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CS Executive · Corporate Accounting and Financial Management · Introduction to Accounting

Verma Ltd. sold goods worth ₹5,00,000 on credit in March 2026, delivered in March, with payment received in April 2026. It also received ₹2,00,000 in March 2026 as advance for goods to be delivered in May 2026. Cost of goods sold for the March deliveries was ₹3,50,000 and was matched in March. What revenue and profit on these items is recognised for the year ended 31 March 2026?

Revenue of ₹5,00,000 and profit of ₹1,50,000 are recognised. Revenue arises on delivery irrespective of cash receipt, so the credit sales count, while the advance is a liability until delivery. Profit is 5,00,000 less cost of goods sold 3,50,000.

  1. ARevenue ₹7,00,000; profit ₹3,50,000
  2. BRevenue ₹2,00,000; profit ₹2,00,000
  3. CRevenue ₹5,00,000; profit ₹1,50,000Correct
  4. DRevenue ₹5,00,000; profit ₹5,00,000

Explanation

Revenue is recognised when goods are delivered and risks pass, not when cash is received. So credit sales of ₹5,00,000 are revenue, while the ₹2,00,000 advance is a liability. Profit = 5,00,000 − 3,50,000 = ₹1,50,000. Option one wrongly includes the advance.

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