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What would be the best way to classify royalties and sales commissions on the pnl? As distribution expenses? COS? Decrease revenue by the same amount ( i have seen this once,not sure if it's correct). Happy to give more info if needed.

Thank you in advance!!

the latter could be an asset under IFRS 15; it will depend a lot on the specifics if you have a specific case to share

Hey! In a more specific scenario, basically parent company charges to the subsidiary a % of each sale made by the subsidiary to a parent's client. It is like a sales commission/marketing fee if it makes sense.

Heyy, anyone who might know??

The scenario needs more specificity, particularly regarding the parent company's role in connecting the subsidiary with the client and in delivering the service.

Basically parent company is in sweden for example and subsidiary is in spain. Both sell goods and services to ships. Subsidiary in spain can sell goods and provide services to ships that might be in spain's port based on the contracts and the prices they might have with the parent company that is located in sweden. Then the parent company demands a % of that sale as marketing fee as they call it based on their between agreement. Let me know if anything remains unclear.

Does the subsidiary directly contract with the ship's owner, and could you clarify the cash flows i.e. who is paying whom?

Nope, basically the parent company has a contract with the ship's owner and since it is in spain's port, the subsidiary serves the ship based on that contract with the parent. Then the customer(ship's owner) pays the subsidiary and the parent company keeps a % as a marketing fee. What they are doing in sub's books is recognise revenue as the sale to the ship net of the commission from the parent company. Would you say this is correct? Let me know if anything remains unclear!

It appears the subsidiary is acting as a subcontractor for the parent. It's correct for them to recognise revenue based on the actual amount received. But I'd classify this as revenue earned from the parent and disclose it as related party revenue under IAS 24.

Yeah that makes sense. Also you are saying that the subsidiary should recognise as revenue the gross amount of the service and maybe expense the commission from the parent company or am I misunderstanding this and should recognise as revenue the net amount since it should be disclosed as revenue from the parent?

Yeah, my post wasn't clear Say the ship's owner pays $100 of which the subsidiary receives $90.

Accounting by parent:
Revenue $100
COS $90

Accounting by subsidiary:
Revenue $90
COS [actual costs incurred]

Marek Muc wrote: ↑09 Apr 2024, 10:48 Yeah, my post wasn't clear Say the ship's owner pays $100 of which the subsidiary receives $90.

Accounting by parent:
Revenue $100
COS $90

Accounting by subsidiary:
Revenue $90
COS [actual costs incurred]

Okay makes perfect sense now, thank you so much!!

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