The-Accountant-Mar-Apr-2018

FINANCE AND INVESTMENT
By Kevin Sukwe
RECOGNITION OF
RETENTION MONIES
BY CONSTRUCTION FIRMS
Retention refers to the monies
held by contractors as securities
to cover any work deficits by
the contractors. It is normally
held by the client and released
after a given period of time normally six
months after the site handover.
The main objective of this article
is to understand the main methods of
computing retentions and how retentions
are recognized in the financial statements.
The main issues are;
I. Revenue recognition
II. VAT on retention
III. Income tax
Overview of revenue
recognition
Revenue is income arising in the course
of an entity’s ordinary activities. Ordinary
activities’ means normal trading or
operating activities. Revenue’ presented in
the statement of profit or loss should not
include items such as proceeds from the sale
of non-current assets or incomes collected
on behalf of third parties such as VAT. Note
that the gains on sales of non-current assets
and other non trading activities will appear
in the statement of Profit and loss and
other income (Statement of comprehensive
income) according to IAS 1.
Under accrual revenues are recognized
when incurred; i.e when the entity satisfies a
performance obligation by transferring the
promised good or service to the customer.
The performance obligation maybe satisfied
over time or at a point in time.
22 MARCH - APRIL 2018