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+--- Thread: Accounting Treatment of Forfeited lone (/thread-accounting-treatment-of-forfeited-lone)
Accounting Treatment of Forfeited lone - aaamer123 - 04-12-2006
Assume a company apply for short term RF from bank.Bank facilitates the company Rs.10,000,000 lone against Pledge of Rs.20,000,000 Share Capital.Later on when company has availed the lone is forfeited by the order of the court at that time what would be the accounting treatment of this situation in the both books.
- Ali Akbar - 04-13-2006
<blockquote id="quote"><font size="1" face="Verdana, Tahoma, Arial" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by aaamer123</i>
<br />Assume a company apply for short term RF from bank.Bank facilitates the company Rs.10,000,000 lone against Pledge of Rs.20,000,000 Share Capital.Later on when company has availed the lone is forfeited by the order of the court at that time what would be the accounting treatment of this situation in the both books.
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
The company will treat it as its income upon forfieture that is to say
Loan (Dr)
Income Statement (Cr)
The bank will treat it as irrecoverable loan upon forfieture (if it is not recoverable at all) that is to say
Income Statement (Dr)
Loan receivable (Cr)
ICAPians, the unparalleled..
- diehard - 04-18-2006
The company will treat it as its income upon forfieture that is to say
Loan (Dr)
Income Statement (Cr)
The bank will treat it as irrecoverable loan upon forfieture (if it is not recoverable at all) that is to say
Income Statement (Dr)
Loan receivable (Cr)
ICAPians, the unparalleled..
[/quote]
<font color="red"><b>i think that the treatment of loan will be made under the prudential regulation issued by the state bank of pakistan in the books of account of the bank. it contains the category for nonperforming loan ,rules for the provision against it , n reversal of income as the debt becomes NPL. further the impact of colleteral is also incorporated in it.
further how can a company will will treat loan confiscation(by the way it it novel thing 4 me ) as income when it has plegded the security with the bank ............. bank will sale it out in the open market if the shares are of listed companies to realize the loan recivable .( according to tax laws income can accrued on the liabilty which is remain outstanding for more than 3 years ) but in this case this situation will not arise as the company has given the collateral.bank will file suit or through out of the court settlement will sale the shares and realized its advance.
so a generic entry may be in the books of the company
loan payable xxxxxxxxxxx
investment (shares given as collateral) xxxxxxxxxxx
by the way question is not clear .......... that whether it is to solved as an elemantary level of accounting or in the accounting , banking and legal framework of pakistan as may be required in module e exam.
</b> </font id="red">
- Ali Akbar - 04-18-2006
<blockquote id="quote"><font size="1" face="Verdana, Tahoma, Arial" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by diehard</i>
<br />The company will treat it as its income upon forfieture that is to say
Loan (Dr)
Income Statement (Cr)
The bank will treat it as irrecoverable loan upon forfieture (if it is not recoverable at all) that is to say
Income Statement (Dr)
Loan receivable (Cr)
ICAPians, the unparalleled..
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
<font color="red"><b>i think that the treatment of loan will be made under the prudential regulation issued by the state bank of pakistan in the books of account of the bank. it contains the category for nonperforming loan ,rules for the provision against it , n reversal of income as the debt becomes NPL. further the impact of colleteral is also incorporated in it.
further how can a company will will treat loan confiscation(by the way it it novel thing 4 me ) as income when it has plegded the security with the bank ............. bank will sale it out in the open market if the shares are of listed companies to realize the loan recivable .( according to tax laws income can accrued on the liabilty which is remain outstanding for more than 3 years ) but in this case this situation will not arise as the company has given the collateral.bank will file suit or through out of the court settlement will sale the shares and realized its advance.
so a generic entry may be in the books of the company
loan payable xxxxxxxxxxx
investment (shares given as collateral) xxxxxxxxxxx
by the way question is not clear .......... that whether it is to solved as an elemantary level of accounting or in the accounting , banking and legal framework of pakistan as may be required in module e exam.
</b> </font id="red">
[/quote]
I agree that treatment shall be made by bank according to PRs, but in the case of company you credited investment account?????? how come dude? the company has placed its own shares with the bank!!
And according to the question the loan has been forfeited by the order of the court, so the court shall also specify its treatment in its order as to collateral etc. so the simple treatment will be as posted be me earlier unless court specify otherwise.
ICAPians, the unparalleled..
- Ali Akbar - 04-18-2006
Tax laws has nothing to do with the accounting treatment[)]