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Annual maintenance contract

prasa (Student CMA) (35 Points)

13 September 2016

the revenue collected under AMC is to be spread over the entire tenure of the contract. what is the treatment for that part of AMC which pertains to Goods. will that also be spread over the contract life or will it be entirely recognised when the goods are provided irrespective of the tenure.

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9 Replies

Naveen (student) (49 Points)
Replied 13 September 2016

I need further information for an accurate reply. Whether the revenue collected is for maintainence of goods?

prasa (Student CMA) (35 Points)
Replied 13 September 2016

yes ,for example KENT water purifier give AMC options - they maintain the water purifier and also provide consumables under the contract.

Naveen (student) (49 Points)
Replied 13 September 2016

The revenue from AMC contract should be recognised over the period of the contract. For example if the contractual income is Rs10000/- for the period 01/09/2016 to 31/08/2017 then income to be recognised for F.Y.2016-17 is 5833(10000/12*7). The remaining 4167/- is recognised as income for the F.Y. 2017-18

prasa (Student CMA) (35 Points)
Replied 13 September 2016

Eg - out of that 10000 , Rs. 4000 pertains to filter and remaining is for sevice. in the month of january the consumer gets the filter then how will that 4000 be shown ?

Bharath (C.A,C.S) (3983 Points)
Replied 13 September 2016

Hi,

If your giving a composite bill with one single amount for the AMC, then you can spread the same thorughout the period of the contract. In case you charge for the Goods separately, you can account for it as and when you raise a sale bill.

Regards

Bharath

prasa (Student CMA) (35 Points)
Replied 13 September 2016

HI ,

EVEN IF THE BILL DOES NOT SEPERATELY CHARGE FOR GOODS AS PER REVENUE RECOGNITION CONCEPT WE CANNOT SPREAD THE GOODS VALUE AFTER IT HAS BEEN PROVIDED. SO IN THAT CASE CAN IT BE ACCRUED THROUGHOUT THE TENURE OF THE CONTRACT ?

THANKS !

prasa (Student CMA) (35 Points)
Replied 13 September 2016

HI ,

THANKS !

Naveen (student) (49 Points)
Replied 13 September 2016

If you charge expressly 10000/- without any point in the contract. Then it must be deferred during the contract period.

If you want the 4000/- to claim you have to add a point in the contract which is as follows:

Filter will be compulsarily replaced within 6 months from the contract date.

If you have mentioned this point then there is 100% guaruntee that you will incurr expenses for the filter in the year 2016-17 itself then you can claim it as revenue for 2016-17

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