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CA Intermediate · Advanced Accounting · AS 9 Revenue Recognition

Gopal Engineering Ltd sold goods to Hitech Ltd on 1 February 2026 for ₹12,00,000 and recognised revenue. On 31 March 2026, Hitech Ltd was declared insolvent and it became certain that only 25% of the amount will ever be recovered; nothing has been received so far. Which treatment is correct in Gopal's books for the year ended 31 March 2026?

Gopal should keep revenue at ₹12,00,000 and charge ₹9,00,000 as bad debt or provision. AS 9 treats later uncertainty over collection of an amount already recognised as revenue as an expense, not a reduction of revenue. The unrecoverable portion is 75% of ₹12,00,000.

  1. AReduce revenue by ₹9,00,000 as the sale is partly reversed
  2. BReverse the entire sale of ₹12,00,000
  3. CRecognise a bad debt/provision of ₹9,00,000 as an expense and keep revenue at ₹12,00,000Correct
  4. DMake no entry until cash is actually received

Explanation

AS 9 says that if uncertainty arises about collectability of an amount already recognised as revenue, the uncollectable amount is provided for as an expense, not as an adjustment to revenue. Uncollectable amount = 12,00,000 × 75% = ₹9,00,000. Revenue stays at ₹12,00,000. Reducing revenue is the key wrong treatment.

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