Accounting Treatment of the Transactions Related to Billing, Collection & Disbursement in the Capacity of CTU
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- Last Updated on 10 August, 2023
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A company invoices the customers on behalf of a state-licensed company. The main activity involves collecting charges from customers and disbursing the amount to the licensed company. Amounts collected are disbursed to the Licensed Company without any mark-up. The company, for the purpose of accounting, records such collected amount under “Revenue from Operations” in the Profit and Loss Statement and offset as payable in the Licensee’s bills without affecting the profit/loss of the company.
The auditor disagrees with the accounting approach used to record charges collected on behalf of the Licensee. The auditor argued that the company does not obtain control from the licensee company and hence conditions prescribed under Ind AS 115 are not fulfilled for revenue recognition.
In order to resolve the dispute, the company has approached the Expert Advisory Committee to get an opinion on the current accounting treatment of billing, collection, and disbursement (BCD) in its financial statements.
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