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CMA Foundation · Fundamentals of Financial and Cost Accounting · Accounting Principles, Concepts and Conventions

A firm sold goods worth Rs 3,00,000 on credit during the year, of which goods of Rs 40,000 were delivered on 2 April, after the year end of 31 March, though invoiced on 30 March. The cost of all goods was 70% of sale price. Cash received in the year was Rs 1,20,000. Following the realisation concept (revenue recognised on transfer of risk and ownership, which occurs at delivery), what is the revenue and the gross profit for the year?

Revenue is Rs 2,60,000 and gross profit is Rs 78,000. The Rs 40,000 of goods delivered after the year end is excluded because revenue is realised on delivery, and cash received is irrelevant. Gross profit is 30% of Rs 2,60,000 as cost is 70% of sales.

  1. ARevenue Rs 3,00,000; gross profit Rs 90,000
  2. BRevenue Rs 2,60,000; gross profit Rs 78,000Correct
  3. CRevenue Rs 1,20,000; gross profit Rs 36,000
  4. DRevenue Rs 2,60,000; gross profit Rs 1,82,000

Explanation

Goods of Rs 40,000 were not delivered until after the year end, so revenue is Rs 3,00,000 - 40,000 = Rs 2,60,000. Gross profit is 30% of this, which is Rs 78,000. Option A includes undelivered goods, and option C wrongly uses cash received.

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