Para 19.15 — CAM
Original Rule Text
19.15 ACQUISITION OF STORES ON DEFERRED PAYMENT TERMS.
19.15.1 Under agreements/contracts entered into by the Government of India with foreign Governments/Suppliers abroad, equipment, stores, etc. are sometimes procured on deferred payment basis. According to the terms of such agreements/contracts specified sums are payable to the foreign Governments/Suppliers from time to time along with interest, if any, in terms of the conditions of the relative agreement/contracts. It has been held that the purchase of goods on credit while constituting a commitment to pay, does not ipso facto constitute a loan or borrowing. Accordingly, the full value of the equipment/stores procured on deferred payment terms or on supplier's credit should be brought to account immediately on receipt of the plant and equipment or stores in question. It will be done by debit to the relevant service major head of account with contra credit afforded to a suitable suspense
head within the same service major head, as in the case of Public Works Department. The credit under the Suspense head will be relieved as and when actual payments are subsequently made to the suppliers/ foreign Government.
19.15.2 Interest payable on the deferred payment purchase has the effect of increasing the value of the goods purchased and therefore, shall be debited to the same head to which the full value of the equipment, stores etc. was initially debited, as and when they are paid. All Ministries / Departments, with the exception of Ministry of Defence, shall follow the above procedure even if issue of promissory notes or loan agreements covers the purchases on deferred payment terms / supplier’s credit. This is due to the fact that the said imports constitute a commitment to pay the supplier over a period of time and the accounting adjustments prescribed as above do not alter the mode of such commitment.
19.15.3 In order to enable PAOs to carry out the required adjustments, all the concerned Ministries/Departments concerned should send advices to the PAO to carry out the adjustment in question as soon as the equipment, stores, etc. are received. The exception being the departments where PW system of accounts is followed and the initial and subsidiary accounts are compiled departmentally for rendering to the PAOs. In such cases, the value of the equipment etc obtained on deferred terms/supplier's credit should be reflected in the compiled accounts rendered to the latter.
(Based on Ministry of Finance (DEA) O.M.No.F.1(69)-B/74 dt. 22nd October, 1974 and O.M. of even No dated 8th May, 1975).
What This Means
When the Government of India procures equipment or stores from foreign suppliers on a deferred payment (credit) basis, the full value of those goods must be recorded in the accounts immediately upon receipt, not when payments are eventually made. This is done by debiting the relevant service head and crediting a suspense head. As actual payments are made over time, the suspense head is cleared. Interest on deferred payments is also debited to the same head as the original purchase since it increases the total cost of the goods.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- 1Full value of deferred-payment stores must be booked immediately on receipt, not when paid
- 2Accounting entry: debit service major head, credit a suspense head within the same major head
- 3The suspense head is cleared progressively as actual payments are made to the foreign supplier
- 4Interest on deferred payments is debited to the same head as the original purchase
- 5All Ministries except Defence follow this procedure even when promissory notes or loan agreements cover the purchase
Practical Example
The Ministry of Health procures medical imaging equipment worth Rs.50 crore from a German manufacturer on 3-year deferred payment terms. When the equipment arrives and is received, the PAO immediately books Rs.50 crore as expenditure under the relevant service head and creates a contra credit in a suspense account. Over the next three years, as quarterly installments of Rs.4.5 crore (including interest) are paid, the suspense balance is reduced and the interest portion is also debited to the same expenditure head.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
Why is the full value booked immediately instead of when payments are actually made?▼
Does this rule apply to the Ministry of Defence?▼
Who is responsible for sending the advice to the PAO to make these adjustments?▼
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.