A supplier has agreed to pay a penalty (contractual) as they have accepted that they are at fault for late delivery of a project.
I'm not sure how I should treat this receipt in the accounts. Should I treat it as other/miscellaneous income, or set it against the costs of the project? I can see merit in both as;
* Treating as other/miscellaneous income keeps it separate from the project costs and is transparent in what it is for.
* Treating as a reduction in project costs makes sense because that's effectively what it is doing, but then it also disguises that there's a penalty involved.
I'm leaning towards treating as other/miscellaneous income, but wondering if there's a norm that is applied in these situations or is either approach ok?
Replies (12)
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Similarly not keen on netting off.
I would put to other income
That way easy to spot a few years down the line, and does not upset standard trading patterns and statistics.
Remember all the threads looking to set CJRS against wages?
For me it depends on scale. If it is a credit note, then one could consider it just 'money off' the job.
Does this happen often?
One off / £1k or so, I would just be reducing cost of sales.
£10k - might be thinking differently..
I'm in the 'reduction in project costs' camp - because that's what it is.
Under the contract the supplier was due £x but this was subject to a reduction of £y if they missed deadlines or whatever.
They missed a deadline and now their entitlement under the contract is £z (being x-y)
I think this scenario is very different to the idea of setting CJRS against wages.
Is this capital or revenue? I too am in the costs reduction camp; even more so if it is capital but could possibly be persuaded otherwise.
What were the consequences of the delay? Cost overruns? Lost revenue?
Did you capitalise the project costs? If so I would reduce cost of acquisition (cf accruing retentions)
Sorry to drag this up so long after the original post but just wondering what people think on the supplier side? Would you take a deduction in revenue or a cost?
Thanks!