As per Ind-As 32– Financial Instruments- Presentation – para 11 –
A financial asset is any asset that is:
(b) an equity instrument of another entity;
(c) a contractual right:
(i) to receive cash or another financial asset from another entity; or
(ii) to exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable to the entity;
Ind-As 109 – Financial Instruments – para 5 .1.1
“Except for trade receivables within the scope of paragraph 5.1.3, at initial recognition, an entity shall measure a financial asset or financial liability at its fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability”.
One can read it through the relevant provisions as mentioned above and it is assumed, reader must be aware that deposits which are refundable in cash/ other financial assets will be treated as FINANCIAL ASSETS (if given) or FINANCIAL LIABILITY (if received).
Let’s have a practical discussion on these deposits and the treatment in the books of accounts as per their different nature/ purposes of such deposits
Whether present value of Security Deposit associated with the rent is to be done or not?
Security Deposit a/c…………… DR 567,427
Prepaid Leases Expenses……..DR 432,573
To, Bank A/c …………………. 10, 00,000
Subsequently at every annual reporting year,
Interest Income shall be accrued at 12% p.a and Prepaid Expenses shall be amortised on SLM basis over the lease Term.
To, Interest Income a/c ……….68,091
To, Prepaid Expenses …………. 86,515
At the end of 5th year, Security Deposit shall accrue 10 Lacs and prepaid expenses shall be fully amortised.
To, Interest Income a/c…………… 107,143
To, Prepaid Expenses………………….. 86,515
To, Security Deposit……………….. 10, 00,000
How I Mainten Entry In Account Of Non-Refundable Fee Of Petrol-pump Dealership Rs. 15,00,000/=
What will be the impact if security deposit is paid in advance? In other words if lease period begins 3 months after payment of security deposit, when should security deposit be fair valued? If it should be fair valued at the time of payment of advance then can the amortization of prepaid rent begin even before the actual occupancy of the asset?
What will be effect on Security deposit ROU and prepaid rent in case Lease is extended for another period with the same security deposit.
what will be entry for security deposit for rent