Accounting treatment for booking advance on costs received from foreign subsidiary by indian parent

Dear Teams and Experts:

I am writing to determine the following treatments:

1) There are receipts of advance on costs from foreign subsidiary of Indian Parent pertaining to services rendered.

2) How do we treat these and how do we recognize these, in our books as per Revenue recognition principles

3) What are the FEMA regulations pertaining to treatment of advance on costs pertaining to a foreign subsidiary remitting to Indian Parent

4) Do we have to keep in mind any limits and statutes / regulations as applicable and inform corporate bodies apart from the AD banks for these transactions

Please advise expert opinion and if someone wants detailed business scenario, can explain individually to such expert, such that we are following the correct accounting practises and regulatory practises as per FEMA & Accounting Principles.

 

 

Replies (2)

Revenue recognition in the books of subsidiary: It is treated as income as the advance on costs resembles consulting fees for arbitration. This is a separate performance obligation from performance obligation to sell actual services and goods. For this part, the transaction fee, is one part of income and should be recognised in the Subsidiary’s books if services are already rendered like your question mentions.

Bank a/c 100$

To Revenue a/c 100$

Then while consolidating at the year end, the revenue and cash (Current assets) should be Consolidated in the format of P+S and presented in both SPLOCI & SOFP. But, this treatment is valid only for transaction and the exchange rate will the rate at transaction date. Eg. 70₹/$ on the date of fee received from customer.

Remitting to Indian banks, bank charges will be applicable as bankers acceptance is required. 

100$*70=7000₹, similarly, all income statement items and balance sheet items will be translated to indian currency will be consolidated and the gain/loss will be presented in the Comprehensive Income statement if it is 100% holding. Or else, NCI part of gains and losses will Ben included.

 

 

 

 

 

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