CA Foundation · Accounting · Theoretical Framework
Mira Ltd. recognized revenue of ₹50,000 from a service contract in the current year, although cash was received only for ₹40,000. The remaining ₹10,000 is expected to be received in the next financial year. Under the accrual basis of accounting as per the Conceptual Framework, the treatment adopted by Mira Ltd. is:
Under the accrual basis, revenue is recognized when earned, irrespective of cash receipt timing. Mira Ltd. correctly recognized the full ₹50,000 as the service was provided; the outstanding ₹10,000 would be recorded as a receivable.
- AIncorrect, as only cash received should be recognized as revenue
- BCorrect, as revenue is recognized when earned, regardless of cash receiptCorrect
- CIncorrect, as revenue cannot be recognized until the full amount is received in cash
- DCorrect, but only if the entity is a service provider registered with GST authorities
Explanation
The accrual basis of accounting, fundamental to the Conceptual Framework, recognizes revenue when earned (performance obligation satisfied), not when cash is received. Mira Ltd. correctly recognized ₹50,000. The cash-basis approach (option A) is not acceptable under the framework. Option C incorrectly restricts recognition to full cash receipt. GST status (option D) is irrelevant to revenue recognition principles.
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