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CA Intermediate · Advanced Accounting · AS 9 Revenue Recognition

Tanishq Traders sold goods to Ravi Enterprises for Rs 5,00,000 in February 2025. In the previous year, the company had no uncertainty about collection. In March 2025, Ravi Enterprises was declared insolvent and the amount became doubtful, though the sale had been properly recognised in February. In April 2025 (before the financial statements were approved), Tanishq Traders learnt that only Rs 1,00,000 would be recovered. Which treatment is correct under AS 9 for the year ended 31 March 2025?

Revenue stays at Rs 5,00,000 and the expected unrecoverable Rs 4,00,000 is charged separately as a bad debt provision or write-off. AS 9 treats uncertainty arising after revenue was properly recognised as an expense, not as a reversal or reduction of the revenue itself.

  1. AReverse the sale of Rs 5,00,000 as no revenue was earned
  2. BReduce revenue by Rs 4,00,000 to show only the recoverable sale
  3. CDo not recognise any loss until the amount is actually written off
  4. DKeep revenue at Rs 5,00,000 and make a separate provision or write-off of Rs 4,00,000 as bad debtCorrect

Explanation

AS 9 states that when uncertainty arises about realisability of an amount already included in revenue, the amount not expected to be collected is provided for or written off as an expense, not treated as an adjustment to the revenue originally recognised. Uncertainty arose after the sale was validly recognised, so revenue stays at Rs 5,00,000 and Rs 4,00,000 is charged as bad debt. Reducing revenue is the key error.

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