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Editorial Board on Accounts and Audit
  • Bank Guarntee encash against Service Provider

    by Sangram on Monday, May 27, 2019 at 06:33 PM

    A suuplier has given bank guarntee against work performed at project site. The project has been capitalised . There is deficiency in work performed by the contractor so, the company has encashed the bank Guarantee as per the contract. My query- How to account for the such bank receipt transaction in our books ?

    Replied byEditorial Board Monday, June 03, 2019 at 04:03 PM

    According to Ind AS 16, Property, Plant and Equipment, the cost of a property, plant and equipment (PPE) constructed by an entity itself includes all directly attributable costs, including material and labour costs, incurred by the entity to make the PPE ready for use as intended by the management. The cost does not include any expenditure met by any third party.

    In this case, the company encashed bank guarantee to compensate for the deficiency in work performed. In this scenario, amount received from encashment of bank guarantee should be reduced from the capitalised cost of asset.

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