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CA Intermediate · Advanced Accounting · AS 9 Revenue Recognition

Sundaram Textiles Ltd sold goods to Kavya Retail for ₹6,00,000 on 28 March 2026 on a 'sale or return' basis. Kavya Retail may return unsold goods within 60 days, and Sundaram has no past data to estimate returns. Delivery was made on 28 March 2026. For the year ended 31 March 2026, how much revenue should Sundaram recognise on this transaction under AS 9?

No revenue should be recognised for the year ended 31 March 2026. In a sale-or-return arrangement where returns cannot be estimated, significant risks and rewards of ownership stay with the seller until the buyer accepts the goods or the return period ends, so AS 9 recognition conditions are not met.

  1. A₹6,00,000, because delivery has taken place
  2. B₹3,00,000, being 50% of the sale value on a prudent basis
  3. CNil, because significant risks and rewards remain with the seller until acceptance or the return period lapsesCorrect
  4. D₹6,00,000 less a provision of 10% for expected returns

Explanation

Under AS 9, revenue from sale of goods is recognised when property and significant risks and rewards pass to the buyer. In a sale-or-return arrangement with no reliable estimate of returns, these have not passed until the buyer accepts the goods or the return period expires. So no revenue is recognised in FY 2025-26. Recognising the full amount ignores the buyer's right of return.

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