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Difficult journal entry

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Manjunatha M K (Manager - Accounts) (318 Points)
Replied 02 August 2012

 

1. Sale on 30th march is with condition that if party pay before 5th of April will get 10% discount.

2. As the amount and % of discount is known, on the date of Sale the amount of dicount can be reasonable calculated.

3. And while preparing financials, events between the end of the financial year and date of approval by the board should also be considered.

So, a provision should be made for the discount amount at the end of the financial year.

Otherwise your profit is overstated.


Bijoy (SAP FICO) (48 Points)
Replied 02 August 2012

Dear Experts;

How you are making this as provision.  Standard says that

Provision means When an entity has a present obligation (legal or constructive) as a result of past events;
Probable outflow of resources embodying economic benefits Reliable estimate of obligation.
No provision for future operating losses as does not meet the definition of a liability.
 

please correct, if am wrong.

Thank you

 

1 Like

CA PRIYANSH SURYAWANSHI (M.Com M.A. Economics CA)   (1294 Points)
Replied 03 August 2012

BIJOY SIR U R RIGHT.. I WAS A BIT WRONG.. I MADE IT COMPLICATED FOR MYSELF AND THOUGHT FOR PROVISION

THNX

 


CA Sanjay Bag (CHARTERED ACCOUNTANT) (3340 Points)
Replied 03 August 2012

I am not agreed with the view of Mr. Bijoy ; in Accountancy in general provisions means as follows

" Provision is that action of business in which business organisation reserves his money for future losses for safeguarding business ."

 


Santosh V. Thakur (Sr. Accountant) (187 Points)
Replied 03 August 2012

 

 
A provision is the sum of amount set aside by charging against the profit and loss account. It is created 
for meeting a known loss or liability. Provision is maintained for meeting an anticipated loss or liability of uncertain amount.
 
Objectives Of Provision
 
Some of the important objectives of maintaining provisions are as follows:
 
* To Meet Anticipated Losses And Liabilities
Provisions are created for meeting anticipated losses and liabilities such as provision for doubtful debts, provision for discount on debtors and provision for taxation.
 
* To Meet Known Losses And Liabilities
Provisions are created for meeting known losses and liabilities such as provision for repair and renewals.
 
* To Present Correct Financial Statements
In order to present correct financial statements and to report true profit and financial position, the business must maintain provision for known liabilities and losses.
 
Hence Provision is necessary.
 


Bijoy (SAP FICO) (48 Points)
Replied 03 August 2012

Dear Experts;

i don't know indian AS.  But As per IAS 37, you can not make provision.

this is trade discount.

experts pls clarify what is the present obligation here at balance sheet date for the company who made sales with 10%  discount for prompt payment.

Thank you


Tanash Chakraborty (KPMG) (292 Points)
Replied 03 August 2012

i do agree with mr . sanjay bag's entry.but every enterpriser may have its own policies.accordinly if  an enterprise is trying to create a provision for an expense that may occur in the future i think he is right in doing so.The principle of prudency is being covered and along with that a little part of AS 29 alswo says that when there are events on a accounts closing date which may suggest that an expenditure may be incurred then a provision shall be made because he did know that he might have to incurr the expense of discount.


B.SEKAR (manager-accts.) (61 Points)
Replied 13 August 2012

Dear friends: Provision has to be provided. Normally for wages, power chagres, and even for telephone bill we have to provide for the year 31.03.2012. This discount is pertaining to 2011-12 and not 2012-13. The sales were being effected during 2011-12. If you are not providing for discount you are postphoing the expenses or boosting the profit for the year 2011-12 to the tune of Rs.50000/-. Normally, if we create provision for exp on 31.03.2012 for rs.48000/-, but if the actual exp is rs. 47500/-, Rs. 48000/- is to be created provison in the year 2011-12 and in the year 2012-13, Rs.500/- excess provision has to be credited to the exp a/c. Likewise, if the party is not paying within the stipulated time, the discount taken as allowed is to be reversed.in the next year.>>>>B.SEKAR.


Ravi Baswal (TEACHING) (23 Points)
Replied 13 August 2012

dear akash

              i agree with sanjay,

the two types of discount

             1, cash discount

              2. sales discount.

yor problem related to cash discont . this case is not reated to doubtfull debts. so no need to creat any provission.


pooja (student cpt) (93 Points)
Replied 14 August 2012

PROVISION HAS TO BE PROVIDED..... PRINCIPLE OF CONSERVATISM SAYS DAT.... DISCOUNT MAY BE PROVIDED TO THE DEBTOR, SO THE MAY BE FACTOR INSISTS THE CREATION OF PROVISION




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