As - 9 post dated cheques treatment

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sumit (Querist)
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14 May 2015 A company has supplied goods to customer as per contract and invoices were raised however due to a dispute customer did not realize the payment and company built up interest on delayed payment as per contractual provisions. Upon settling the dispute the customer has issued post dated cheques (from June to Oct 2015) which includes the amount of original invoices and interest on delayed payment charged.

Company's accounting policy states that Sales are recognized on transfer of
significant risks and rewards of ownership
to the buyer, which generally coincides
with the delivery of goods to customers.

Accordingly revenue for original invoice was booked earlier.

Further Company's accounting policy states that interest on delayed
realization from customers are
accounted for, when there is no significant
uncertainty that the amounts are realizable.

My query is does receipt of post dated cheques establish significant certainty that amount is realizable and can we recognize the interest income right now instead of when the cheque is actually accepted by bank? Please help

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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14 May 2015 Yes, receipt of post dated cheque establish significant certainty that amount is realizable and interest income can be recognized right now. Legal action can be initiated for cheque bouncing.

sumit

sumit (Querist)
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14 May 2015 Thank you for your reply Seetharaman. However, post dated cheques cannot be accepted by banks before the date of cheque and as per a Supreme Court judgement in 1998, a post dated cheque is a bill of exchange only and will become a cheque only on the date shown on it. Does it still establish significant certainty?

If income is recognized right now and later on cheque is not honored then same will have to be de-recognized. Right?

Looking forward to your reply.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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14 May 2015 The Negotiable Instruments Act, 1881 is applicable for the cases of dishonour of cheque. This Act has been amended many times since 1881.

According to Section 138 of the Act, the dishonour of cheque is a criminal offence and is punishable by imprisonment up to two years or with monetary penalty or with both.
The payee may legally sue the defaulter / drawer for dishonour of cheque only if the amount mentioned in the cheque is towards discharge of a debt or any other liability of the defaulter towards payee.
As the cheque has been issued towards discharge of a debt certainty is there to proceed legally and get back the money.

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