NOTE IN BALANCE SHEET

[S.C. WADHWA]

In balance sheet, below line 'loan from Bank' I had put a note

that such loan is secured by hypothecation of plant, machinery.

furniture, computer

As far as sanction letter is concerned, it is written therein that

loan is secured by moveable assets, land and building.

Query is'

Whether plant and machinery is covered in moveable assets.

Management has contented that plant or machinery is

not covered by sanction letter.

If management contention is right, then I will delete the word

plant and machinery in balance sheet for period ended on 31/03/14 before signing the same from our auditors.

As far as balance sheet of period ended on 31/03/13, 31/03/12

is concerned , I had put the same note. Whether I have to give any note in

balance sheet of 31/03/14 about use of plant or machinery in earlier balance sheets.

Please advise.

[porus laboratories]

In the first instance, the plant and machinery, being immovable property, cannot be hyphothecated. It shall be mortgaged. In other words, only movable property like stock of raw material, stock in process and finished goods shall be hyphothecated. Plant and machinery will not be covered under movable property as long as it cannot be moved from one place to another place. Normally, plant will be annexed to the earth. Therefore, it cannot be considered as movable property. However, the machinery, based on their nature, can be considered as moveable if it can be moved from one place to another. In majority, machinery will be considered as immovable property. Your management is right. It will be sufficient if you mention in the balance sheet for the current year stating that plant and machinery is mentioned in the earlier balance sheet in the year ....as hyphothecated by mistake and hence now rectified.

VISWANATH E.N

M.COM., MBA., FCMA., FCS., LLM

MOBILE 9000125885

AI Summary

Hyphothecation versus mortgage: plant is generally immovable so cannot be hypothecated; update balance sheet note. Plant and machinery are generally immovable and cannot be hypothecated; such fixed assets must be secured by mortgage while only movable assets may be hypothecated. If prior balance sheet notes mistakenly described plant and machinery as hypothecated, management should correct the current year disclosure by stating the earlier description was an error and has been rectified, and ensure future notes reflect the actual form of security for each asset class.