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CA Intermediate · Advanced Accounting · Framework for Preparation and Presentation of Financial Statements

Anand Pharma Ltd. reports Rs 50,00,000 of revenue from a bill-and-hold type arrangement where goods were not yet identified or delivered and the customer may cancel the order. The CFO argues the sale is legally 'complete' as the invoice was raised. Which Framework concept most directly supports not recognising the revenue as a sale?

Substance over form supports not recognising the revenue. Transactions must be accounted for by their economic reality rather than legal form, and since the goods are unidentified, undelivered and cancellable, the risks and rewards have not passed despite the invoice being raised.

  1. ASubstance over formCorrect
  2. BMateriality
  3. CGoing concern
  4. DConsistency

Explanation

Substance over form requires transactions to be accounted for according to their economic reality and not merely legal form. Raising an invoice does not transfer significant risks and rewards when goods are unidentified and cancellable. Materiality, going concern and consistency do not address the legal-versus-economic conflict.

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