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Accounting for sale through e-auction

CA abhishek Jain (Associate manager) (106 Points)

08 May 2014

Hello All,

I have a query regarding accounting for Sale through E-auction. Actually the fact is company is selling goods through a Monitoring committee under e-auction. At the time of sale(E-Auction) company came to know who is the buyer(successful bidder). Now the question arises at the time of sale whether one should debit the third party account or Monitoring committee account?

Thanks in Advance.

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8 Replies

CA Saroj Kumar (Keen to learn something new every moments) (2588 Points)
Replied 10 May 2014

Look if there is all the risk of selling related activities are carried by the committee itself then committee shall be debited . i mean to say if selling and relisation are with committee then the same would be follwed. if not then third party account shall be done...

CA abhishek Jain (Associate manager) (106 Points)
Replied 10 May 2014

Thank you Saroj,

Actually that comittee is just like a mediator, and after e-auction the buyer directly pay the whole sale consideration to us as advance, but it takes the delivery of the goods as and when he needs.

CA Saroj Kumar (Keen to learn something new every moments) (2588 Points)
Replied 10 May 2014

Then surely ...Party account will be debited....no doubt at all....

CA. Mayur (Service) (147 Points)
Replied 11 May 2014

According to my understanding about this industry they normally sell goods on cod basis i. e. Cash on delivery and I doubt they provide any credit period to buyers. So I am wondering why debtors will come in picture?

CA Saroj Kumar (Keen to learn something new every moments) (2588 Points)
Replied 11 May 2014

Now i got ur point dear/...........u mean to say that your company in doing tendering thorugh which you are selecting the Buyer once the Buyer is selected the buyer has option to purchase the goods on demand basis i.e Whenever they need they will palce the order to you to provide delivery of goods and the same time you are providing the goods and receiving Cash on delivery. Now your question atr the time of selcetion what would be enrty in the books,If m right then No entry shall be done at this bcs no transaction have been placed in the company marely there is procedural part by the company have been fulfilled. however once you get the Sale order or Purchase order from the buyer you have to make suitable entry in the books.

CA abhishek Jain (Associate manager) (106 Points)
Replied 12 May 2014

CA Mayur: The sale is not done on COD basis, actually i am talking about sale of iron ore, No one can sell the iron ore directly they need to sell through E-Auction (which is monitored by monitering committee). After the sucessful bid the buyer has to pay advance to the seller and once the payment received buyer can take delievery of the goods as and when it needs.

For eg.

Date 30/3/2014 Buyer buy the goods under e-auction

Date 04/04/2014 Buyer pay the advance to seller

Now as per AS-9 one need to recognise revenue as and when the risk & reward transferred to the buyer, so here debtor (i.e. Buyer) will come into picture, because seller needs to recognise revenue as on 30/03/2014 by debiting the buyer.

Now my question was if the seller debits to the monitering committee instead of buyer, and after the advance received first he will credit the buyer & then debit the buyer & credit the Monittering committee, whether it will be right?

CA Saroj Kumar (Keen to learn something new every moments) (2588 Points)
Replied 12 May 2014

Sir as i have experience of this .....There is no role of Monitoring committee in revenue relisation hence he shall not will come into picture...bcs of sale already completed on 30.4.... hence revnue should be booked on that dat itself....

Bcs once advance received its sure that that buyer is lible to purchase.

CA. Mayur (Service) (147 Points)
Replied 15 May 2014

CA Abhishek: Thanks for clarifying it.

It is important to assess the role and responsibility of Monitoring committee in order to understand that whether they are merely acting as agent or they are actually acting in principal capacity. Because their role will determine the revenue recognition timing and debtor against whom the sales should be booked.

In my view, you have to evaluate whether the risk and rewards are being transferred to Monitoring committee first and then to buyer or it has transferred directly to buyer.

This is very industry specific and therefore industry practise will be very helpful. Have a look on annual report of big mining companies like Vedanta. This may be helpful in concluding.