Dipjyoti Majumdar (CA in service & CS. dipmaj@ rediffmail.com ) (3468 Points)
25 January 2012Friends
If a company has received an advance say during Fy 11-12 for rendering of service, should it transfer or how much to transfer to revenue on 31/03/2012 ? What are the factors to be considered ? I have gone through AS 9 but wanted to invite Your esteemed thoughts.
Regards,
Yogesh Shah
(Managing Corporate Finance)
(1051 Points)
Replied 25 January 2012
Hi dipjyoti
Im sharing my views on ur question. Other expert views are eagerly awaited.
While answering this, two financial areas must be considered. First is AS – 9 ‘Revenue Recognition’ and latest boom in indirect taxes ‘Point of Taxation Rules’ since company has received an advance for rendering of services.
AS – 9 has said that revenue to be considered only when service is completed. It deals with receipts and receivables etc. but advance received by company is neither receipt for rendering services nor it is receivable. It is an advance, hence as per AS-9, it shall not be treated as income but it has to be shown as an advance in balance sheet.
In respect of aforesaid rules, invoice has to be issued within 14 days and service tax has to be paid etc. etc. This is all applicable for payment of service tax and it has nothing to do with revenue recognition.
Hence, in my view, such advance shall not be treated as revenue but will come in balance sheet as advance.
CA Suraj Lakhotia
(IndigoLearn)
(4898 Points)
Replied 26 January 2012
Para 12 of AS 9 states -
CAclubindia
