Revenue recognition

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This query is : Resolved

KALYANA SUNDARAM.T.V. (Querist)

02 February 2012 I have received an purchase order from the poland company towards supply of equipment in December - 11.

Part of the material say 50% to 60% will be supplied before this march and balance will be supplied in next year. However the total installation will take place only in next year.

As per the Purchase Order the terms of payment is as follows:

1. 20% advance against submission of advance bank guarantee valid till the date of supply.
2. 10% against approval of pre-manufacturing drawing
3. 50% against supply of equipment.
4. 10% against installation
5. 10% against Commissioning and submission of PBG for 10% of the order value.

Whether i can raise a final invoice based on the above event completion and recognize the income at respective stage in my books of account.

If not please provide me the correct methodology to enable me to pass the correct entries in my books of accounts.

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)

12 May 2012 For recognising revenue the essential criteria is that the goods must have passed to the buyer. In your case, the goods will pass to the buyer on final installation.

Accordingly, revenue will be recognised when the installation is complete and has been accepted by the customer.

The amounts received at various points shall be treated as advance.

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