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CA Intermediate · Advanced Accounting · AS 9 Revenue Recognition

Vindhya Constructions Ltd. sold a machine to Rao Industries for Rs 12,00,000 on 1 February 20X2, with a cost of Rs 9,00,000. The buyer asked the company to hold the goods in its warehouse until 15 April 20X2, but the buyer has accepted delivery terms, the goods are identified, ready for delivery and the buyer has paid Rs 12,00,000 and accepted billing. Separately, on 10 March 20X2 the company sold another lot for Rs 5,00,000 under an agreement where the buyer may reject goods at will until installation is inspected on 10 April 20X2, with delivery made. How much total sale revenue should the company recognise for the year ended 31 March 20X2 under AS 9?

Revenue of Rs 12,00,000 should be recognised. The first sale qualifies because title and risks passed to the buyer, who accepted billing, even though goods are held at its request. The second sale is conditional on inspection, so recognition waits until acceptance.

  1. ARs 17,00,000
  2. BRs 12,00,000Correct
  3. CRs 5,00,000
  4. DRs 3,00,000

Explanation

For the first sale, the buyer took title and accepted billing with goods ready for delivery, so risks and rewards have passed and Rs 12,00,000 is recognised. For the second, delivery is made but the buyer's right to reject until inspection leaves significant uncertainty, so recognition is deferred until acceptance. Rs 17,00,000 wrongly includes the conditional sale, and Rs 3,00,000 is the profit on the first sale, not revenue.

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