10 November 2008
when should software development charges be recognised in the books of the vendor in the following case:
X pvt. ltd is a software co. into the business of software development. Y inc. is a company incorporated in U.S.A who gives a contract of 100000$ on 1-5-2008. Y inc. pays X pvt. ltd 10000$ every month based on no. of manhours * rate per hour as software development charges.
X pvt. ltd accounts for the software development charges on actual receipt of money on conversion into indian rupees without accounting for Currency flucutations of rate on conversion as required under AS-11. Is the stand taken by X pvt. ltd correct?
10 November 2008
Company's are supposed to maintain accounts mandatorily under accrual system. Accordingly bills are to be accounted on the day it is raised against foreign client on the exchange rate prevailing on the bill date. When money is received difference between booked amount and amount received may be accounted through exchange rate diference a/c and may be routed through the p&l a/c while finalising the a/cs.
11 November 2008
But the company's contention is that whatever actually received is treated by revenue and there is no difference in the exchange rate at all.
11 November 2008
X Limited should book on the basis of timesheets maintained by employee of X limited. So cut-off procedure is also importanat as on date of year ending.
As regards to exchange rate, it should adopt the selling TT rate as on which booking will be done on accrual basis. Advance should be adjusted against such booking & difference should be treated as forex fluctuation as per AS-11
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