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CA Intermediate · Advanced Accounting · AS 1 Disclosure of Accounting Policies

Rohan Foods Ltd. sold goods in March 2025 for Rs. 20,00,000, and the customer paid in April 2025. The company's accounting year ends on 31 March. In March 2025, the company also received Rs. 5,00,000 as advance for goods to be delivered in May 2025. Rohan Foods follows accrual basis as per AS 1. What revenue should be recognised for the year ended 31 March 2025 from these two transactions?

Revenue for the year is Rs. 20,00,000. Under the accrual basis in AS 1, the March sale is recognised when earned even though cash came in April, while the Rs. 5,00,000 advance for goods delivered in May is not yet earned and is shown as a liability.

  1. ARs. 25,00,000
  2. BRs. 5,00,000
  3. CRs. 20,00,000Correct
  4. DRs. 0

Explanation

Under the accrual basis, revenue is recognised when earned, not when cash is received. The sale of Rs. 20,00,000 is recognised in March 2025 despite the April receipt. The Rs. 5,00,000 advance is not earned until delivery in May, so it is a liability. Total revenue = Rs. 20,00,000. Option Rs. 25,00,000 wrongly adds the advance, and Rs. 5,00,000 follows the cash basis.

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