28 April 2013
If in my last query, if the contractor purchasing material with his name and after that issue a new invoice on a profit on material to the party(Contractee). Is it right? Whereas in contract agreement material is of contractor. Is contractor can show profit on material?
My confusion is about the affect of VAT and Income Tax that if the contractor charge profit in invoice raised to the party then his vat(Output Vat-Input vat) liability will be increased. On the other hand his income from contract will decreased i.e. Contact Price-(Cost of Material in which also include profit+ other costs). Am I right or wrong?
Plz. suggest me what should be the correct accounting system for the above problem.
29 April 2013
Mr narender, By any system of acounting it is wrong to indicate profit in each invoice. It is not a practical and also not advisable method. Moreover,profit of a business activity is ascertained only at the end of a known period,by closing all accounts.The terms of a contract will always be to charge on units of work done and not the material or the labour utilised for it.Therefore purchases and labour payments are to be accounted as such along with other expenses.At the end of an yearly,halfyearly or quuarterly period, or even projectwise,trading and P&L a/c are to be drawn to know the tax liabilities.This is the accepted procedure.Why some confusion?.....mjk
01 May 2013
Thanks Sir Sir, I'm also want to ask that If the contractor purchase goods with his name and bring goods at his site and after processing or working on it want to send it on work site then, What r the requirements to be fulfilled under VAT? Like there should be bill with materials, outward form. And is this should I treat as sale or transfer? Plz. suggest me in detail.
11 June 2013
I agree with the expert on the first issue raised by you. On the second issue you have to transfer the goods to your own site and you can use form H
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