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.

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

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

THNX

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 ."

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

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.

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.

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.

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