Wrong JV rectification

Hello,
In last year balance sheet,one JV was wrongly passed . Amt Receivable against party was to be passed but by mistake it was passed against Expense a/c due to which Expense was not shown n Bal. Sheet resultin more profit.Now if I try to reverse that wrong JV,then it s showing same amt of loss due to Expense credit rcd..Now this loss I can not take as actual loss was in last year against which TDS was also deducted.How to rectify my mistake as Expense amt is in Lacs..
Asked 1 year ago in Audit from MUMBAI, Maharashtra
Let me understand your situation. The company received money from a debtor but it was wrongly credited to an expenditure head instead of the party's account. As a result of this error, the expenditure was suppressed, profit was overshown and the receivable was also overshown. Is my understanding right?

Now the company would like to rectify this error. I assume that it was just an error due to oversight but not due to fraud. I also assume that the error is not material with respect to the transactions of the company, though the amount was in lakhs.  

If my assumptions are right, the suggested measure is to credit the party's account and debit prior period adjustments account. The net effect of the prior period adjustments will have to be shown in the profit and loss account. See the AS 5 on this issue.  

If the amount is material and adversely affects the profits of the company, auditor may also be required to disclose it in his audit report.

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B Vijaya Kumar
CA, Hyderabad
633 Answers
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Dear Sir,

I am still not getting quarry whether it is question of excess booking of expenses in previous year or current year ?
Vishrut Rajesh Shah
CA, Ahmedabad
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Hello Sir,

If I have understood your query correctly, then instead of passing an Entry of 

Party A/c ... Dr
   To, Income Account....

U have passed,

Party A/c ..... Dr
    To Expense A/c.

which in turn may reduced your Expense, and also doubled your Profit.

If that is the case, then you can pass a rectification entry in the Current Year, and show the difference in Prior Period Adjustment Account which is according to AS5. It is also preferred if you add a note showing clarification as to why this account has arose in your books in the Director's Report.

In case you want to discuss the case on call, you will have to use the option of TALK to a CA, on the Homepage or click on Talk to Rohit R Sharma below.

Hope this clarifies your Query. 

Feel Free to get back for any further clarifications.

Thanking You.

Regards,
CA Rohit R Sharma.
Rohit R Sharma
CA, Mumbai
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