24 January 2013
X Ltd. is a company engaged in contruction business. It got a contract of bridge contruction from Y Ltd. The contract revenue is 100 lacs and cost is 70 lacs. As per the terms of contract A Ltd. can issue bill only if 30 percent of work has been done. In the first year 25% of work was done. So, how revenue will be recognised in such a situation?
24 January 2013
As per your contract with customer your billing may starts after 30% works completion. but as per AS-7 need to apply percentage of completion method and recognize the revenue with 25% completion
24 January 2013
Generally this issue will be there in the companies following AS-7 revenue method. Work in progress and revenue both are different. you can create one ledger called " Revenue to be billed - AS-7" under sales pass the entry on last date of closing period and reverse the entry 1st date of succession period. it will solve your problem
24 January 2013
As per the above entry P/L a/c will be credited nd 'Revenue to be billed AS-7' wil be debited. Then where 'Revenue to be billed AS-7' will be shown in balance sheet as per revised schedule VI.
25 January 2013
For revenue booking based on AS7 calculation, you no need to apply service tax, but as per Point of taxation rules of service tax you need to check your service tax liability
In revised schedule VI-Revenue to be billed AS-7 under Sales and debited AS-7 Ledger under current assets
25 January 2013
As per Point of Taxation Rule in case of continuous service service tax liability will accrue only when bill has been approved. So in this case service tax liability will not arise. But there is one issue, if service tax department raises question that revenue has been booked so the company is required to pay service tax. How such situation will be dealt?
25 January 2013
It need to be clarified as complying the Accounting standards provision the revenue shown, actual bill will be raised later and the same service tax will be paid on actual bills.
CAclubindia
