As 7 and as 9

This query is : Resolved

Sanjay Bhandari (Querist)
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21 September 2011 Dear all,

I need an urgent help to my following querie:

1. Our company ( A Ltd) has received two separate purchase order from our client.
a) Supply of equipments for client plant
b) Erection of equipments at client plant

2. Under (a) above, We had supplied material and raised sales invoice to clients as sale of goods and CST or VAT as applicable has been charged as per sales tax law. The owner ship of those good have been transferred to client at the time of delviery of goods. Since this is purely supply invices therefore client has not deducted any TDS on these bills. A Ltd has transferred to client the property in the goods for a price and all ownership have been transferred to the client. This is a fixed price order for supply of goods hence no uncertainity exists regarding the amount of the consideration of sale os goods.

3. Under Case (b) this is totally service order for erction and installation & commissioning of equipment provided by clients. These equipments have purchased by the clinet from us or any other vendor or imported direcly by the client.We have raised service invoices and charged service tax. Client has paid after deducting TDS. During period of time we have raised propotionately invoice as per work completed.

Q1. Our query is that AS 7 will be applicable or not. if yes how we will recognise income as per AS-7.

or
Q2. we should follow AS 9 for income recongnisation for sale of goods separately for order (a) above and sale of services separately for order (b) above.

CA Pushpendra Gaur

CA Pushpendra Gaur (Expert)
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26 September 2011 Q1 Yes, As-7 will be applicable for the erection work and periodical income is required to be recognised in the following case.
The Income is to be recognised on the basis of Completed Work (Percentage Completion method only)

You r required to calculate the cost incurred till date and total estimated cost to be incurred on erection work.
Then calculate the percentage of Completion as
Cost Incurred / Total cost estimated
The percentage calculated above will be the amount of Total revenue you r required to calculate.
From the above revenue, please deduct any part of the revenue which has been recognised in any previous financial year

Q2 You are right for the query 2

Sanjay Bhandari

Sanjay Bhandari (Querist)
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01 December 2011 Mr. Gaur,

Thank you for your reply.

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