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CA Intermediate · Advanced Accounting · AS 9 Revenue Recognition

Sharma Publishers sells textbooks to distributors under a 'sale or return' arrangement. Books costing Rs 4,00,000 were dispatched on 20 March 2025 at an invoice value of Rs 6,00,000. The distributors may return unsold books up to 30 June 2025, and Sharma Publishers cannot estimate returns reliably. At the year-end of 31 March 2025, how much revenue should Sharma Publishers recognise from this dispatch under AS 9?

No revenue should be recognised at 31 March 2025. In a sale-or-return arrangement where returns cannot be reliably estimated, significant risks and rewards of ownership remain with Sharma Publishers until the buyer accepts the goods or the return period ends, so AS 9 conditions for recognising sale revenue are not met.

  1. ARs 6,00,000, because the goods have been dispatched and invoiced
  2. BNil, because significant risks and rewards of ownership have not been transferredCorrect
  3. CRs 2,00,000, being the profit element on the books dispatched
  4. DRs 4,00,000, being the cost of the books dispatched

Explanation

Under AS 9, revenue from sale of goods is recognised when property in the goods is transferred for a price and significant risks and rewards of ownership pass to the buyer. In a sale-or-return arrangement where returns cannot be estimated, the risks remain with the seller until acceptance or the return period lapses. So no revenue is recognised at 31 March 2025. Recognising Rs 6,00,000 ignores this condition.

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