Improper Recognition of Commission Income from Importing Vehicles to the Permit Holders as Sales Income

Abstract

ABC (Pvt) Ltd as the Sole agent for X kind of vehicles in Sri Lanka is dedicated to servicing the needs of their customer by providing them with a range of vehicles and attending to their requirements with impeccable after sales services. ABC (Pvt) Ltd merged with DEF PLC in the beginning of the last financial year (2013/14). Therefore, they had an objective to show a good performance in this financial year (2014/15). The principal activity of the Company is importing and distribution of brand X kind of vehicles and spare parts and operating workshops for vehicle repairs. Furthermore, sales can be classified in to four main categories, they are,  Permit sale of vehicles (Acting as intermediary when importing the vehicles by permit holder)  Vehicle sales (Locally purchased and sale )  Sales income earned from repairs  Sale of spare parts According to the nature of the sales, company earns high profit margins from the permit sales when compared to the vehicle sales, because the permit sale transactions contain large amount as local handling charges (Referring to the annex – Rs. 2 Mn) which is normally known as “the commission charge”. On the other hand, local vehicle sales of the company earns a slight profit margin since it has vehicle purchase cost in respect to the sale.