HOW TO RECORD HIGH SEA SALE IN THE BOOKS

AUTHOR :CADPKRATHORE

https://taxguru.in/finance/record-high-sea-sale-books.html

CA Deepak Rathore

High Sea Sale : If a buyer wants to sell his consignment to a third party before arrival of goods but after sailing
vessel from load port, such sale is known as high sea sale. In simple words, the ownership of goods is
transferred, when goods are on transit. In technical words, High Sea Sales (HSS) is a sale carried out by the
carrier document consignee to another buyer while the goods are yet on high seas or after their dispatch from the
port/airport of origin and before their arrival at the port/ airport of destination.

How and when to book the income:

Paragraph 11 of Accounting Standard (AS) 9, ‘Revenue Recognition’, notified under the ‘Rules’ states as
follows: “11. In a transaction involving the sale of goods, performance should be regarded as being achieved
when the following conditions have been fulfilled:

(i) the seller of goods has transferred to the buyer the property in the goods for a price or all significant risks
and rewards of Page 4 of 15 ownership have been transferred to the buyer and the seller retains no effective
control of the goods transferred to a degree usually associated with ownership; and

(ii) no significant uncertainty exists regarding the amount of the consideration that will be derived from the
sale of the goods.

As per AS 9, revenue should be recognized, when property, i.e., risks and rewards in goods is transferred and
certainty of payment exists. In the case of high seas sales transaction, the company transfers bill of lading
document to Customer, through which all the risks and rewards are transferred. Certainty of payment also exists
as all the Customer are doing regularly these type of transactions. So all the conditions of AS 9 are satisfied
regarding revenue recognition on the date as and when bill of lading is transferred/endorsed to other customer
and revenue should be recognized on that day only.

Important document to be verified:

1. High sea sale agreement between the party

2. Declaration by the buyer to bear the responsibility of custom on its letter head.
3. Invoice of vendor and Invoice to customer is in line after adding appropriate margin

Accounting for High Sea Sale Sale and Purchase

1. In a High Sea Sale transaction, following entries should be passed

a. At the time of Import:

Purchases (Cost of product USD @ exchange rate on the date of B/L) Dr

 Sundry Creditors for Purchases (Cost of product USD @ exchange rate on the date of B/L) Cr

b. At the time of making payment:

Sundry Creditors for Purchases (Cost of product USD @ exchange rate on the date of payment) Dr

Credit Bank Account (Cost of product USD @ exchange rate on the date of payment) Cr

Debit/Credit Exchange Fluctuation Account (Difference between Purchases as per (a)and Payment (b)

c. At the time of High Sea Sales:

Customer A/c Dr (Cost of product USD + Margin( As decided) @ exchange rate on the date of
endorsement of bill of lading)

To Sales Cr (Cost of product USD + Margin( As decided)@ exchange rate on the date of endorsement
of bill of lading)

d. At the time of receipt of payment from Customer:

Bank A/c Dr (Cost of product USD + Margin@ 0.5% @ exchange rate on the date of invoice)

To Customer A/c Cr (Cost of product USD + Margin@ 0.5% @ exchange rate on the date of invoice)

Debit/Credit Exchange Fluctuation Account (Difference between as per c and d)

Assumption: Margin is above 0.5% of the cost of Product

2. In a High Sea Purchase transaction, following entry should be passed:

a) Purchases Dr (Cost of product USD @ exchange rate on the date of endorsement of bill of lading/date
of invoice)

To Sundry Creditors for Purchases Cr – OMC A/c (Cost of product USD @ exchange rate on the date
of invoice/date of endorsement of bill of lading,)

b) Sundry Creditors for Purchases- Dr – OMC A/c (Cost of product USD @ exchange rate on the date of
payment)

To Bank A/c Cr (Cost of product USD @ exchange rate on the date of payment)

Debit/Credit Exchange Fluctuation Account (Difference between as per a and b )

Note = B/L Bill of lading

(For queries author can be reached at deepakrathore.8888@gmail.com)

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