One of our client has received large advances from its customer. The client has only one customer. The advances have been deployed by the client company to acquire inventory to be used to service the customer or has been given as advance to the suppliers for materials. The balance sheet as of now has Advance from customer on the liability side and Inventories and Advances given to Suppliers on the asset side.
The clinet wishes to show the customer advance as net of amount already spent on inventory and advances. This would mean that Inventory, even though physically available with the client will be shown as "NIL" on the face of the balance sheet. Same is the case with Suppleirs advances. Correspondingly, the Advances from Customers will also be lower by that amount.
Is this treatment correct.
Thanks
Adhar
CAclubindia
