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CMA Intermediate · Corporate Accounting and Auditing · Conceptual Framework

Under the Conceptual Framework for Financial Reporting under Ind AS, when a company sells goods for cash, income is recognised from the cash received and an expense is recognised from the goods sold. What is the expense recognised from?

The expense arises from the derecognition of another asset, the goods sold. The cash sale recognises cash as an asset, giving income, while the goods leave the balance sheet, giving the related expense. Both effects occur together when the sale is recorded.

  1. AThe derecognition of another asset, namely the goods soldCorrect
  2. BThe recognition of a new liability to the customer
  3. CThe recognition of additional equity contributed by owners
  4. DThe measurement of the cash received at its present value

Explanation

The text says a cash sale gives income from recognising one asset (the cash) and an expense from derecognising another asset (the goods sold). It is not a liability or an owner contribution, and measuring cash at present value does not create the expense.

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