Prior period expense

[Guest]

Dear Sir,

Please explain which type of expenses can be booked as prior period expenses.

How can done accounting??

Any audit points?

Thanks & Regards,

Sanjay Vasava

[DR.MARIAPPAN GOVINDARAJAN]

Normally prior period expenses are booked for which already there is no provision has been made. The prior period expenses are booked in the Profit & Loss Adjustment account if it exceeds ₹ 5 lakhs. If it is below it is used to book it for current year expenditure.

[Guest]

Dear Sir,

Service tax credit availability on prior period expense. Please suggest.

Thanks & Regards,

Sanjay Vasava

[DR.MARIAPPAN GOVINDARAJAN]

First you have to consider the provisions of point of taxation. Then you have to consider the time limit for taking the credit.

[Ganeshan Kalyani]

The provision states that the credit shall be taken within one year from the date of invoice. Hence if the prior period expense is booked against the provison of previous year then also credit would be allowed if the invoice is less than one year old.

[Guest]

Dear Sir,

Service provider raised the invoice and mentioned current month date but service period has mentioned feb - 2016. In this case I booked an invoice in respective heads as prior period expense. But I need clearity, we can avail service tax credit or not.

Thanks

Sanjay Vasava

[Ganeshan Kalyani]

Yes, you can take the credit.

[YAGAY andSUN]

CENVAT credit can be availed within one year from the date of issuance of an Invoice.

[Ganeshan Kalyani]

I am also of the same views as expressed by learned experts.

AI Summary

Prior period expense accounting depends on provision and threshold; service tax/CENVAT credit allowed if invoice is within one year. Prior period expenses should be classified by whether a prior provision exists; amounts above the specified threshold are charged to the Profit & Loss Adjustment account, otherwise to current year expenditure. For tax credit, apply the point of taxation and the statutory time limit: CENVAT/service tax credit is available if the invoice is within one year of issuance, so an invoice dated in the current month for earlier services may still qualify if it meets the one year rule.