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December 2022

Modification of Trade Receivables

By Dolphy D’souza, Chartered Accountant
Reading Time 14 mins
This article deals with modification of trade receivables which involves significant sacrifice (cut in amounts to be received) by the debtor and the consequent accounting and disclosure requirements.

FACTS

The Ministry of Power, Government of India, introduced Electricity (Late Payment Surcharge and Related Matters) Rules, 2022 (“LPS Scheme”) vide notification no. G.S.R. 416 (E) dated 3rd June, 2022.

a.    The LPS Scheme provides a restructuring option to DISCOMs to liquidate their dues to Power Producers including late payment surcharge (LPS) on 3rd June, 2022 described in (b) below, through a maximum number of equated monthly instalments (EMI), ranging from 12 to 40 months determined based on outstanding dues amount. Therefore, if INR 100 were outstanding on 3rd June, 2022, INR 100 would be received by X by way of EMI’s without any loading of interest.

b.    DISCOM will have to pay Power Producer X LPS for all past periods of delay up to 3rd June, 2022, at the specified interest rate and period specified in LPS Scheme.

c.    In the past since it was not reasonably certain that the LPS would be received, X has not recorded LPS income.

d.    The sacrifice made by X is substantial and more than 25% of the amount due on 3rd June, 2022.


QUESTIONS

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