Revenue recognition for a transport co.

IFRS 826 views 3 replies

Chandra Kant Mundra

29 Points Joined September 2011

Hi, Guys..

This is Chandrakant Mundra, working BHN Ltd a transport co in Nigeria.

I have an issue booking sale in month end. BHN process of booking sale is when we complete sale ie deliver goods to destination, then we book as sale.

We need to pay drivers many exp like Road exp, Diesel, etc begining of sale, so we need to book at the same time.

But what is happening we initiate a sale on say last day of month and it complete on say 7th day of next month. So if we follow revenu reconition then we requierd to book it on next month but exp related to that sale/trip we have to book on last month. So wew are not able to book profit in the same month in which we incured exp. So it is not showing correct profit in any month.

Please advise me How shall we book sale and exp to arrive at correct profit for month. Please substantiate your answer with appropriate examples, if possible.

Please revert if you need any further explanations in this respect.

Thanks.

CA Chandrakant Mundra

Replies (3)

rajatahir

Asstt. Manager

33 Points Joined June 2012

Hi,

I dont know you are using singal entry or double entry system. If using double entry then may be it can help you.

Since the total debit under double entry system be equal to total Credit, arithmetical
accuracy of the books can be tested by means of a trial balance.

Ø An income and expenditure accounts can be prepared to know the excess
income/ expenditure during a particular period and to know how such
excess income/ expenditure has arisen

Ø The financial position of the Organization can be readily ascertained by
preparing a Balance Sheet.

Sanjay Chauhan (IFRS)

IFRS

2714 Points Joined May 2012

Good question Chandrakant.

Unfortunately, expenses are accrued if the services are reneded during the month. But revenue is booked only in when the risk and rewards are passed.

In your case the decrepency will be there, but only for the first month.

Say in April you will book cost for the month of april but revenue in may.

In May you will book cost from May but revenue in June.

If you look the P&L of May, you have both the legs to match in P&L.

Regards,

CA Sachin Rastogi

Audit/IFRS Manager

338 Points Joined September 2009

Continuing with Sanjay's comment, you will have no issues at the time of the close of year i. 31 December as for a particular year in the beginging you will have revenue and no cost and at the end of the year you wll have cost but no revenue. Considering the opening and closing imapct, the overall impact in a year wil be minimal and immaterial requiring no further adjustment in books.

Regards