Treatment of penalty deducted from Contractor

This query is : Resolved

chandra sekher agarwal (Querist)
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31 August 2010 Penalty is deducted from the contractor for non-compliace as to terms of agreement. What would be treatment of penalty in the books of accounts. Whether is be shown as deducted from the respective expenses or booked as miscellaneoue income. Please advice.

CMA. Subhash Kumar Jha

CMA. Subhash Kumar Jha (Expert)
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31 August 2010 In my opinion...

This may be treated as indirect income, if it relates to some job work etc...

If it is related to some asset creation, then the value of the asset may be netted (with the amt of penalty)

Do check with other experts too.

CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)
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31 August 2010 My view is

This is terms of contract, need to adjust with respective contract cost

CA Amit Joshi

CA Amit Joshi (Expert)
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31 August 2010 As per As-9 (Revenue Recognition)we can't adjust our income if it is once recognized. If there is any change in income u have to pass separate entry.
So applying the same concept on Exp as per my knowledge Penalty should be recognised as Extraordinary Income..

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