GST ACCOUNTING
IV Valuation of inventories of capital goods
- Inventories of capital goods, such as, components, spare parts, accessories, tools, etc., should be valued net of GST credit. In other words, input tax paid on such capital goods should not form part of their cost.
V Accounting treatment for output tax, i.e., GST on sales
- The Framework for the Preparation and Presentation of Financial Statements, issued by the Institute of Chartered Accountants of India, has defined the term ‘income’ as below:
“Income is increase in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants.”
- The amount of tax collected from customers on sale of goods should be credited to an appropriate account, say, ‘GST Payable Account’. Where the enterprise has not charged GST separately but has made a composite charge, it should segregate the portion of sales which is attributable to tax and should credit the same to ‘GST Payable Account’ at periodic intervals. The amounts of GST payable adjusted against the GST Credit Receivable (Inputs) Account or GST Credit Receivable (Capital Goods) Account and amounts paid in cash will be debited to this account. The credit balance in GST Payable Account, at the year-end, should be shown on the ‘Liabilities’ side of the balance sheet under the head ‘Current Liabilities’.
- Where a dealer is enjoying tax holiday and, therefore, his liability to pay output tax is deferred for a period more than one year under the State laws on GST, the amount in the ‘GST Payable Account’ should not be reflected as a current liability. The same should be reflected as a long-term liability.
ILLUSTRATIONS ON GST ACCOUNTING
Illustration 1
| Purchases made by Dealer during the month of August 2010: | |||
| Particulars | Cost of Goods (Rs.) | GST Paid (Rs.) | Total cost of Goods (Rs.) |
| 4% GST Goods | 10,00,000 | 40,000 | 10,40,000 |
| 12.5% GST Goods | 8,00,000 | 1,00,000 | 9,00,000 |
| GST Exempt Goods | 2,00,000 | - | 2,00,000 |
| Total | 20,00,000 | 1,40,000 | 21,40,000 |
| Sales made by the dealer during the month of August 2010 are as below: | |||
| Particulars | Sales price (Rs.) | Less: GST Collected (Rs.) | Net Sales Consideration (Rs.) |
| 4% GST Goods | 11,44,000 | 44,000 | 11,00,000 |
| 12.5% GST Goods | 10,12,500 | 1,12,500 | 9,00,000 |
| GST Exempt Goods | 2,50,000 | - | 2,50,000 |
| Total | 24,06,500 | 1,56,500 | 22,50,000 |
| ACCOUNTING ENTRIES | ||||||||||||||||||
Purchase of goods
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Sale of Goods
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Netting-off of GST liability (computation of net tax)
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Net credit balance of Rs. 16,500 (i.e., Rs. 1,56,500 – Rs. 1,40,000) in GST Payable A/c is disclosed in the balance sheet as below
Extracts from Profit and Loss Account
| Particulars | Amount(Rs). | Particulars | Rs. |
| 4% GST Goods Purchases | 10,00,000 | 4% GST Goods Sales | 11,00,000 |
| 12.5 % GST Goods Purchases | 8,00,000 | 12.5 % GST Goods Sales | 9,00,000 |
| GST Exempt Goods Purchases | 2,00,000 | GST Exempt Goods Sales | 2,50,000 |
| Profit | 2,50,000 | ||
| Total | 22,50,000 | Total | 22,50,000 |
Extracts from the Balance Sheet
| Current Liabilities | (Rs). | Current Assets | Rs. |
| Share Capital | xxxx | Fixed Assets | xxxx |
| Profit | 250000 | Current Assets | xxxx |
| Creditors | xxxx | ||
| Secured Loans | xxxx | ||
| GST Payable Account | 16,500 | ||
| Total | XXXXX | Total | XXXXXX |
| ACCOUNTING ENTRIES | |||||||||
Payment of Tax, if net balance in GST Payable A/c is in credit
Note: Above Balance sheet would change accordingly.
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- Other illustrations on GST accounting is on next articles
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