20 November 2014
The Company is into Construction ( service Industry)
Example Case During FY 2013-13 Revenue billed to Contractor - 1000 Rs. Work Certified by Contractor - 800 Rs. Debit note raised by Contractor - 50 Rs. Revenue as per POC - 900 Rs. (Hence revenue recognised in PL should be 900 and 100 should be shown as Billing in excess of revenue?)
Now my query is - my Book shows debtor of 1000. But debtor has confirmed 750 (800 revenue and less 50 debit note)
So what is the accounting treatment for the difference of 250 between the books and statement by debtors.
(However, Just imagine if I had been Auditor of the other Company (Contractor Company) and as a prudence would have asked him to account for contact expense of 1000.)
What about AS-7 : Contract revenue which is RS.900 in the above exambple. Then my revenue should be 900 right.
Also If i have to account only for 750 as debtors (after reversing the 250 as suggested), then will I have to reverse the same in revenue or will I have to show it as bad debts.
Finally, Assume that there is service tax liability involve, and I would have remitted ST on Rs.1000 but now revenue is only 750, how to adjust this in ST.Hence revenue in my ST returns will not match.
I know this are too much of question, but this is what my current state of thoughts and in verge of completion of Audit.
21 November 2014
Work certified by the contractor is Rs.800 account this as revenue. Proportionately account the expenses balance expenses carry over under work in progress. Excess paid service tax can be adjusted in next payment.
21 November 2014
1. Should the revenue not be recognized at 900 as per AS 7 under POC method.
2. Why should expense be proportionate. Whens it is debited would you not take the full charge.
3. Also in your case I should reverse 200 Revenue with debtors. In that case my Invoice wont match, should I issue a credit note. Or alternatively recognize 1000 and provide for doubtful debts for 200?
21 November 2014
My understanding is still that Revenue is always as per AS-7 POC and should be 900.
And If Company issue credit note of 200 then its looses the claim of 200. It is common in construction industry to do a short certification by the contractor to delay payments.
Please anyone can second the Opinion or clarify my understanding.
Or if anyone has any second opinion on the case given above.
21 November 2014
By issuing credit note you will not loose your claim. Claim the amount in the next bill. You yourself admitted there will be delay in certification for that you will not loose any money, as it will be certified later.
22 November 2014
As per the revised AS 7 the accounting was to be done as per percentage/progressive completion method. You go by it no body will question you.