Question 2 (c)
Three revenue-recognition cases under AS-9
6 marks
- Time to write
- About 12 minutes
- Notes
- Crux notes
Question
Question 2 (c) · 6 marksIn the light of AS-9 on Revenue recognition, answer the following:
On 31.03.2023, Z Ltd. decided to raise the sales price retrospectively from 1st Jan 2023, resulting in ₹4 lakh receivable. Should this be recognized in FY 2022-23?
M/s Star Ltd. sold goods worth ₹6,00,000, allowing a trade discount of ₹48,000. Defective goods worth ₹52,000 were returned. The accountant recorded the sale at ₹5,00,000. Is this correct under AS-9?
Ravi Ltd. sold farm equipment through its dealers on the condition of payment within 21 days, after which interest @18% p.a. is chargeable. It has never realized interest before, yet the company now wishes to recognize ?9 lakh of interest due for the FY ending 31.03.2026. Can this income be recognized as per AS-9? (3×2=6 Marks)
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
Read from the question
- Should…?Is…?Can…?3 asks, each with its own marks below. Answer all 3.
- Should this be…?A yes-or-no question: answer it in your first line, then explain why.
What the paper leaves open
In case (ii), "goods worth" is read as the gross value before the trade discount, so the recorded figure is checked against the gross value less the trade discount and the returns. In case (iii) the paper prints "?9 lakh", with a question mark where the rupee sign belongs; it is kept as printed and read as ₹9 lakh. Nothing else is left open.
Write it in this order
- Read the data; note exactly what is asked 1 min
- 1 (i) Not recognised in FY 2022-23: a one-sided price escalation with collection uncertain 2 marks 3 min
- 2 (ii) Verdict and reason − − 2 marks 3 min
- 3 (iii) Not recognised: interest never realised, so collection uncertain 2 marks 3 min
- Check: arithmetic, units (₹, %), final answer underlined 2 min
Try it first. About 12 minutes for 6 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.
AS-9 recognises revenue only when it is measurable and ultimate collection can reasonably be expected. Where that ability is lacking when a claim is raised, for example for escalation of price or for interest, recognition is postponed to the extent of the uncertainty, until collection is reasonably certain.
(i) Retrospective price increase: No, not in FY 2022-23 on these facts. The company alone decided, on the last day of the year, to raise prices on goods already sold. Nothing shows that the buyers have accepted the increase, so the ₹4 lakh is a claim for escalation of price whose collection is not yet reasonably certain. It is recognised when that certainty exists, for example when the buyers accept the increase, and not in FY 2022-23.
(ii) Recorded sale of ₹5,00,000: Yes, correct. Trade discounts are deducted in determining revenue, and goods returned reverse the sale.
| Particulars | ₹ |
|---|---|
| Goods sold (gross) | 6,00,000 |
| Less: trade discount | (48,000) |
| Less: defective goods returned | (52,000) |
| Revenue | 5,00,000 |
(iii) Interest on overdue dealer accounts: No. The company has never realised such interest, so there is no reasonable certainty that the ₹9 lakh will be collected. AS-9 names interest as a claim whose recognition is postponed in exactly this situation. It is recognised only when collection becomes reasonably certain, in practice when received.
Where the 6 marks sit
| # | Case | Marks |
|---|---|---|
| 1 | (i) Not recognised in FY 2022-23: a one-sided price escalation with collection uncertain | 2 |
| 2 | (ii) Correct: ₹6,00,000 − ₹48,000 − ₹52,000 = ₹5,00,000 | 2 |
| 3 | (iii) Not recognised: interest never realised, so collection uncertain | 2 |
| Total | 6 |
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