Chartered Accountant
24 Points
Posted on 26 August 2013
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Originally posted by : Rohan |
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Dear Friends
A Company earns foreign Income from Parties from countries like South Africa, Pakistan, Bangladesh etc
However, there is uncertainty of subsequent payments to be received from some parties in countries like Nigeria, Pakistan etc due to various reasons.
My Questions are :
1. Can the Company recognize the payments from these parties on cash basis now? (earlier it was on accrual basis)
2. As the amounts are not Material in nature, will it violate AS-9 Revenue Recognition?
3. Also, please kindly also mention about any permission to be taken from RBI to write off amount of foreign parties in case the income is not received from them?
Any help in this matter is highly appreciated
Thanks & Regards
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Please refer below the relevant para of AS 9
9.2 Where the ability to assess the ultimate collection with reasonable certainty is lacking at the time of raising any claim, e.g., for escalation of price, export incentives, interest etc., revenue recognition is postponed to the extent of uncertainty involved. In such cases, it may be appropriate to recognise revenue only when it is reasonably certain that the ultimate collection will be made. Where there is no uncertainty as to ultimate collection, revenue is recognised at the time of sale or rendering of service
even though payments are made by instalments.
9.3 When the uncertainty relating to collectability arises subsequent to the time of sale or the rendering of the service, it is more appropriate to make a separate provision to reflect the uncertainty rather than to adjust the amount of revenue originally recorded.
Answer to your query would be as follows;
Entity being Company, revenue needs to be recognised on accrual basis, however such revenue recognition is to be as per AS 9, as per para 9.2 at the time of sale itself if there is an uncertainty of collection, then postpone recognition, however as per para 9.3 the recognition can be made but it is more appropriate to make a separate provision to reflect the uncertainty.
For question relating to permission from RBI - Yes the company is required to obtain permission.
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