Can profit booked last year can be reversed

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work is worship

Service

2728 Points Joined April 2008

For a job of 2008 profit was booked. Subsequently as the job went on a dispute and cargo was lost. The claim is in process and recovery seems remote. Payment has not been received from customer and nor has the payment paid to supplier. If the debtor receivable is offset with the supplier payment to the extent of supplier payment, the balance would be the profit already booked in year 2008. How would the balance lying in debtor a/c adjusted.. will it be written off as bad debt.

Replies (3)

Amir

Learner

4016 Points Joined December 2009

Dear Subra, I didn't understand one thing that when Neither order was executed nor payment was received then on what basis profits were recognised in 2008.. Anyways the balance outstanding in the Debtor as well as Supplier's A/c will be written off. Further I think this is a case of AS-5 i:e error in the ealier Financial Statements therefore the adjsument will come under "Prior Period item" below net profit in the Profit & Loss A/c.

work is worship

Service

2728 Points Joined April 2008

Hi.. I didnt say order was not excuted. The order was excuted ,but the shipment was carried by a third party and lost in transit and there is no proper response on the claim. This is a service provider and the charges are for carrying the goods, so that has incurred . But as the goods not delivered, customer disuting on same and same way we cannot pay the supplier as we have not paid by the customer. THe invoices are of earlier years. 2007 .

Amir

Learner

4016 Points Joined December 2009

Dear Subra,

Principles of revenue recognition says that Revenue to be recognished only when there is

1) "Certainity of It's collection"

2) WORK MUST HAVE BEEN PERFORMED.

In the present case I don't think that the work was performed since goods were not delivered to the customer..Hence the revenue was recognised in voilation of this principle therefore it has to come under a "error or mistake" in finalisation/compilation of accounts

The balance will be written off & will be presented under "Prior Period Items"