Question 2 OR (a)

Four revenue-recognition cases under AS-9

8 marks

Time to write
About 16 minutes
Topic
Revenue recognition and AS 9
Notes
Crux notes

Question

Question 2 OR (a) · 8 marks

Given below is the information of Kavya Ltd.

  1. Meera publications publish a monthly magazine on 18th of every month. It sells advertising space in its magazine. The sale of space for the march 2025 issue was made in February 2025. The magazine was published on its scheduled date. It received ₹1,80,000 on 5-3-2025 and ₹60,000 on 15-4-2025 for the March 2025 issue.

  2. On 10-12-2024 goods worth ₹4,20,000 were sold on approval basis to Nikhil Ltd. The approval period was 2 months, after which the goods were considered sold. The buyer sent approval for 75% of goods up to 30-1-2025, but no approval or disapproval was received for the remaining goods till 31-3-2025.

  3. Sold goods ₹7,20,000 lakhs to S Ltd on 12-3-2025 but, at the buyer's request, these were delivered on 20-04-2025.

  4. On 5 November, 2024 goods worth ₹1,20,000 were sent on consignment basis of which 25% of the goods remain unsold, lying with the consignee as on 31st March 2025.

For each case above, advise, giving valid reasons, the amount to be recognised as revenue under AS-9, given that the company closes its accounts every year on 31st March.

Reworded from the university paper: names and figures differ, the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.

Before you write

Read off the question and its marks

16 minfor 8 marks

Read from the question

  • (i)–(iv)4 items, each marked on its own: give each its share.
  • adviseEnd with a one-line decision that follows from your figures.

What the paper leaves open

  1. Case (iii) prints the sale as "₹6,00,000 lakhs" (₹7,20,000 lakhs in our version); we read it as ₹7,20,000, since "lakhs" after a figure already written in full is a slip.
  2. Case (iv) gives the consigned goods as "worth" a figure without saying whether that is cost or sale value; we read it as the sale value at which the consignee sells.
  3. Case (i) gives the two receipts but not the terms; we read them as the whole price of the space for the March issue.

Write it in this order

  1. Read the data; note exactly what is asked 1 min
  2. 1 (i) Advertising space 2 marks 4 min
  3. 2 (ii) Goods on approval 2 marks 4 min
  4. 3 (iii) Delivery delayed at buyer's request 2 marks 3 min
  5. 4 (iv) Consignment 2 marks 3 min
  6. Check: arithmetic, units (₹, %), final answer underlined 1 min

Try it first. About 16 minutes for 8 marks. Write it out, then open the solution.

Solution

Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.

The accounts close on 31 March 2025, so each case turns on whether the event that earns the revenue happened by that date.

(i) Advertising space: ₹2,40,000. Selling space is a service, and a service is recognised as the work is performed; for a single act, that is when it is completed, provided the consideration is not significantly uncertain. The March 2025 issue came out on its scheduled date, the 18th, inside the year, so the whole price of the space, ₹1,80,000 + ₹60,000 = ₹2,40,000, is revenue of the year. The ₹60,000 collected on 15 April 2025 is a receivable at the year end; when the cash arrives does not change the year the revenue belongs to.

(ii) Goods on approval: ₹4,20,000. Revenue on approval sales is recognised when the buyer formally accepts, or when the period allowed for rejection has passed.

  • 75% was approved by 30 January 2025: ₹3,15,000.
  • The 2-month approval period from 10 December 2024 ended on 10 February 2025. The remaining 25% (₹1,05,000) was neither approved nor rejected by then, so it is considered sold.
  • Revenue: ₹4,20,000.

(iii) Delivery delayed at the buyer's request: ₹7,20,000. Where delivery is put off at the buyer's request and the buyer has taken the goods as sold, revenue is recognised even though physical delivery is not complete, provided the goods are on hand, identified and ready for delivery and delivery is expected. The sale was made on 12 March 2025, so ₹7,20,000 is revenue of the year ending 31 March 2025, although delivery was on 20 April 2025.

(iv) Consignment: ₹90,000. Goods sent on consignment are not revenue until the consignee sells them to a third party. 75% has been sold: ₹1,20,000 × 75% = ₹90,000. The 25% still with the consignee (₹30,000) is the company's stock, not revenue.

CaseRevenue recognised for the year ending 31 March 2025 (₹)
(i) Advertising space2,40,000
(ii) Goods on approval4,20,000
(iii) Delivery delayed at buyer's request7,20,000
(iv) Consignment90,000
Total14,70,000

Where the 8 marks sit

#CaseMarks
1(i) Advertising space: ₹2,40,0002
2(ii) Goods on approval: ₹4,20,0002
3(iii) Delivery delayed at buyer's request: ₹7,20,0002
4(iv) Consignment: ₹90,0002
Total8
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