Service income

1.The amount received from customers is collected by p.b.pvt ltd on behalf of Videocon. Dr Cash Cr Videocon. 2. Commission accrued om sales is booked. Dr. Videocon Dr Tds Asset Cr Videocon. 3. Pay net amount due to Videocon. Videocon is Principal , we are agent. There is no purchase sale transaction.

AT THE TIME OF PAYMENT TO VIDEOCON

This transaction results in creation of recharging rights (asset) for the company and outflow of cash. Any difference in cash outflow and recharge rights created is the income of the company. 

Recharging Rights (Asset) ...............................Dr.

Service Tax (Exp.) / Input ST (Asset)...............Dr.

      To Cash/Bank

      To Profit & Loss A/c

 

RECHARGING OF CUSTOMERS ACCOUNT

While recharging the customer’s account, company is only utilising its recharging rights purchased earlier.

Cash / Bank.........................................................Dr.

      To Recharging Rights (assets)

An asset is recognised when it meet the recognition criteria. There is no future economic benefits flowing to the enterprise from recharging rights. Further it is not a right. Please apply substance over form and prudence. Commission income is the essence for the distributor. Hence language of business should become language of accounts. Thanks and regards Raj C Doshi

Further service tax is collected by the operator from the customer. The distributor does not collect the service tax on his own account.

"There is no future economic benefits flowing to the enterprise from recharging rights. Further it is not a right.".........hmmm

Please provide me guidance in this matter sInce what i quote is my understanding and opinion. I may be completely wrongbut that's secondary to learning. I am junior to you and want to learn from all seniors. Please guide us through this case.