21 October 2012
My client is going to start a scheme. There are around 450 members. Each member will have to pay Rs. 2500 p.m. for 60 moths. There will be 60 draws in which lucky winner will be awarded with big prizes. At the end of the scheme each member will receive a plot of land at pre-decided area.
Now my question is that plots will be alloted at the end of 5th year. But installments will be started from first year. Now how to show these installments in the books of accounts..? As income in P & L or advance Under current liability..?
Constituent of my client is registered partnership firm.
21 October 2012
Since there is no transfer of land in year 1 and the risk and reward with regard to the above plot is transferred only in the 5th year . So the amount received can be kept as an advance . in 5th year when distribution of plots take place, the amount can be recognized as revenue .
21 October 2012
The amount received will be shown as an advance since the assessee is liable to provide land to each of the members in return of their investment.
21 October 2012
First of all Thanks dear for your interest.
But if we show those amount as an advance and recognize as revenue in fifth year then first thing is that there will be very high profit as cost of land will be bookd at stamp value i.e. at jhantri value.
Second thing is that if we show installment amount as an advance during first four years then there will be no income during these years and there will be huge expenses for prizes awarded during each draw. So for first four years there will be high loss and during fifth year there will be huge profit..
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