount. Apart from being the largest B Com community, EduRev has the largest solved Since a financial participant can use repo to borrow cash on collateral, … Since the lender does not pay any price for the repossessed goods, the reasonable rationale which can be considered is to treat the outstanding loan amount as the effective purchase price of the lender. CPE ... We will address the accounting for prepayments from the … Acknowledgements: Special thanks to Mr. Shekhar NRS (Asst. A prepayment is made when a selling company receives payment from a buyer before the seller has shipped goods or provided services to the buyer. Concepts occur only in accrual accounting. soon. In a nutshell, in case of sale of repossessed goods, the value of supply would be determined based on the defaulting borrower’s registration status. The rate at which the RBI lends to commercial banks is called the repo rate. In a nutshell, in case of sale of repossessed goods, the value of supply would be determined based on the defaulting borrower’s registration status. Absence of a specific proviso would not make the rule inapplicable to the said transaction. In case the defaulter is an unregistered person, then the purchase price would be based on the proviso given under Rule 32(5) and in case where the defaulter is registered, the purchase value can be adopted based on the rationale of effective cost to the lender. Further, an indicator of The above proviso can be applied only when the defaulting borrower is an unregistered person. The real essence of Rule 32(5) of the CGST Rules is to tax only on the margin earned by the dealer of second hand goods. (For any feedback or clarification please write to [email protected] or [email protected]). 08/2018-Central Tax (Rate) dated 25.01.2018, Notification No.08/2018-Central Tax (Rate). (11) Repossessed Hire Purchase and Lease assets – Accounting Guidelines . In case of motor vehicle covered under Notification No.08/2017-Central Tax (Rate), the effective rate would be in accordance with the said notification. In this situation, write off the remaining undepreciated amount of the asset to a loss account. The accounting treatment of such transactions is usually driven by the facts and circumstances related to the transactions and also how an entity interprets IG B6. It is a sale of used goods as such or after minor processing without changing the nature of the goods. The Annual Report Referencer contains a comprehensive list of disclosure items required to be reported in the Annual Report of a company linked to the source of mandate from the Companies Act or Rules or Indian Accounting Standards. There is no explicit proviso provided for determining the purchase price, when the defaulting borrower is a registered person. In case the defaulter is an unregistered person, then the purchase price would be based on the proviso given under Rule 32(5) and in case where the defaulter is registered, the purchase value can be adopted based on the rationale of … The benefit of payment of tax on the margin/profit element under Rule 32(5) of the CGST Rules, 2017 would be available only if all of the following conditions are satisfied, 1. NOT: • Expected cash shortfalls in next 12 months • Credit losses on instruments expected to default in next 12 months ... transfer of goods or services in an amount of … In the case of repo seller, the Repo Account is credited in the first leg for the securities sold (funds received), while the same is reversed when the securities are repurchased in the second leg. In financial accounting Financial Accounting Theory Financial Accounting Theory explains the why behind accounting - the reasons why transactions are reported in certain ways. Deferred payment occurs when the seller delivers goods and services, but then time passes before the customer pays for them. This provision appears to factor the impact of loss of input tax credit on purchase of such used goods. The said Rule requires determination of value based on the open market value and in case of non-availability of open market value then the other methods of valuation as provided therein should be adopted. Account receivable is the amount which the company owes from the customer for selling its goods or services and the journal entry to record such credit sales of goods and services is passed by debiting the accounts receivable account with the corresponding credit to the Sales account. What is Accrual Accounting? April 1, 2021, Reinstate Audit Provisions Under GST Laws, 13 Suggestion to FM for Simplification of GST (Hindi & English). AAU captures the accounting treatment of such assets both under Accounting Standards and Ind AS. Example: On 1.1.2011, A purchased 5 Machines from B. In case of repossessed goods from a defaulting borrower (who is not registered), purchase price in the hands of the seller would be the original purchase price of the goods by the defaulting borrower reduced by five percentage for every quarter or part thereof, between the date of purchase and the date of disposal by the person making such repossession. Maintained by V2Technosys.com, Taxguru Consultancy & Online Publication LLP, 509, Swapna Siddhi, Akurli Road, Near Railway Station, Kandivali (East), C. Valuation on Sale of Repossessed Goods, D. Valuation when the repossessed goods are sold to related party. No input tax credit should have been availed on the purchase of such goods. In accounting, the terms … 1. However, Notification No. It is a general practice in the industry to sell off the repossessed goods by way of sale or auction. ... Do you agree with the proposed guidelines for the treatment of repo and reverse repo agreements? The Hon’ble Supreme Court in the case of Sales Tax Commissioner v. B.G. A proviso is resorted to provide conditions or riders to the main provisions. ... And, interest due for a bank loan can be an accrued expense. It should not render itself otiose or ineffective. 2. When a receivable is sold to the factor without recourse, the balance sheet presentation is straightforward—account for the receivable as a … 30 . 01/2017-Central Tax (Rate) dated 28.06.2017. is done on EduRev Study Group by B Com Students. Old and used, petrol Liquefied petroleum gases (LPG) or compressed natural gas (CNG) driven motor vehicles of engine capacity of 1200cc or more and of length of 4000mm or more. Notification No. Also, it is well established principle of interpretation denoted by the legal maxim “ut res magis valeat quam pereat” which means that a statute should be read to make it effective and operative rather than rendering it redundant. This guidance sets out the VAT treatment of hire purchase transactions and also contains general information in relation to bad debt relief. The borrower defaults payment of loan amount and vehicle was taken over by the lender in December 2019. Your email address will not be published. By contrast, the prepayment occurs when a buyer pays first and then a significant time passes before the seller delivers delivery of goods and services. there are two possiblilities in repossession of goods. community of B Com. In case of regular way purchase or sale, Ind AS 109 allows the option to use either the trade date or settlement date accounting. In the business of lending, hypothecation of goods and security of assets play vital role in the event of default in repayment of the loan. Non-Cash Consideration. 11 . In this situation, the purchase price to be considered in the hands of the lender would be Rs.45,000/- [i.e. Treatment for Depreciation remains the same for the assets classified under the cost model as well as under the revaluation model. Prepayment can happen under three circumstances: A buyer wants preferred treatment for an order The seller refuses to extend credit to a buyer T . The rate of GST to be adopted for sale of repossessed goods (other than motor vehicles) would depend on the rate as applicable to said product. In general, the rate of tax on supply of goods shall be the rate applicable to the said goods under Notification No. When he repossesses the goods due to default, he opens Goods Repossessed Account and debits it and credits the hire-purchaser’s account with the estimated value of goods repossessed. In a case where repossessed goods are further sold by the lender to a related party, the adoption of valuation mechanism will become a dispute. Following episodes of financial crises, many countries experienced hi2 gh levels of NPAs, generating policy responses to facilitate their resolution. in case of predominantly manufacturing company, eight per cent; in case of predominantly trading company, ten per cent; and ... Water treatment plants: iv: Sewage collection, treatment and disposal system: v: Irrigation (dams, channels, embankments etc) vi: Storm Water Drainage System: vii: ... no default in repayment of principal or payment of interest is perceived and which does not disclose any … If we interpret Rule 32(5) of the CGST Rules, 2017 to mean to include only the activities of buying and selling of second hand goods, it would make the proviso redundant. However, the proviso following the rule talks about the method of determining the purchase value in case of repossessed goods from a defaulting borrower. Notification No. With reference to the activity of sale of repossessed goods by an NBFC, there are certain aspects in the GST law which require further evaluation. This guide will, accruals refer to the recording of revenues Sales Revenue Sales revenue is the income received by a company from its sales of goods or the provision of services. Question bank for B Com. Only if Answers of Accounting treatment in case of repossessed goods on default? Therefore, the valuation in case of sale of repossessed goods from a registered borrower could be computed as the difference between the sale price and the effective purchase price (i.e. Old and used, diesel driven motor vehicles of engine capacity of 1500cc or more and of length of 4000mm, Old and used motor vehicles of engine capacity exceeding 1500cc, popularly known as Sports Utility Vehicles (SUVs) including utility vehicles, All Old and used Vehicles other than those mentioned above. Read More.. What are the requirements for accounting for non-cash consideration ... what is the appropriate treatment and how will revenue recognition vary? The vehicle so repossessed had been sold in the month of March 2020 for Rs.50,000/-. 93 Cr. In order to submit a comment to this post, please write this code along with your comment: b3b5a9ea3bd725d6a01bb04218528620. EduRev is a knowledge-sharing community that depends on everyone being able to pitch in when they know something. You can study other questions, MCQs, videos and tests for B Com on EduRev and even discuss your questions like Banks currently follow the settlement date accounting for investment trades. 3.