TOPIC

1. SALE OF GOODS AND RELATED

INCOMES
 Sale of product and related incomes:

• Selling is the process of transferring the ownership of

goods or delivering service to customers.

• In a company, income from operations is generated from

running the primary business .The portion of an
organization's income that is derived from activities not
related to its core operations include items as dividend
income, profits from investments, gains incurred due to
foreign exchange, asset write-downs and other non-
operating revenues.

 Total Revenue = Sales + other income.

REVENUE RECOGNITION
To recognize an item is to record it into the accounting records.
An accounting principle under generally accepted accounting
principles(GAAP) that determines the specific conditions under
which income becomes realized as revenue.

Revenue recognition normally occurs at the time services are

rendered or when goods are sold and delivered to a customer. The
basic conditions of revenue recognition are to look for both
(a) an exchange transaction, and
(b) the earnings process being complete.
 Point Of Sale
 In this case revenue is recognized on the basis of sales that are
made by the business. Sales in both forms that is cash and
credit.
 Recognition moment is the moment when the title to the goods
or services passes to the customer. In this case the customer
has a legal right of ownership to the goods or services and the
seller has a right to claim payment for the sale made or have
already received the payment.
 Revenue is recognized without taking into account the date of
payment, i.e. even if the customer will pay for the goods or
services later after the ownership transfer date.
 Let's analyze practical example:

 On the 11th of August company ABC signs a

contract with company XYZ for the sale of goods
(chairs). Price for one chair will be Rs.40 and
total quantity to be sold is 5 chairs. According to
the agreement the chairs will be delivered to the
warehouse of the customer (company XYZ) on
the 2nd of September and the customer will
become legal owner of the goods on that day. The
customer will pay for the goods within 30 days
from the delivery date. When should the revenue
be recognized?
 Unearned revenues:
The basic methods companies use to create bogus profits. One
of them is fraud in timing differences, also called cut-off fraud.
It normally involves one of two basic techniques: recording
revenues early and/or recording expenses and liabilities late.
Probably the most common method to illegally recognize
revenue early is to accumulate more sales by:
 Hold the books open past the end of the accounting period.
 Recording revenue when services are still due.
 Shipping merchandise before the sale is final.
Overview of such a case:
Satyam had reporting inflated revenue/margins for the
last few years and the stated cash reserves of $1.2B are
non-existent. The overall revenue impact of this fraud
was a whopping Rs.8000 Crores ($1.66 Billion).

The Balance Sheet carries as of September 30, 2008

•Inflated (non-existent) cash and bank balances of
Rs.5,040 crore (as against Rs. 5361 crore reflected
in the books)
•An accrued interest of Rs. 376 crore which is non-
existent
•An understated liability of Rs. 1,230 crore on
account of funds arranged by me
•An over stated debtors position of Rs. 490 crore
(as against Rs. 2651 [cr.] reflected in the books)
 TOPIC

1. CORPORATE DIVIDEND TAX ON

PROPOSED DIVIDEND
Dividend

• Dividend: A portion of profit which is paid to the share - holders.

• Lenders are paid fixed rate of interest, whereas

shareholders are paid dividend depending upon the
profits and the policy of the company.

• The Board of the Company recommends the rate of dividend

based on the profitability and policy of the Company.

• In India, currently there is no tax on dividend received by the

shareholder as the company pays dividend tax.
 Dividend distribution tax
• Dividend distribution tax is the tax levied by the Indian Government
on companies according to the dividend paid to a company's
investors. As per existing tax provisions, income from dividends is
tax free in the hands of the investor.
• The Company is required to pay the Dividend Distribution Tax
within 14 days from the date of declaration or distribution or payment
of any dividend whichever is earlier.
• Dividends are distributed out of after-tax profits, tax having been
already paid by the respective companies, and thus DDT is double
taxation.
• Dividends paid by a domestic company are subjected to a tax rate of
16.995%.
Profit After Tax 22.5 cr

Dividend 2.5 cr

Retained Earnings
20 cr
 THANK YOU!!!

Sooner or Later, those who win

are those who think they can.
-Anonymous