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CA Intermediate · Advanced Accounting · AS 9 Revenue Recognition

Sri Venkat Publications sold 2,000 textbooks to a distributor, Mehta Books, on 28 March 2025 at ₹300 per book, invoiced and delivered on that date. The agreement lets Mehta Books return unsold books within 6 months, and the company cannot reliably estimate returns. Under AS 9, how much revenue should be recognised for the year ended 31 March 2025?

No revenue is recognised in the year ended 31 March 2025. The right of return cannot be reliably estimated, so significant uncertainty remains about the consideration. AS 9 postpones recognition until the return period expires or the uncertainty is resolved, rather than booking full sales with a provision.

  1. A₹6,00,000, because delivery has taken place and the invoice is raised
  2. B₹3,00,000, being 50% of the sale value as a prudent estimate
  3. CNil, because significant uncertainty exists about the consideration, so recognition is postponed until the return period lapses or the uncertainty is resolvedCorrect
  4. D₹6,00,000 with a provision for returns equal to the full sale value

Explanation

AS 9 requires that revenue from sale of goods be recognised only when no significant uncertainty exists about the ultimate collection or the consideration. Since returns cannot be reliably estimated, the risk of return remains with the seller. Recognising full revenue and a provision (option 4) or 50% (option 2) are not permitted when no reliable estimate exists, so revenue is deferred.

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