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CA Intermediate · Advanced Accounting · AS 9 Revenue Recognition

Sharma Publications sells textbooks to distributors on a sale-or-return basis. Under the arrangement, goods worth Rs 6,00,000 were dispatched on 20 March 2025, and distributors may return unsold books up to 30 June 2025. The company cannot reliably estimate returns. As per AS 9, how much revenue should be recognised in the year ended 31 March 2025?

No revenue should be recognised in the year ended 31 March 2025. Because distributors can return the books and returns cannot be estimated reliably, the significant risks and rewards of ownership have not passed to them. Revenue is recognised only when the return period ends or the goods are accepted.

  1. ARs 6,00,000, because goods were dispatched before year end
  2. BNil, because the buyer's right to return is unresolved and risk is not transferredCorrect
  3. CRs 3,00,000, being 50% of the value on a prudent basis
  4. DRs 6,00,000 less a provision of Rs 60,000 at 10%

Explanation

Under AS 9, revenue from sale of goods is recognised when significant risks and rewards of ownership are transferred. Where the buyer has a right to return and the seller cannot reliably estimate returns, the risks remain with the seller. So no revenue is recognised until the return period lapses or acceptance occurs. Options recognising full or partial revenue ignore this.

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