Discuss whether the below treatment is as per relevant Accounting Standard. (i) AB Limited purchase goods on credit from XY Limited for 150 lakhs…
CA Intermediate · Advanced Accounting · PYQS · September 2025
Discuss whether the below treatment is as per relevant Accounting Standard. (i) AB Limited purchase goods on credit from XY Limited for 150 lakhs for export. The export order of AB Limited was cancelled. AB Limited decided to sell the same goods in the local market with a price discount. XY Limited was requested to offer a price discount of 12%, which was accepted by XY Limited. The chief accountant of XY Limited wants to adjust the sales figure to the extent of the discount requested by AB Limited. (ii) XY Limited has recognized dividend income of 10 lakhs on accrual basis on securities of face value of 100 lakhs held by it at the end of the financial year 31 st March 2025. The dividend on securities was declared at the rate of 10% on 30 th April 2025. The dividend was proposed on 30 th March, 2025. (iii) XY Limited sold goods of 1,50,000 on approval basis on 15 th December 2024. The period of approval was 3 months after which they were considered sold. Buyer sent approval for 60% goods upto 31 st January 2025 and no approval or disapproval received for the remaining goods until 31 st March, 2025. Accountant of XY Limited recognised - 1,50,000 as revenue on 15 th December, 2024. (iv) In the year 2024-2025, XY Limited supplied goods of 80,000 on consignment basis to ABC (a retail outlet). ABC sold goods worth - 60,000 during the year and rest of the goods are still lying in its store. XY Limited recognizes - 60,000 revenue in its books for the year 2024-2025.
Suggested Answer and Working Notes:
As per AS 9 "Revenue Recognition" , in a transaction involving the sale of goods, performance should be regarded as being achieved when the following conditions are 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 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. (i) Trade discounts given should be deducted in determining revenue. Thus 12% should be deducted from the amount of turnover for the purpose of recognition of revenue. The adjustment of sale figure to the extent of discount is correct as per AS 9 'Revenue Recognition'. (ii) Dividends from investments in securities are not recognized in the statement of profit and loss until a right to receive payment is established. In the given situation, the dividend is proposed on 30 th March, 2025, while it is declared on 30 th April, 2025. Thus, the right to receive the payment of dividend gets established on 30 th April, 2025. The recognition of 10lakhs on accrual basis in the end of the financial year 31 st March, 2025 is not correct as per AS 9 'Revenue Recognition'. (iii) In case of goods sold on approval basis, revenue should not be recognized until the goods have been formally accepted by the buyer or the buyer has done an act adopting the transaction or the time period for rejection has elapsed or where no time has been fixed, a reasonable time has elapsed. Therefore, revenue should be recognized for the - 90,000 upon receipt of approval on 31 st January, 2025 and for the balance - 60,000 on 15 th March, 2025 as the time period for rejecting the goods had expired. (iv) 20,000 goods lying unsold with consignee should be treated as closing inventory and sales should be recognized for 60,000. In case of consignment sale revenue should not be recognized until the goods are sold to a third party. The recognition of 60,000 revenues in the book for the year 2024-25 is correct as per AS 9 ‘Revenue Recognition'.
Topics: AS 9
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