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CMA Foundation · Fundamentals of Financial and Cost Accounting · Accounting Principles, Concepts and Conventions

Under AS 9 (Revenue Recognition), Bose Ltd sells goods worth Rs 2,00,000 to a customer on 28 March, and the goods are delivered and accepted on 3 April of the next year. Control and significant risks pass on delivery. In which year should the revenue be recognised?

Revenue is recognised in the year of delivery, 3 April, because AS 9 requires recognition when significant risks and rewards of ownership pass to the buyer. Booking the order on 28 March or the timing of cash receipt does not decide the recognition year.

  1. AIn the year of delivery, because risks and rewards pass on deliveryCorrect
  2. BIn the year of sale, because the order was booked on 28 March
  3. CIn the year in which payment is received in cash
  4. DHalf in each year as the sale spans two years

Explanation

Revenue from sale of goods is recognised when significant risks and rewards of ownership transfer to the buyer. Here this occurs on delivery on 3 April, so revenue belongs to the next year. Booking the order earlier does not transfer the risk.

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