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Reversal of income booked in previous year

Ankur Agarwal (Service) (46 Points)

21 August 2008

HI:

I am facing an accouting treatment problem.

XYZ invoiced to ABC to services for the value of INR 10 lakh plus service tax. ABC made the complete paymentafter deducting applicable TDS on the invoice amount. This happened in FY06-07. Books audited, return submitted.

Now in 08-09 there is another transaction with ABC wherein some excisable goods had been invoiced. The value is say INR 20 lakh plus excise duty and VAT.

Now the ABC says that it will adjust the earlier payment of INR 1 lakh plus service tax from this current year transaction and shall pay net amount.

Kindly advice on accounting treatement of this transaction. What can be best method except for showing the balance payment as bad debts?

thanx

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5 Replies

Vidya (Student) (789 Points)
Replied 24 August 2008

Are they adjusting part of the money paid in the earlier year against this year's invoice? [10 Lakhs received and only 1 Lakh adjusted]. You can pass a Prior Period Transaction, if this 1 lakh is material considering the size of the company. Else, it can be adjusted against the income of current year. i.e. The sales can be booked net of the adjusted amount.

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Ankur Agarwal (Service) (46 Points)
Replied 26 August 2008

Hi Vidya:

regret for the confusion, the complete 10 lakhs plus tax are being adjusted from current year payment. And since the goods sold in current year are excisable and vatable, any booking of less than sale amount will result in mismatching of balance sheet with Trading account being sumitted at the time of assessment, also liability of excise ad vat will be incorrectly recorded.

regards

Shubhankar Limaye (B.Com.) (174 Points)
Replied 27 August 2008

So far as I have understood there are only two transactions

Rendering of service and charging 10 lacs plus service tax in FY 06-07
Sale of goods worth 20 lacs plus excise and VAT in FY 08-09.

The payment as regards the first transaction is made by ABC therefore closing that transaction. Now I fail to understand which amount is to be adjusted against the second transaction and paying the balance amount.

Kindly clarify.

Ankur Agarwal (Service) (46 Points)
Replied 29 August 2008

HI Subhankar:

The customer wants to adjust the complete 10 lakhs +tax paid by him on 06-07 to be adjusted from 20 lakhs plus taxes in current year.

thanx

Shubhankar Limaye (B.Com.) (174 Points)
Replied 29 August 2008

The Customer shall not be able to adjust transaction one with transaction two, the reason being that both the transactions are unrelated. It is not the case wherein a person who after paying for repairing a particular machine, buys a new machine and is willing to deduct the repairing charges paid.

It is not the case wherein the customer has not paid for earlier transaction.