Check your inbox or spam folder now to confirm your subscription. How should this be booked – 1. as reduction of income or 2. as normal OPEX (service cost)?I am looking in IAS 18, but I don’t find anything on this. 30th August Principal made delivery of 1 000 jars of honey (100 CZK/jar) and 80 jars of peat (register price 80 CZK/jar). Demand for honey is going to be bad. God bless you. (iii) furthermore there will be 2 or 3 payments to a seller for one item sold. has information you must know before you submit your application, and explains how to fill out the forms and gather your supporting documents. Yulias, Selling prices of the used bikes are usually set by the seller, but GreatGear has the right to adjust the price by pre-approved percentage and seller must be informed about the adjustment. Yes, you are right, in both cases, the profit or loss effect is the same. Cr. Links to external websites are provided as a convenience and should not be construed as an endorsement by the U.S. Department of State of the views or products contained therein. Social Sciences Division departments will be early adopters of eExpenses, to allow for a review before it is introduced more widely, and provisionally are expected to introduce the system during April, with the exact date to be confirmed. Dear Joost, THank, currently I audited a client of same nature which invoice the customer and pass entry but entry is receivable from cutomer Dr and payables to parent CR. The reason is that the bikes are returned to sellers if not sold. Conclusion – GreatGear accounts for the revenue from sale of bikes in gross amounts as it acts as a principal. Thank you Silvia. Dear Bales, this is a typical selling cost. In your example, service provider is clearly a principal and event manager is just supplier. Invoice is shown like: 100% – xx% commission = yy% to pay. Dianna - Teaching Upper Elem. Inventory risk is out of question for the services and customer credit risk will not be that high as the customers actually pay before they can download the song. – we collect payments upfront from customers as the transaction happens So, It is a Principal, Am I Right ? Hi Silvia, In case you are acting as an online travel agency? Thank You a lot! Easy #teacherhack for teaching writing…” • Follow their account to see 1,540 posts. In your case, customer pays to agent, but in my case, customer pays in full to our company, then the proceed is shared 60:40 between my company (principal) and third party (agent). You are really making Accounting simple for the entire being. The primary question here is whether all, or at least majority of risks and rewards of ownership of the new bikes were transferred to GreatGear or not. Company A (Parent Company) has an agreement with Company B (Subsidiary Company) under which Company B has to provide services to Company A. Does this assessment determine whether the revenue should be recognised over time or at a point in time? In addition: if it is not totally clear what the commission amount will be, can we account on the Full turnover en full Cost of Sales and lable the result as the commission? In this case, Songer would account for the revenue on the net basis (acting as an agent): Credit Revenue from sale of songs (commission): CU 0.40. If Songer sells music or other files created exclusively for the brand “Songer” by other artists and these products are not available elsewhere, then the things are different. Although some of the sub-contractible items are fully handled by the service provider, and not sub-contracted. no, it does not determine whether over time or at the point of time. My company provides gas storage services to a only one client for the 100% of the capacity of our tanks. If you are not responsible for the travel services, then you should recognize commission when you have the right to get it. Or the Revenue will be total amount i.e. but clearly, this is not fair representation because it inflates the real estate company’s utility expense. Does it make sense? 4 1996 The Freedom of Information Act 5 U.S.C. External Link. Good work. Dear Silvia, Depending on your connection speed it may take a few seconds for your computer to cycle to the next screen. Now they are going to implement IFRS, as the parent company already finished the project of implementing IFRS. thanks for the article, extremely helpful. Cr. The seller brings a bike to GreatGear’s store and leaves it there to offer them to customers. In providing service to shipping line, there are two type service providers work at our port, 1. our own operator and 2. third party who operate as our agent at port. May you please assist. I received a lot of e-mails asking me to write more about it, because sometimes we are not so sure whether the company should account the revenue on the gross or net basis. Now they are going to implement IFRS, as the parent company already finished the project of implementing IFRS. Then your booking should be: Let’s say that the used bike was sold for CU 100 to the end customer, GreatGear paid CU 90 to the seller and kept CU 10 for itself. So, as per this concept it is an Agent, AM I RIGHT? You should book only commission as the revenue and the other amounts as receivables/payables (your revenue is not 100%, just the commission). Cr. I would be thankful if you can recommend any possible solution. The instruction guide:. Thanks as always for these clear and educative illustrations. We’re here to make sure you’re not either.Â. Find the college that fits you at an upcoming NACAC Virtual College Fair. Agent sold during September 780 jars of honey (150 CZK/jar) and 17 jars of peat (100 CZK/jar). Company A is situated in Australia whereas Company B is situated in India. Sample letter to headmaster of arrange an educational trip. From the above illustration, does it mean that third party service providers are acting as agent?? The question arises of being an AGENT or PRINCIPAL. Great job simplifying a complicated topic. S. Dear Siliva, We can help you find your way. Thanks for your brilliant knowledge on IFRS. At that point, seller does not get any cash. In this case, it’s quite clear that the real estate company is a principal, because it owns the apartments. Company B does not any have any contract or agreement with Company A’s customer. In this case, remuneration to artists is accounted in line with the agreement with them (e.g. Or is it at the time when the tour actually happened and the customer cannot demand the money back? S. Hi Silvia, thanks for your reply. Hi Joost, Should convenience /understanding reached with the tax authority by Company B override the requirement of IFRS 15 on principal vs agent relationship by presenting the total invoice value as gross revenue instead of its commission as revenue? If it’s a principal relationship, is the $50 a utility expense? Principal knows that demand for honey is going to be enough. It does not matter that your net profit will be stated correctly – you CANNOT overstate neither your revenues nor your expenses. Copyright © 2009-2021 Simlogic, s.r.o. As, I am working as an accountant and this is my first job and I am an ACCA. If the company sell the stock to distributor and distributor is the principal. Thanks for your great guidance and clear explanation on IFRS15. Dear Joost, We will earn smelting charges. Let me stress here that these are just indicators and they can be met individually or in combination. Indeed we need to take only the commission as revenue at the date the trip starts. So, It is a Principal, Am I Right ? I have a scenario whereby a company is established to provide online education/short courses. Credit: Customer 90 Or would this be cost of goods solds? Your service is “agency” or “mediation” service, not the travel service itself. So, utility bill of $50 is a cost of goods/services sold and $65 is included within revenues from the rent of apartments. There are lots of options available to you. Svetlana. Happy to discover your website and great articles. report "Top 7 IFRS Mistakes" + free IFRS mini-course. Principal sells products (honey and peat) to Agent. Pick up your passport (hopefully with a visa attached) when you are informed by your travel agency. 2. Agency companies are cost-plus companies. – payment to a tour operator: Debit Liability to tour operators 80, Credit Cash/bank account 80. It’s go time — and we’ll be with you every step of the way. Love IFRS box for the simplifying extremely complex topics in only a few minutes. Client wants TV coverage and Radio coverage etc. S. Hi Silvia, Thanks for you explanation. Even though A is not performing the services, it controls the right to the services by directing specific lawn maintenance service providers to perform each aspect of the lawn maintenance services. sale of SAP or Oracle license) to end customer with say margin of 5%. If I pay 1 Lakh additional towards principal in March then my tenure will be 210 months, means reduction of 21 months. every single situation needs to be assessed carefully and in every single situation, other indicators are more important. I don’t want to sound harsh, but really – I can express my opinion about keeping up with the standards and you should make technical improvements. Then a service fee, say CU15. It only determines whether gross or net. You should take them into account when calculating gain on disposal of a hotel, so no separate presentation. Company B passes the suppliers’ invoices plus its own agreed commission/fee to company A College is worth it. XVII, No. Hi Toyin, S. Silva, I am particularly thrilled at the simplicity of the examples and illustrations. But, its practical application can give us a hard time, because sometimes it’s extremely difficult and demanding to assess properly and conclude correctly whether we are an agent or a principal. Should we recognize the share on gross or net? From every sold peat receives the Agent 20 % commission. May the Almighty Mighty bless you abundantly for this wonderful education. § 552, As Amended By Public Law No. – we send a courier to pick up goods from sellers and deliver straight to customers Also, let me remind you, that you should not book 100% as revenue and 100%-commission as cost. … I appreciate it… Looking forward for more. They have a revenue sharing agreement in which collected amounts for tuition fees are shared 50:50. From my understanding and the contract terms, Company B is an agent of Company A. you need to account for the revenue from the commission when you have the right to receive it. Smelting revenue 50. From 4 above, the withholding tax and deducted or VAT paid was used to gross up by the tax authority to arrive at Company’s B expected revenue (which in my own view is not the case). Total period in months = 240 months Paid as of Feb 2012 = 9 months Remaining Months to be paid = 231 (Assuming same contribution). Inventory risk sits clearly with GreatGear – if something happens to bikes, it’s GreatGear’s loss. Dr. COGS 100 Who is primary responsible for sub-contracted parts? Company A request Company B to source for suppliers to provide services to it Thanks in advance for your time and guidance. Cost + Markup. Please help me to understand, whether company B is acting as an agent of company A or not. NEW: Online Workshops – US GAAP, IFRS and other, article about top 3 dilemmas with your auditors, IFRS 15 Revenue from Contracts with Customers, IFRS for Banks and Financial Institutions, How to Account for Provisions – Practical Questions, How to Account for Spare Parts under IFRS. Apply to college for the first time or transfer to complete your degree. The cost say CU100 are usually made up of sub-contractible items. Regarding principal & agent, I am wondering: at what extend the same principles can be applied to leasing companies that lease their own assets to clients. I have one question from you regarding telecom sector. Only 20% commission belongs to you and only that can be presented in profit or loss. Inventory risk is borne by the sellers. in some cases yes, in some cases not. 7. It's easy! Thanks! How should GreatGear recognize revenues from sales of new and used bikes? Customer is paying 100% One could arguably say that it is a principal relationship – it sets its own rate, it bears credit risk. no, I don’t think you’re the agent because it’s you who is responsible for providing gas storage service. Reason for asking: setting up such an accounting structure requires much more manual work! If you try and google something like “buy essay online” or even “do my homework for me”, you will see hundreds of return results. but VAT will be calc differently if revenue are presented diffently. 3048 Below is the full text of the Freedom of Information Act in a form showing all amendments to the statute made by the "Electronic Freedom of Information Act Amendments of 1996." Some agencies can arrange to mail it to you if you prefer, but most will ask you to come back and pick it up from their office. So, as per this concept it is an Agent, AM I RIGHT? If no, but tenants can buy only a package (apartment including utilities), it means that utilities are NOT distinct from the rent and therefore, you need to assess the contract as a whole, or as a bundle. (Please be noted that parent company which is the ABC is owned by the government as well). See, I gave you my opinion about how it should be and that’s the task of your technical/accounting department to make it right. For IFRS 15, please browse this website, I have posted more articles on the topic, for example this one may help. How do you recognize revenue, and expense? So let’s say you sell for CU 100, you keep your commission of 20 and you pay 80 to tour operators. I’m curious about how teachers support their students. Producers are no more involved in control of new bikes, as it’s GreatGear who sets prices, provides post-delivery service, etc. S. Sorry, i mean IFRS 15 Revenue from contracts with customer. Is our transaction consider as an Agent? Plus, I’m adding something more to the original question to explain a bit more. Nice work Silva, Always simple and straight to the point. Please check your inbox to confirm your subscription. The company has arrangements with universities under which the company provides a platform for education and the universities deliver the content required for learning. this is exactly the situation when you need to assess 4 criteria described above in the article. S. No, the customer is the meant by the seller or amount payable to the seller where you have credited 90. If Agent doesn’t sell the peat, it can bring it back to the Principal. Company B provides maintenance services to Company A’s customers in India. And we need not record the 100 as our revenue would only be 10 from the commission. Service provider will be paid all costs(usually marked up) and a service fee after client is satisfied that they have fulfilled all the requirements of the PO. Base on those conditions, do you think IFRS 9 is applicable to my company? The bikes remain in the GreatGear’s store or warehouse until they are sold. The one that takes the used bike? Note; we will keep track of a possitive commission in a different transaction system. If Songer sells music created by independent artists and these songs are available elsewhere, then Songer is only a medium or a platform for distributing these services and not their creator. After processing we sell the metal to the end user on behalf of the supplier. FOIA Update Vol. Hi Sagrario, Hmmm, I don’t think so… Who is your Customer here? The University is moving from the paper expenses claim form to SAP Concur eExpenses for most expense claims. New bikes come with 2-year guarantee for the main parts. Thanks Silvia, I have a clear understanding about how it would be done accountingwise. By using our website, you agree to the use of our cookies. I remember that at some companies we had a long discussion whether they act as an agent or a principal, so I can’t really respond clearly without looking at specifics and assessing these aspects. For the second example, I picked the one asked by my reader (thanks, B.K., for this excellent question!) Thank you. It can also be agent relationship – the main provider of the utility is the utility company. Could you please tell me revenues for Principal and Agent? Maybe you should hire external consultants to help you out. There are 3 type of payments done by agency companies i.e. Seen from this point of view, I am curious how you are keeping track of the process “at the end of the month we invoice the comission to the sellers and release the owed amount – the commission”. Let me quote: “There is a company (let’s call it Songer) whose main activity is selling artist songs through Internet (if you want to download an artist song you have to enter through their web site and you download). Can you please share your view on the illustrations below: 1. May I see your website? Thanks to you, your students aren’t alone. Let me give you a couple of examples to illustrate. + free IFRS mini-course. Dear Nic, I have a confusing situation and hope that I can get some guidance here. This is ‘Accounting and IFRS Made simple’. Typcial an agent model. S. Hi Silvia And all of them changed their mind after cooperating with us. We would like to show you a description here but the site won’t allow us. Placements. Entity A and Customer B have agreed on a single price for the lawn maintenance service. From every sold peat receives the Agent 20 % commission. Can they rent an apartment without utilities and pay for utilities from other supplier? The cost of damage claim, uncollectible AR are shared between company and the third party. What matters is WHO has control of goods/service BEFORE their transfer. Have a query on Principal Vs Agent relationship. Once you determine gross or net, only then you need to assess whether over time or at the point of time, but it is totally different consideration. Note: this apart from the commission (revenue) timing issue. 30th August Principal made delivery of 1 000 jars of honey (100 CZK/jar) and 80 jars of peat (register price 80 CZK/jar). The question is: Can the amount payable to ssd be treated as direct cost against the amount invoiced to hm clients – which is the agreed price payable to ssd + hm share? The PO ususally has subsections, cost of execution, and a service fee. AVID PROGRAM. (i) At the moment of debit booking: Accounts receivalbe 100 (D), suspence account 80 (C), Deferred revenue 20 (C) A lot of material to read and analyze, that`s great! Your future is worth it. Would be grateful for your input and thoughts…. I am not clear how you have arrived at the figure 210. Campus High School is home to the AVID program. (Please be noted that parent company which is the ABC is owned by the government as well). Your advise is highly appreciated. There may be the opportunity to take part in optional field trips, which do incur additional costs. 5. National Postsecondary Institute and Reach Higher Announce Winners of Inaugural Power of Hope Award, Common App Revises Application Questions on Sex and Gender, On the winter storm impacting the southern region of the United States. Could you please help me with this example? no, you should not account like this. In which booking are you registering the commission? Sale 150 Sometimes, one of them is met and the other one is not met – in a similar situation you should really think carefully whether significant risks and rewards of ownership, or control over goods or services was transferred or not. As for the revenues – I would definitely deduct the amount returned to the first client from the revenues and not treat it as expenses. Now, we should assess the criteria to determine whether GreatGear acts as an agent or as a principal. what would be the accounting treatment for the this? S. This is awesome. Or do we need to register it accurate and MUST we use a supsense account (credit & debit liability account) to match? Because A controls the right to the services, A concludes that it is acting as the principal. Get valuable advice from students who have been in your shoes. Thank you! Thus, you are NOT responsible for the provision of these goods or services – another party is. Thank you Silvia,I must confess that I have acquired more knowledge by this. S. Hi Silvia, I am currently facing an issue in similar indirect channel model. With full consent of Super-specialist doctors- (ssd), and Hospital Management (hm), ssd render services on a part-time basis at a fee mutually agreed. Thanks in advance! "As a freshman at Mason, I had difficulties being on my own for the first time. The question is as part of the contract can the agent impost any pricing controls on the principal party in order to protect his competitive edge or does this negate the purpose of the agreement? Looking forward to receiving more from you. Hi Silvia When the bike is not sold within 180 days, seller must take it back from GreatGear. Many thanks for providing such in depth knowledge on IFRS related issues. Are the accounting entries correct or we just recognise smelting revenue and do not need to pass through COGS? Now we have to complete the job. Expenses going online. The work of Agency companies are to arrange sales booking and help customers of the shipping in their trade. I can only imagine if you account for both 100% revenue and 80% to the same account and present it as 1 line item in your financial statements – netted off. in net amounts, as it acts as an agent.”, This should read sale from used bikes and not new bikes, Thanks for the clarification I tried to illustrate it in the following scheme: Both IAS 18 and IFRS 15 give us a guidance that you can use for your own assessment. Company A pays Company B by deducting withholding tax on the total invoice amount (which included suppliers’ invoice) and also pays VAT on total invoiced amount Company used an agency to help them with the sale and now received an invoice for their service. Best! Plus, GreatGear must recognize cost of goods sold: The things are different at used bikes because clearly, it seems that not all the risks and rewards of ownership / control were transferred to GreatGear when sellers brought their used bike to the store. Because the tax authority accepted company B’s explanation, it went ahead to present the revenue at this gross amount. It began with the Native American tribes who celebrated annual fish runs, and continued with colonial settlers, whalers, and the modern fishing fleet. It depends on your agreement with the tour operator. Principal knows that demand for honey is going to be enough. All of it was invoiced. Classzone.com has been retired and is no longer accessible. We have 2 general IFRS standards dealing with revenue recognition issues: Both standards apply currently, and you have a choice – either you elect to apply IFRS 15 early and do it now, or you can opt to continue applying IAS 18 until it becomes superseded. With reference to agent-principal relationships, both standards are pretty clear and both state that you should NOT include the amounts collected on behalf of others into your revenue, because they are not increasing your equity. For example a client wants to launch a new product and requires an event manager. During my senior year, I didn’t know what I wanted to do after graduation so, I ended up visiting the Career Services. Thanks in advance for your reply! Navigate your entire college application journey with Common App. It’s quite difficult to set in the case of services, but here’s another consideration: We are in the smelting business where we purchase the raw material from the supplier to process into metal. Is there an agency/principal relationship in this regard. Are we as an principal or as an agent? It’s was really helpful.
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