Skip to content

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

Gupta Exports Ltd. signed a contract on 28 March to sell goods worth ₹4,00,000 to a buyer. The goods were not dispatched until 5 April, and the buyer will take title only on delivery. The financial year ends on 31 March. Applying the accrual basis and the Framework's recognition criteria for income, the revenue to be recognised for the year ended 31 March is:

Nil revenue is recognised for the year ended 31 March. Under the accrual basis, income is recognised when it is earned, which for goods is when ownership risks and rewards pass to the buyer. That happens on delivery after the year end, so signing the contract does not justify recognition.

  1. ANilCorrect
  2. B₹4,00,000
  3. C₹2,00,000
  4. DOnly the profit element on the contract

Explanation

Revenue from sale of goods is recognised when significant risks and rewards of ownership pass to the buyer, which occurs on delivery after the year end. A signed contract alone does not create income, so nothing is recognised in the year. The full amount is wrongly recognised if the order date is treated as the sale date.

Did you get it right without looking?

One question tells you little. A timed set on Framework for Preparation and Presentation of Financial Statements shows your real accuracy, how long you take and where you lose marks.

Practise Framework for Preparation and Presentation of Financial StatementsFree diagnostic mock

More Framework for Preparation and Presentation of Financial Statements questions