X Ltd. has entered into an agreement with its selling agent Y, in accordance with which...
X Ltd. has entered into an agreement with its selling agent Y, in accordance with which X Ltd. has to pay a base percentage of commission on export sales and an additional commission is to be paid if the export incentives are received. As per the accounting policy of X Ltd., it recognises export incentives when actually realised, on account of the uncertainty in realising such incentives. Export incentives have not been received for the year 20X1-20X2, however X Ltd. is hopeful of receiving the export incentives in the year In the financial statements for 20X1-20X2, should X Ltd. provide for both base commission and additional commission? (Study Material) Answer: So far as the base percentage of sales commission is concerned, it is a present Obligation arising out of past events. The obligating event takes place when the sales are made and also since commission is based on percentage of sale, reliable estimation Can also be made. Therefore, the base percentage of sales commission should be provided. However, in respect of additional commission, it is to be paid when the export incentives are recognised and export incentives are recognised only when it is received. Therefore, the Obligating event will arise only when export incentives are received. Hence. no provision for additional commission is to be made in financial year 20X1-20X2. The expectation of X Ltd. to receive the export incentives in next year would not make any difference as on 31 March 20X2
Homework Answers
So far as the base percentage of sales commission is concerned, it is a present Obligation arising out of past events. The obligating event takes place when the sales are made and also since commission is based on percentage of sale, reliable estimation Can also be made. Therefore, the base percentage of sales commission should be provided. However, in respect of additional commission, it is to be paid when the export incentives are recognised and export incentives are recognised only when it is received. Therefore, the Obligating event will arise only when export incentives are received. Hence. no provision for additional commission is to be made in financial year 20X1-20X2. The expectation of X Ltd. to receive the export incentives in next year would not make any difference as on 31 March 20X2
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X Ltd. has entered into an agreement with its selling
agent Y, in accordance with which...
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SPU, Ltd., has just received its sales expense report for January, which follows. Item Sales commissions...
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