Presentation of Delayed Payment Charges in the Financial Statement

A company engaged in distributing power to consumers is authorized to charge the price of the electricity supplied but also to charge an additional charge for delayed payment @ 15% per annum. The management of the company believes that delayed payment charges are of the nature of the penalty and are arising out of normal business activities of the company. Therefore company presented the delayed payment charges (DPC) under “Revenue from Operations” under the heading of “Income from other Operating Activity”. However, the auditor of the company is of a different opinion regarding the nature of the delayed payment charges.

As per the auditor, the amount of consideration of late payment surcharge varies due to differences in the timing of payments and it is to compensate the entity for the time value of money, the nature of late payment surcharge is that of finance income and therefore, the same should be presented as “Other Income”. The company approached the EAC of ICAI to resolve the difference of opinion on the presentation of Delayed payment charges.

The Expert advisory committee has noted that delayed payment charges (DPC) are charged to customers who have not paid the bill within the due date as per Tariff Schedule and such charges are defined in terms of percentage per annum, which indicates that the same is directly linked with the passage of time and the quantum of the same depends on the timing of payment by the customers. While determining the transaction price, an entity shall adjust the promised amount of consideration for the effects of the time value of money.

On the basis of the above, the Expert advisory committee is of the opinion that DPC, being a financing component, if it is significant and practical expedient is either not applied or not applicable as per the requirements of Ind AS 115, the same cannot be considered as ‘Other Operating Revenue’ under the head ‘Revenue from Operations’ rather the same should be presented as ‘other income’ in the Statement of Profit and Loss.

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