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CA Intermediate · Advanced Accounting · AS 9 Revenue Recognition

Bharat Builders Ltd. sells a flat to a buyer for Rs 80,00,000 under an agreement where possession is delivered on 20 March 2025 and legal title passes only on full payment. The buyer has paid Rs 60,00,000 and has agreed in writing to pay the balance in instalments over two years, and the buyer's capacity to pay is reasonably certain. The company retains no significant managerial involvement and no further performance obligations. Under AS 9, the seller should recognise revenue in the year ended 31 March 2025 at:

Revenue of Rs 80,00,000 is recognised. Under AS 9 the test is transfer of significant risks and rewards, which has happened on delivery of possession. Collection of the balance is reasonably certain, so retained legal title does not delay recognition, and Rs 20,00,000 is shown as a receivable.

  1. ARs 60,00,000, being the amount received
  2. BRs 80,00,000, since significant risks and rewards have transferred with possessionCorrect
  3. CRs 20,00,000, being the balance outstanding
  4. DNil, until legal title passes on full payment

Explanation

AS 9 focuses on the transfer of significant risks and rewards of ownership, not only on legal title. Possession has been delivered, the seller keeps no managerial involvement, and collection is reasonably certain. So the whole sale price of Rs 80,00,000 is recognised, with Rs 20,00,000 shown as a receivable. Using cash received (Rs 60,00,000) mixes cash basis with accrual.

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