As we execute TReDS platform agreement with A Treds Ltd,RXIL. as a buyer, we will be discounting Purchase Bill thru' bid process on platform , we will feaute in Platform intermediary 's balance sheet.
Kindly guide about accounting Entry both for seller & buyer part.
Incidentally, as this is off balance sheet item, whether we need to notify MCA and lender banks [ CHG 1 holders].
Kindly guide.
To clarify, you're asking about the accounting entries for both sellers and buyers on the TReDS (Trade Receivables Discounting System) platform, as well as the disclosure requirements for off-balance sheet items.
Accounting Entries for Buyer 1. *Initial Entry*: When you discount a purchase bill through the TReDS platform, you'll debit the "Purchase Bills Discounted" account and credit the "Accounts Payable" account.
2. *Payment Entry*: When you make the payment to the TReDS platform, you'll debit the "Accounts Payable" account and credit the "Cash/Bank" account.
Accounting Entries for Seller 1. *Initial Entry*: When you assign the receivable to the TReDS platform, you'll debit the "TReDS Platform" account and credit the "Accounts Receivable" account.
2. *Receipt Entry*: When you receive the payment from the TReDS platform, you'll debit the "Cash/Bank" account and credit the "TReDS Platform" account.
Disclosure Requirements for Off-Balance Sheet Items As the TReDS platform is an off-balance sheet item:
1. *MCA Notification*: You may need to notify the Ministry of Corporate Affairs (MCA) about the TReDS platform agreement, as it may be considered a material transaction. Consult with your auditor or a financial advisor to determine the specific requirements.
2. *Lender Banks (CHG-1 Holders)*: You should notify your lender banks (CHG-1 holders) about the TReDS platform agreement, as it may impact your credit arrangements.
Review your loan agreements to determine the specific disclosure requirements.
Additional Considerations 1. *Accounting Standards*: Ensure compliance with the relevant accounting standards, such as AS 19 (Accounting for Lease Finance) and AS 30 (Financial Instruments: Recognition and Measurement).
2. *Tax Implications*: Consult with your tax advisor to determine the tax implications of using the TReDS platform. It's essential to consult with your auditor,
Guy who sold the receivables- Seller/Creditor/Business
Dr. Bank
Dr. Factoring expense
Cr. Receivables
Guy who purchased? There is no factoring arrangement for that. Query not understood. Even if it was there for payables the journals won't match.
We ,as a buyer will upload Sales Invoices issued by MSME sellers on the platform. Participating Bank's will bid and we will accept the lowest one. Amount will be paid upfront to MSME seller and on due date, the platform owner will debit our account with interest and settle with successful bidder to square off the transaction. What will be accounting impact through out the chain
Dr. Purchases 100
Cr. Payables 100
The Buyer-Initiated Exchange Process
Once the complete process is over, you owe them 100 only.
Dr. Payables/creditor 100
Cr. RXIL100
If you want to include financing element as per AS standards into it which I don't think you need to
Dr. Payables/Creditor 90
Dr. Discount charge 10
Cr. RXIL 100
On due date
Dr. RXIL 100
Cr. Bank 100
But 10 is discounting charges which is pending. So discount charge/interest cannot be recognised.
Just follow off
Dr. Payables 100
Cr. RXIL 100
AND
Dr. RXIL 100
Cr. Bank 100
If your asked to pay anything above 100 then you must recognise interest.
Chirag N Shah & Associates
Mumbai
CA Inter
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