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Discount on creditors

krishnamoorthy (student) (81 Points)

14 February 2016

Is there possibility in any way to create " Discount on creditors "? Krishna murthy

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6 Replies

mohammad rasool baig (Management Consultant) (1026 Points)
Replied 15 February 2016

Please clear the query.... as it is not understandable.....

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krishnamoorthy (student) (81 Points)
Replied 15 February 2016

It is common practice to create reserves against profits on Debtors as provision for bad and doubtful debts according to conservatism principle. But in some books they creates reserve for discount on creditors also; Is it right way?

Kaushik Sekar (Article Assistant) (66 Points)
Replied 15 February 2016

Hi Krishnamoorthy.

As per the basic accounting conservatism concept, all anticipated future losses needs to be accounted. However, incomes are accounted only when they are accrued or when there is a surety that the said income would be realized. In your case, discount received from creditors can be accounted only when the actual discount has been received from the creditor. Creating a reserve for discount on creditors does not hold good, thus violating the priciple of conservatism. Correct me if I am wrong.

Jaspal Singh (Practising CA) (449 Points)
Replied 15 February 2016

Agree with Mr.Kaushik

krishnamoorthy (student) (81 Points)
Replied 15 February 2016

I also agrees with Mr.Koushik; But in CMA-Inter, Financial accounting Paper-5 , pg.no.5.78, para:5.3.4 provision for discount on creditors, given. That's why I asked You may read on line Www.icmai.in/ students/study materials/Paper-5 Thanks for your response