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CA Intermediate · Advanced Accounting · AS 9 Revenue Recognition

Kaveri Textiles Ltd sold goods to Mehta Traders on 28 March 2025 for Rs 5,00,000 on the terms that the buyer may return the goods within 30 days if not satisfied. Goods were delivered on 28 March and the buyer has not yet indicated acceptance. Under AS 9, how should Kaveri Textiles treat the sale in its books for the year ended 31 March 2025, assuming it cannot reliably estimate returns?

Revenue should be recognised only when the buyer accepts the goods or the 30-day return period expires. Until then, with returns not reliably estimable, the significant risks and rewards of ownership have not transferred to the buyer, so recognising the sale on delivery would be premature.

  1. ARecognise revenue of Rs 5,00,000 in FY 2024-25 as goods are delivered
  2. BRecognise revenue only when the buyer accepts the goods or the return period lapsesCorrect
  3. CRecognise 50% of the revenue now and the rest after 30 days
  4. DRecognise revenue on the date the cash is received irrespective of acceptance

Explanation

Under AS 9, where delivery is subject to buyer's approval or return right and the seller cannot reliably estimate returns, significant risks and rewards have not passed. Revenue is recognised on acceptance or when the return period lapses. Recognising it on delivery (option A) ignores this uncertainty.

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