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CA Intermediate · Advanced Accounting · AS 9 Revenue Recognition

Bharat Gadgets Ltd. sold goods to a dealer for ₹8,00,000 on 20 March 2025 on a sale-or-return basis. The dealer may return unsold goods within 60 days, and the dealer has not yet communicated acceptance. The goods were dispatched on 20 March 2025. Cost of goods was ₹5,00,000. Under AS 9, what is the correct treatment in the year ended 31 March 2025?

No revenue should be recognised in the year ended 31 March 2025. In a sale-or-return arrangement, ownership risks and rewards remain with the seller until the dealer accepts the goods or the return period lapses, so recognition on dispatch is premature.

  1. ARecognise no revenue until the dealer accepts the goods or the return period lapsesCorrect
  2. BRecognise revenue of ₹8,00,000 on dispatch
  3. CRecognise revenue of ₹3,00,000, being the profit
  4. DRecognise revenue of ₹4,00,000, being half the price

Explanation

Under AS 9, revenue from sale of goods is recognised when significant risks and rewards of ownership pass. In sale-or-return arrangements, the buyer has the right to return and acceptance is uncertain, so revenue is recognised on formal acceptance or lapse of the return period. Recognising on dispatch ignores that risks remain with the seller.

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