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We have hired a contractor to transport our finished products from factory to warehouse. However the fuel for the lorries used in the transport are billed to this contractor at cost as a reimbursement. My question is whether it is required to amount billed for fuel at cost recognize as revenue? Is it okay if we treat as a reimbursement outside revenue where we set off fuel payments and receipts so that fuel expenses will be zero in our books? What is the accounting / IFRS requirement on thsi?
in IAS 18 - Revenue by

1 Answer

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According to the IAS 18 Revenue Recognition treatment; the contractor has hired on basically two terms. One of the terms is his service charges which he will receive at the completion of work and secondly; he will have to claim the fuel expense as per original bills incurred during the shipment of goods. The accounting treatment will be;
Obviously; with reference to the contract with the transporter; a number of service charges are pre-decided and also mentioned in the agreement so we are going to book a liability for this. While fuel will be reimbursed to him based on original bills so we can book estimated provision for this which can be later on adjusted according to the actual fuel amount consumed.

Freight charges (Dr)
Account Payable (Transporter Name) (Cr)
(The amount is pre-decided in the agreement with the transporter)

Fuel will be based on actual bills so we can book a provision for this;
Provision for POL Expense for Freight Charges (Dr)
Accounts Payable (Transporter Name) (Cr)

Accumulated Accounting Entry will be;

Freight Charges (Dr)
Provisoin for Fuel Consumption POL Expense (Dr)
Accounts Payable (Transporter Name) (Cr)

Thanks & Regards;
by Level 2 Member (4.9k points)