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Service income

12 March 2016

One of my client P.B pvt ltd is the Distributor/Dealer of Videocon d2h. P.B pvt Ltd is recharge from Videocon (Like mobile E recharge) and the payment made by PB pvt ltd to Videocon including service tax, and PB pvt ltd recharge to customers and collecting income from customers. what is the journal entry for the follwing cases

1.Recharge from D2H (incl ST) and Payment

2.Recharge to customers and collection

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6 Replies

CA Raj Doshi (Practising CA) (8723 Points)
Replied 13 March 2016

1.The amount received from customers is collected by p.b.pvt ltd on behalf of Videocon. Dr Cash Cr Videocon. 2. Commission accrued om sales is booked. Dr. Videocon Dr Tds Asset Cr Videocon. 3. Pay net amount due to Videocon. Videocon is Principal , we are agent. There is no purchase sale transaction.

CA Prateek Garg (CA in Practice) (1444 Points)
Replied 13 March 2016

AT THE TIME OF PAYMENT TO VIDEOCON

This transaction results in creation of recharging rights (asset) for the company and outflow of cash. Any difference in cash outflow and recharge rights created is the income of the company.

Recharging Rights (Asset) ...............................Dr.

Service Tax (Exp.) / Input ST (Asset)...............Dr.

To Cash/Bank

To Profit & Loss A/c

RECHARGING OF CUSTOMERS ACCOUNT

While recharging the customer’s account, company is only utilising its recharging rights purchased earlier.

Cash / Bank.........................................................Dr.

To Recharging Rights (assets)

CA Raj Doshi (Practising CA) (8723 Points)
Replied 14 March 2016

An asset is recognised when it meet the recognition criteria. There is no future economic benefits flowing to the enterprise from recharging rights. Further it is not a right. Please apply substance over form and prudence. Commission income is the essence for the distributor. Hence language of business should become language of accounts. Thanks and regards Raj C Doshi

CA Raj Doshi (Practising CA) (8723 Points)
Replied 14 March 2016

Further service tax is collected by the operator from the customer. The distributor does not collect the service tax on his own account.

CA Prateek Garg (CA in Practice) (1444 Points)
Replied 14 March 2016

"There is no future economic benefits flowing to the enterprise from recharging rights. Further it is not a right.".........hmmm

CA Raj Doshi (Practising CA) (8723 Points)
Replied 15 March 2016

Please provide me guidance in this matter sInce what i quote is my understanding and opinion. I may be completely wrongbut that's secondary to learning. I am junior to you and want to learn from all seniors. Please guide us through this case.