Mercury Ltd. has sold goods to Mars Ltd. at a consideration of 10 lakhs, the receipt of which receivable in three equal installments of 3,33,333…

The revenue from sale of goods shall be recognised at the fair value of the consideration received or receivable. The fair value of the consideration is determined by discounting all future receipts using an imputed rate of interest where the receipt is deferred beyond normal credit terms. The difference between the fair value and the nominal amount of consideration is recognised as interest revenue. The fair value of consideration (cash price equivalent) of the sale of goods is calculated as follows: Year Consideration (Installment) Present value factor Present value of consideration Time of sale 3,33,333 3,33,333 End of 1st year 3,33,333 0.949 3,16,333 End of 2nd year 3,33,334 0.901 3,00,334 10,00,000 9,50,000 The Company that agrees for deferring the cash inflow from sale of goods will recognise the revenue from sale of goods and finance income as follows: Initial recognition of sale of goods Dr. Cash Dr. 3,33,333 Trade Receivable Dr. 6,16,667 To Sale 9,50,000 Recognition of interest expense and receipt of second installment Dr. Cash Dr. 3,33,333 To Interest Income 33,053 To Trade Receivable 3,00,280 Recognition of interest expense and payment of final installment Dr. Cash Dr. 3,33,334 To Interest Income (Balancing figure) 16,947 To Trade Receivable 3,16,387