Hi my client is a dealer of a Multi-national Company. Say, Co. X (who is a manufacture of a consumer product). There is an arrangement between the Co. X and my client that on every sale of product to the customer, my client should give a discount of Rs. 30,000 to the customer. This discount expense will be equally borne by the company X and my client. For its share of discount expense company X will raise credit note on my customer.
On top of the above mentioned discount, my client is giving additional discount to its customer (say Rs. 20,000) to retain its market share.
In financial statements my client is disclosing the above transactions as follows:
|
Revenue |
in Rs. |
|
Sale of Products |
|
|
Sales |
XXXXX |
|
Less: Discount |
(30,000) |
|
Other Revenue |
|
|
Income recd from co X |
15,000 |
|
|
|
|
Expense |
|
|
Selling Expense |
|
|
Discount on sale |
20,000 |
Is this practice correct? I am asking my client to net off the additional discount of Rs. 20K from the sale figure. But they are saying that since this additional discount will be different for each and every sale as this dicount is given only based on the customer bargaining power. It should be shown only as selling expense and not as a deduction from top line. please let me know the correct accounting treatment for this transaction.
CAclubindia
