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Accounting for money received for contract

A client receives 5% of the purchase price for a building in exchange for a contract for supplies

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Hello, 

 

I'm a little confused as to how to model this in the client accounting forecasts. This is for a MI pack and not for any statutory accounts. 

Basically, the client receives 5% of the purchase price for a building in exchange for a contract agreement to supply that building with goods, and to charge an increased price on those supplies to approximately recoup the 5% given. 

I presume once the cash is received a liability is raised, but how is this reduced?

Each time supplies are paid for would it just be: Dr Expense Dr Liability, Cr Cash/TP?

I believe the amounts supplied will vary, as will the price. Also, what if the total amount paid back is over or under the amount received? Is that classed as a sort of interest expense/income respectively? 

How would this be treated under FRS 102? 

Any thoughts/help much appreciated. 

 

 

 

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16th Jul 2019 20:47

Not clear what is going on? Your client receives cash up front (is that right?), but from who? Is you client selling the building? Purchasing it?

Your client is selling over priced supplies to someone (the building?), but your book-keeping when they get paid is DR P&L?

Baffled...

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By 356B
17th Jul 2019 11:36

Is someone going to jail over this? I know the OFT no longer exists, but someone must suspect it's dodgy.

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