AS 9 - REVENUE RECOGNITION AS 9.

AS 9 - REVENUE RECOGNITION
INDEX
SR. NAME OF THE QUESTIONS TO REVISE ONE
NO. CONCEPT CONCEPT DAY BEFORE
1

ATTEMPT WISE ANALYSIS

AS 9 - REVENUE RECOGNITION
6

0
May-18 Nov-18 May-19 Nov-19 Dec-20 Jan-21 Jun-21 Dec-21 May-22 Nov-22 May-23
Marks 5 5 5 5 5 5

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AS 9 - REVENUE RECOGNITION AS 9.2

This standard deals with the bases for This standard does not deal with the
recognition of revenue in the statement of following aspects of revenue recognition to
profit and loss of an enterprise. The standard which special considerations apply:
is concerned with the recognition of revenue i. Revenue arising from construction
arising in the course of the ordinary activities contracts ;
of the enterprise from- ii. Revenue arising from hire-purchase,
lease agreements ;
• the sale of goods,
iii. Revenue arising from government
• the rendering of services , and
grants and other similar subsidies ;
• the use by others of enterprise resources iv. Revenue of insurance companies
yielding interest, royalties and dividends arising from insurance contracts.

Examples of items not included within the definition of ‘revenue’ for the purpose
of this standard are:
i. Realized gains resulting from the disposal of, and unrealized gains resulting from the
holding of , non current assets eg. Appreciation in the value of fixed assets ;
ii. Unrealized holding gains resulting from the change in value of current assets, and the
natural increases in herds and agricultural and forest products :
iii.Realised or unrealized gains resulting from changes in foreign exchange rates and
adjustments arising on the translation of foreign currency financial statements;
iv. Realised gains resulting from the discharge of an obligation at less than its carrying
amount ;
v. Unrealized gains resulting from the restatement of the carrying amount of an obligation.

Revenue is the
• Gross inflow of cash, receivables and others consideration
• Arising in the course of ordinary activities of an enterprise.
• From: -
✓ sale of goods
✓ Rendering of services, and
✓ use by others of enterprise resources yielding interest, royalties and dividend.

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AS 9 - REVENUE RECOGNITION AS 9.3

Source → itcportal.com

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AS 9 - REVENUE RECOGNITION AS 9.4

GROSS
GROSSINFLOW
INFLOW
Example → Gains realized from an obligation discharged at less than its carrying value: there
is no gross inflow, only saving in outflow hence not revenue.
EXCEPTION → In an agency relationship, amount of commission & not the gross inflow will
be considered as revenue.
CASH, RECEIVABLES & OTHER CONSIDERATION
• Cash implies that revenue can arise out of cash transactions.
• Receivables implies that revenue can arise out of the credit transaction.
• Consideration implies that revenue arises only from a third party [i.e. Revenue cannot arise
within an enterprise.]
Example
Cash a/c……. Dr. Receivables a/c……. Dr.
To Sales a/c To Sales a/c

SALE OF GOODS
Sale of goods is that the seller has transferred the property in the goods to the buyer for
consideration. The transfer of property in goods, in most cases , results in or coincides with the
transfer of significant risks and rewards of ownership to the buyer. However, there may be
situations where transfer of property in goods doesn't coincide with the transfer of significant
risks and rewards of ownership.
Revenue in such situations is recognized at the time of transfer of significant risks and rewards
of ownership to the buyer.
Example → Sale of Investments, fixed assets are not sale of goods.
We will study this in detail in following pages

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AS 9 - REVENUE RECOGNITION AS 9.5

REVENUE RECOGNITION FROM SALE OF GOODS

PERFORMANCE : • The seller has transferred to the buyer all significant risks &
rewards of ownership,
• The seller retains no effective control of the goods to a degree
usually associated with ownership
Example → If the seller takes bill of lading [document of title of
goods] in his name rather than in the name of the customer, it may
show that he retains effective control of goods associated with
ownership.
MEASUREMENT : There is no significant uncertainty regarding the
amount of consideration that will be derived from the sale of goods.
COLLECTIBILITY : At the time of performance it is not unreasonable
to expect ultimate collection.

EFFECT OF UNCERTAINTIES ON REVENUE RECOGNITION (IMPORTANT)

• Recognition of revenue requires that revenue is measurable and that at the time of sale or
the rendering of the service it would not be unreasonable to expect ultimate collection.
• Where the ability to assess the ultimate collection with reasonable certainty is lacking at
the time of raising any claim, e.g., for escalation of price, export incentives, interest etc.,
revenue recognition is postponed to the extent of uncertainty involved. In such cases, it may
be appropriate to recognise revenue only when it is reasonably certain that the ultimate
collection will be made. Where there is no uncertainty as to ultimate collection, revenue is
recognised at the time of sale or rendering of service even though payments are made by
instalments.
• When the uncertainty relating to collectability arises subsequent to the time of sale or the
rendering of the service, it is more appropriate to make a separate provision to reflect the
uncertainty rather than to adjust the amount of revenue originally recorded.
• An essential criterion for the recognition of revenue is that the consideration receivable for
the sale of goods, the rendering of services or from the use by others of enterprise resources
is reasonably determinable. When such consideration is not determinable within reasonable
limits, the recognition of revenue is postponed.
• When recognition of revenue is postponed due to the effect of uncertainties, it is considered
as revenue of the period in which it is properly recognised.

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AS 9 - REVENUE RECOGNITION AS 9.6

These illustration do not form part of the Accounting standard. Their purpose is to illustrate the
application of the standard to a number of commercial situations in an endeavour to assist in
clarifying application of the standard.

 DELAYED AT BUYER’S REQUEST

Delivery is delayed at buyer’s request and buyer takes title and accepts billing
Revenue should be recognised notwithstanding that physical delivery has not been completed
so long as there is very expectation that delivery will be made.
• Items must be on hand, identified & ready for delivery to the buyer at the time sale is
recognised.
• Rather than there being simple intention to acquire or manufacture the goods in time
for delivery.
• Delivery is delayed at buyer’s request.
• Buyer takes title & accepts billing.

 GOODS SOLD SUBJECT TO INSTALLATION, INSPECTION ETC.

Revenue not to be recognized until the customer accepts delivery and installation and
inspection are complete. In some cases, however, the installation process may be so simple in
nature that it may be appropriate to recognize the sale notwithstanding that installation is
not yet completed.
Example→ Installation of factory-tested television received normally only requires unpacking
and connecting of power and antennae.

 In case where installation fees are other than incidental to the sale of a product, they
should be recognized as revenue only when the equipment is installed and accepted by the
customer.

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AS 9 - REVENUE RECOGNITION AS 9.7

 GOODS SOLD ON APPROVAL

Revenue should not be recognized until the goods have been formally accepted by the buyer
or the buyer has done an act adopting the transaction or the time period for rejection has
elapsed or where no time has been fixed, a reasonable time has elapsed.
 GOODS SOLD ON GUARANTEE i.e. delivery is made giving the buyer an unlimited
right of return
Recognition of revenue in such circumstances will depend on the substance of the agreement.
In the case of retail sales offering a guarantee of “money back if not completely satisfied”
it may be appropriate to recognise the sale but to make a suitable provision for returns based
on previous experience.
 CONSIGNMENT SALES i.e. delivery is made whereby the recipient undertakes to
sell the goods on behalf of the consignor.
Revenue should not be recognised until the goods are sold to a third party

 CASH ON DELIVERY SALES

Revenue should not be recognized until cash is received by the seller or his agent.

SOME SPECIAL CASES

a. Sales where the purchaser makes a series of installment payments to the seller, and the
seller delivers the goods only when the final payment is received
• Revenue from such sales should not be recognized until goods are delivered.
• However, when experience indicates that most such sales have been consummated
revenue may be recognized when a significant deposit is received.
b. Partial payments → Special orders and shipments i.e. where payment (or partial payment)
is received for goods not presently held in stock eg. the stock is still to be manufactured or
it is to be delivered directly to the customers from a third party.
• Revenue from such sales should not be recognized until goods are manufactured, identified
and ready for delivery to the buyer by the third party.

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AS 9 - REVENUE RECOGNITION AS 9.8

ON 14TH FEBRUARY RASGULLA HAD TO IMPRESS HIS GF…. HE GAVE SPECIAL ORDER FOR
FLOWERS

c. Sales / Repurchase agreement → i.e. where seller concurrently agrees to repurchase the same
goods at a later date.
• Such transaction that are in substance a financing agreement,
• The resulting cash inflow is not revenue as defined and should not be recognised.

House leased for 20 years for Rs. 5 crores and

agreement for repurchase also made for Rs. 8 crores

d. Sales to intermediate parties i.e. where goods are sold to distributors, dealers or others for
resale.
Revenue from such sales can generally be recognised if significant risks of ownership have
passed;

• However in some situations the buyer may in substance be an agent and in such cases the
sales should be treated as a consignment sale.

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AS 9 - REVENUE RECOGNITION AS 9.9

 SUBSCRIPTIONS FOR PUBLICATION

• Revenue received or billed should be deferred.
• Recognise either on a straight line basis over time or,
• Where the items delivered vary in value from period to period,
revenue should be based on the sales value of the item delivered in
relation to the total sales value.

 INSTALLMENT SALES
• Revenue attributable to the sales price exclusive of interest should be recognised at the
date of sale.
• The interest element should be recognised as revenue, proportionately to the unpaid
balance due to the seller.

 TRADE DISCOUNTS AND VOLUME REBATES

• Trade discounts and volume rebate given should be deducted in determining revenue.

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AS 9 - REVENUE RECOGNITION AS 9.10

 RENDERING OF SERVICES
In a transaction involving the rendering of services, performance should be measured either
under the completed services contract method or under the proportionate completion method
which ever related revenue to the work accomplished. Such performance should be regarded as
being achieved when no significant uncertainty exists regarding the amount of the consideration
that will be derived from rendering the services.
Some Examples of rendering of services:- Installation fees, Financial Services,
Commissions, Admission Fees, Tuition Fees, Entrance Fees and Membership Fees.
 ADVERTISING AND INSURANCE AGENCY COMMISSIONS
• Revenue should be recognized when the service is completed.
• For advertising agencies, media commissions will be recognized when the advertisement
or commercial appears before the public and the necessary intimate is received by the
agency.
• Insurance agency commission should be recognised on the effective commencement or
renewal date of the related policies.

Revenue arising from the use by others of Enterprise

resources yielding interest , royalties and dividends should
only be recognised when no significant uncertainty as to
measurability or collectability exists. These revenues are
recognized on the following bases:
• Interest :- On a time proportion basis taking into
accounts the amount outstanding and the rate
applicable;
• Royalties : - On an accrual basis in accordance with
the terms of the relevant agreement;
• Dividends from Investment in shares :- when the
owner’s right to receive payment is established.

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AS 9 - REVENUE RECOGNITION AS 9.11

DISCLOSURE
In addition to the disclosure required by Accounting standard-I on disclosure of Accounting policies
[AS -1], an enterprise should also disclose the circumstances in which revenue recognition has
been postponed pending the resolution of significant uncertainties.

# Important points from Exam Point of view [SUMMARY]

1. In case of sale of goods, the physical delivery of goods is not important for revenue recognition.
What is relevant is the transfer of significant risk and reward.
2. In case of rendering of services the revenue should be recognised in such a way to match the
services rendered. Completed contract method or the proportionate completion method may
be used to find out the relevant revenue.
3. In case of revenue from rent, royalty, interest etc. it should be recognized on time proportion/
accrual basis.
4. In case of dividend Income, when it is declared by that other company (i.e. when the right to
receive dividend is established.)
5. In case of consignee, travel agent, or other intermediaries , the revenue amount to be
recognised is the commission only and not the gross value of the transaction.
6. In case of insurance claims lodged, the revenue from claims should be recognised only when
the amount of claims can be reliably measured and the receipt of chain amount is certain.
7. After delivery of goods or services, full sales value be recognised, even if some sales value is
retained by buyer till the satisfactory performance of goods or services [Retention money)
8. Additional revenue arising out of price revision may be recognized as revenue in the current
year, if there is a reasonable certainty of collection.
9. In case of installment sale, the pure price (cash price portion] should be recognized on the
date of sale, but the interest should be recognized in proportion to the unpaid balance due to
the seller.
10. Interest on over dues should be recorded on accrual basis. If there is uncertainty of collection
of an overdue balance, interest on such overdue should be recognized only when received.
11. If the work on a contract has started and only an insignificant portion of the total work is
done so far, the profit on such contract need not be recognised.
12. Inter-division transfers and goods for self-consumption do not generate revenue. Hence, the
revenue on such transaction is not recognised in the profit and loss a/c.

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AS 9 - REVENUE RECOGNITION AS 9.12

AS - 9
sd
OBJECTIVE
To lay down the bases for recognition of revenue arising in the course of ordinary activities of an enterprises from sale of goods,
rendering of services & use by others of enterprise resources yielding interest , royalties & dividends.

REVENUE RECOGNITION FROM SALE OF GOODS

PERFORMANCE MEASUREMENT COLLECTABILITY

Gross inflow of cash, receivable or
• The seller has transferred to • There is no significant • At theY time of
other consideration in the course of
the buyer all significant uncertainty regarding performance it is not

QUICK SUMMARY
ordinary activities from an the amount of
risks & rewards of unreasonable to expect
enterprise.
ownership, consideration that will ultimate collection.
From sale of goods, rendering of be derived from the
• The seller retains no
services and use by others of sale of goods.
effective control of the
enterprises resources yielding
goods to a degree usually
interest, royalties & dividend.
associate with ownership

USE OF ENTERPRISE RESOURCES BY OTHER PARTIES

DISCLOSURE
Use of enterprise resources by others may yield revenue in the form of interest, royalties
• Revenue Recognition Policy and dividends.
• Changes in accounting policies,
RECOGNITION OF REVENUE WHEN ENTERPRISE
if any, and the impact thereof.
RESOURCES ARE USED BY OTHERS
• Circumstances in which revenue
recognition has been postponed.
Interest Royalties Accrual basis Dividends when right to
• Gross turnover, excise duty & net
time basis depending upon the terms of receive the payment is
turnover
agreement establishment

PREM SE BOLO AS HAI…

 AS 9.13

AS 9 – REVENUE RECOGNITION

AS 9
Question Bank
Sr. No. Concept
Section A Section B

1 Retrospective Event Q.1 Q.5

2 Postponement of revenue Q.3 Q.3, Q.8, Q.9

3 Amount to be recognised Q.4, Q.5, Q.9, Q.10, Q.11, Q.2 Q.4, Q.6, Q.7, Q.23

4 Method of revenue recognition Q.18, Q.21

5 Discount Q.13

6 Deferred Revenue Q.14

7 Principal Agent Q.12

8 Policy for revenue recognition Q.17, Q.19,

9 Timing of revenue recognition Q.7 Q.2, Q.20, Q.22, Q.16

10 Miscellaneous Q.13, Q.15, Q.16 Q.15

11 Special Case Q.6, Q.8, Q.14, Q.17 Q.1, Q.10, Q.11, Q.12,
 AS 9.14

AS 9 – REVENUE RECOGNITION
AS 9

SECTION A (CONCEPT QUESTIONS)

PAGE DATE
No. QUESTION R1 R2 R3 REMARK
NO.
1 ICAI ILLUSTRATION 1
2 ICAI ILLUSTRATION 2
3 ICAI ILLUSTRATION 3
4 ICAI ILLUSTRATION 4
5 QP MAY 19
6 MAY 2015
7 QP NOV 19
8 QP DEC 21
9 RTP MAY 21
10 MTP OCT. 21 SERIES 1
11 QP MAY 2023
ICAI ILLUSTRATION 1
12
(New Syllabus)
ICAI ILLUSTRATION 2
13 (New Syllabus)
14 ICAI ILLUSTRATION 3
(New Syllabus)
15 ICAI ILLUSTRATION 4
(New Syllabus)
16 ICAI P.Q. 6
17 ICAI P.Q. 8
 AS 9.15

1. ICAI ILLUSTRATION 1

AS 9
The Board of Directors decided on 31.3.20X2 to increase the sale price of certain items
retrospectively from 1st January, 20X2. In view of this price revision with effect from 1st January
20X2, the company has to receive ` 15 lakhs from its customers in respect of sales made from
1st January, 20X2 to 31st March, 20X2. Accountant cannot make up his mind whether to include
` 15 lakhs in the sales for 20X1-20X2. Advise.

SOLUTION
FACTS:
Retrospective increase of Sales price has been made resulting in increase in sales value by ` 15
lakhs
REFERENCE:
As per AS 9 on Revenue Recognition, Revenue from sales or service transactions should be
recognised when the requirements as to performance are satisfied, provided that at the time of
performance it is not unreasonable to expect ultimate collection. If at the time of raising of any
claim it is unreasonable to expect ultimate collection, revenue recognition should be postponed.
ANALYSIS:
Price revision was effected during the current accounting period 20X1-20X2. As a result, the
company stands to receive ` 15 lakhs from its customers in respect of sales made from 1st
January, 20X2 to 31st March, 20X2. If the company is able to assess the ultimate collection with
reasonable certainty, then additional revenue arising out of the said price revision may be
recognized.
CONCLUSION:
The additional revenue arising out of the said price revision may be recognized in 20X1-20X2.

2. ICAI ILLUSTRATION 2
Y Ltd., used certain resources of X Ltd. In return X Ltd. received ` 10 lakhs and ` 15 lakhs as
interest and royalties respective from Y Ltd. during the year 20X1-X2. You are required to state
whether and on what basis these revenues can be recognized by X Ltd.
 AS 9.16
AS 9

SOLUTION
REFERENCE:
As per AS 9 “Revenue Recognition”, in a transaction involving the sale of goods, performance
should be regarded as being achieved when the following conditions are fulfilled:
(i) The seller of goods has transferred to the buyer the property in the goods for a price or all
significant risks and rewards of ownership have been transferred to the buyer and the
seller retains no effective control of the goods transferred to a degree usually associated
with ownership; and
(ii) No significant uncertainty exists regarding the amount of the consideration that will be
derived from the sale of the goods.
ANALYSIS:
These revenues are recognized on the following bases:
i. Interest: On a time proportion basis taking into account the amount outstanding and the
rate applicable.
ii. Royalties: On an accrual basis in accordance with the terms of the relevant agreement.
CONCLUSION:
X Ltd. should recognize interest revenue of ` 10 Lakhs and royalty revenue of ` 15 Lakhs.

3. ICAI ILLUSTRATION 3
A claim lodged with the Railways in March, 20X1 for loss of goods of ` 2,00,000 had been passed
for payment in March, 20X3 for ` 1,50,000. No entry was passed in the books of the company,
when the claim was lodged. Advise P Co. Ltd. about the treatment of the following in the Final
Statement of Accounts for the year ended 31st March, 20X3.
 AS 9.17

SOLUTION

AS 9
FACTS:
Claim filed by P Co. Ltd. for loss of goods has been passed for payment for ` 1,50,000 in March
20X3.
REFERENCE:
As per AS 9 Revenue Recognition, where the ability to assess the ultimate collection with
reasonable certainty is lacking at the time of raising any claim, e.g. for escalation of price, export
incentives, interest etc. the revenue recognition is postponed to the extent of uncertainty inverted.
In such cases, the revenue is recognized only when it is reasonably certain that the ultimate
collection will be made.
ANALYSIS:
When recognition of revenue is postponed due to the effect of uncertainties, it is considered as
revenue of the period in which it is properly recognised.
AS 5 states that when items of income and expense within profit or loss from ordinary activities
are of such size, nature, or incidence that their disclosure is relevant to explain the performance
of the enterprise for the period, the nature and amount of such items should be disclosed
separately.
In this case it may be assumed that collectability of claim was not certain in the earlier periods.
This is supposed from the fact that only ` 1,50,000 were collected against a claim of ` 2,00,000.
Hence, the transaction cannot be taken as a Prior Period Item. Further in the light of AS 5, it will
not be treated as extraordinary item.
CONCLUSION:
The nature and amount of this item should be disclosed separately.

4. ICAI ILLUSTRATION NO 4
In the year 20X1-X2, XYZ supplied goods on Consignment basis to ABC – a retail outlet worth
`10,00,000. As per the terms, ABC will only pay XYZ for the goods which are sold by them to the
third party. Rest of the goods can be returned back to XYZ and ABC will not have any further
liability for these goods.
During the year 20X1-X2, ABC has sold goods worth ` 5,50,000 only and rest of the goods are still
lying in its store which may get sold by next year. Advise XYZ, how much revenue it can recognize
in its books for period 20X1-X2.
 AS 9.18

SOLUTION
AS 9

FACTS:
XYZ supplied goods on Consignment basis to ABC worth `10,00,000, of which goods worth `5,50,000
has been sold during the year 20X1-X2.
REFERENCE:
As per AS 9 “Revenue Recognition”, in a transaction involving the sale of goods, performance
should be regarded as being achieved when the following conditions are fulfilled:
(i) The seller of goods has transferred to the buyer the property in the goods for a price or all
significant risks and rewards of ownership have been transferred to the buyer and the seller
retains no effective control of the goods transferred to a degree usually associated with
ownership; and
(ii) No significant uncertainty exists regarding the amount of the consideration that will be
derived from the sale of the goods.
ANALYSIS:
Consignment risk and rewards are not transferred to the customer on just delivery of the goods
and no revenue should be recognized until the goods are sold to a third party.
As per the reference and facts above, the goods worth `5,50,000 have been sold and `4,50,000
worth of goods are still with ABC for sale on behalf of XYZ. For the goods worth `4,50,000, ABC
have no liability and can be returned back to XYZ as per the terms.
CONCLUSION:
XYZ can recognize revenue of ` 5,50,000.

5. QP MAY 19
Given below is the following information of B.S. Ltd.
i. Goods of ` 50,000 were sold on 18-03-2018 but at the request of the buyer these were delivered
on 15-04-2018.
ii. On 13-01-2018 goods of ` 1,25,000 are sent on consignment basis of which 20% of the goods
unsold are lying with the consignee as on 31-03-2018.
iii. ` 1,00,000 worth of goods were sold on approval basis on 01-12-2017. The period of approval was
3 months after which they were considered sold. Buyer sent approval for 75% goods up to 31-
01-2018 and no approval or disapproval received for the remaining goods till 31-03-2018.
You are required to advise the accountant of B.S. Ltd., with valid reasons, the amount to be
recognized as revenue for the year ended 31st March, 2018 in above cases in the context of AS-9.
 AS 9.19

AS 9
SOLUTION
REFERENCE:
As per AS 9 “Revenue Recognition”, in a transaction involving the sale of goods, performance
should be regarded as being achieved when the following conditions are fulfilled:
(i) The seller of goods has transferred to the buyer the property in the goods for a price or all
significant risks and rewards of ownership have been transferred to the buyer and the seller
retains no effective control of the goods transferred to a degree usually associated with
ownership; and
(ii) No significant uncertainty exists regarding the amount of the consideration that will be
derived from the sale of the goods.
ANALYSIS (i):
The sale is complete but delivery has been postponed at buyer's request. Hence both the conditions
for recognition of revenue are satisfied.
CONCLUSION:
B.S. Ltd. should recognize the entire sale of ` 50,000 for the year ended 31st March, 2018.
ANALYSIS (ii):
In case of consignment sale revenue should not be recognized until the goods are sold to a third
party. As the risk and rewards are not transferred, it cannot be recognized.
CONCLUSION:
20% goods lying unsold with consignee should be treated as closing inventory and sales should be
recognized for ` 1,00,000 (80% of ` 1,25,000).
ANALYSIS (iii):
In case of goods sold on approval basis, revenue should not be recognized until the goods have
been formally accepted by the buyer or the buyer has done an act adopting the transaction or
the time period for rejection has elapsed or where no time has been fixed, a reasonable time has
elapsed.
CONCLUSION:
Revenue should be recognized for the total sales amounting ` 1,00,000 as the time period for
rejecting the goods had expired.
Total revenue amounting ` 2,50,000 (50,000 + 1,00,000+ 1,00,000) will be recognized for the year
ended 31st March, 2018 in the books of B.S. Ltd.
 AS 9.20

6. MAY 2015
AS 9

A company sells the goods with right to return. The following pattern has been observed:
Timeframe of return from date of purchase % of cumulative sales
Within 10 days 5%
Between 11 days and 20 days 7%
Between 21 days and 30 days 8%
Between 31 days and 45 days 9%
Company has made sale of Rs.30 lacs in the month of February 2015 and of Rs.36 lacs in the
month of March, 2015. The total sales for the financial year have been Rs.450 lacs and the cost
of sales was Rs.360 lacs.
Determine the amount of provision to be made and revenue to be recognised in accordance with
AS 9. A year may be considered of 360 days.

SOLUTION
REFERENCE:
As per AS 29, 'Provisions, Contingent Liabilities and Contingent Assets', a provision should be
created on the Balance sheet date, for sales returns after the Balance Sheet date, at the best
estimate of the loss expected, along with any estimated incremental cost that would be necessary
to resell the goods expected to be returned.
Revenue in respect of sale of goods is recognised fully at the time of sale itself assumed that the
company has complied with the conditions stated in AS 9 relating to recognition of revenue in
the case of sale of goods. AS 9 also provides that in case of retail sales offering a guarantee of
‘money back, if not completely satisfied, it may be appropriate to recognize the sale but to make
a suitable provisions for returns based on previous experiences.
ANALYSIS:
The goods are sold with a right to return. The existence of such right gives rise to a present
obligation on the company. Revenue in respect of sale of goods is recognized fully at the time of
sale itself assuming that the company has complied with the conditions stated in AS 9 relating
to recognition of revenue in the case of sale of goods.
 AS 9.21

Sales value Sales value Likely Provision @

Likely

AS 9
(Rs. in (cumulative) returns 20%
Sales during returns (%)
lacs) (Rs. in lacs) (Rs. in (Rs. in lacs)
lacs) (Refer W.N.)
Last 10 days of March 36/3 or 12 12 5% 0.600 0.120
Previous 10 days of March 36/3 or 12 24 7% 1.680 0.336
Previous 10 days of March 36/3 or 12 36 8% 2.880 0.576
Last 15 days of February 30/2 or 15 51 9% 4.590 0.918
Total 9.75 1.950
Therefore, sale of Rs.30,00,000 and 36,00,000 made in the month of February and March, 2015 will
be recognized at full value.
Working Note:
Calculation of Profit % on sales
Particulars Rs. In Lacs
Sales for the year 450
Less: Cost of sales (360)
Profit 90
Profit mark up on sales (90/450) x 100 = 20%
Alternatively, AS 9 provides that Revenue should not be recognized until the goods have formally
been accepted by the buyer or the buyer has done an act adopting the transaction or the time
period for rejection has elapsed or where no time has been fixed, a reasonable time has been
elapsed. Based on this, an alternative view can be taken whereby the revenue shall not be
recognized in full. In such a case, the revised sales will be as follows:
Particulars Rs. In Lacs
Revised Sales when estimated sales return is 9.75 lacs 450 - 9.75 440.25
Revised Cost of Sales 440.25 x 80% 352.20
Revised Gross Profit 88.05
Given Gross Profit 90
Reduction in Gross Profit 1.95
Reduction in receivables and sales 9.75
Inventory will stand increased by 7.80

7. QP NOV 19
Indicate in each case whether revenue can be recognized and when it will be recognized as per
AS 9.
(1) Trade discount and volume rebate received.
 AS 9.22

(2) Where goods are sold to distributors or others for resale.

AS 9

(3) Where seller concurrently agrees to repurchase the same goods at a later date.
(4) Insurance agency commission for rendering services.
(5) On 11-03-2019 cloths worth ` 50,000 were sold to X mart, but due to refurbishing of their
showroom being underway, on their request, clothes were delivered on 12-04-2019.

SOLUTION
As per AS 9 “Revenue Recognition”, the revenue should be recognized as follows:
1. Trade discounts and volume rebates received are not encompassed within the definition of
revenue, since they represent a reduction of cost. Trade discounts and volume rebates given
should be deducted in determining revenue.
2. When goods are sold to distributor or others, revenue from such sales can generally be
recognized if significant risks of ownership have passed; however, in some situations the
buyer may in substance be an agent and in such cases the sale should be treated as a
consignment sale.
3. For transactions, where seller concurrently agrees to repurchase the same goods at a later
date that are in substance a financing agreement, the resulting cash inflow is not revenue as
defined and should not be recognized as revenue.
4. Insurance agency commissions should be recognized on the effective commencement or
renewal dates of the related policies.
5. On 11.03.2019, if X mart takes title and accepts billing for the goods then it is implied that
the sale is complete and all risk and reward on ownership has been transferred to the buyers.
Revenue should be recognized for year ended 31st March, 2019 notwithstanding that physical
delivery has not been completed so long as there is every expectation that delivery will be
made and items were ready for delivery to the buyer at the time.

8. QP DEC 21
Given the following information of Rainbow Ltd:
i.On 15th November, goods worth ` 5,00,000 were sold on approval basis. The period of approval
was 4 months after which they were considered sold. Buyer sent approval for 75% goods sold
Upto 31st January and no approval or disapproval received for the remaining goods till 31 st March.
 AS 9.23

ii.On 31st March, goods worth ` 2,40,000 were sold to bright Ltd. but due to refurnishing of their

AS 9
show-room being underway, on their request, goods were delivered on 10th April.
iii.Rainbow Ltd. supplied goods ` 6,00,000 to Shyam Ltd. and concurrently agrees to re-purchase
the same goods on 14th April.
iv.Dew Ltd. used certain assets of Rainbow Ltd. Rainbow Ltd. received ` 7.5 lakhs and ` 12 lakhs
as interest and royalties respectively from Dew Ltd. during the year 2020-21.
v.On 25th December goods of ` 4,00,000 were sent on consignment basis of which 40% of the
goods unsold are lying with the consignee at the year end on 31 st March.
In each of the above cases, you are required to advise, with valid reasons, the amount to be
recognized as revenue under the provisions of AS- 9

SOLUTION
i) As per AS 9 “Revenue Recognition”, in case of goods sold on approval basis, revenue should
not be recognized until the goods have been formally accepted by the buyer or the buyer has
done an act adopting the transaction or the time period for rejection has elapsed or where
no time has been fixed, a reasonable time has elapsed. Therefore, revenue should be
recognized for the total sales amounting ` 5,00,000 as the time period for rejecting the goods
had expired.
ii) The sale is complete but delivery has been postponed at buyer’s request. The entity should
recognize the entire sale of ` 2,40,000 for the year ended 31st March.
iii) Sale/repurchase agreements i.e. where seller concurrently agrees to repurchase the same
goods at a later date, such transactions that are in substance a financing agreement, the
resulting cash inflow is not revenue as defined and should not be recognized as revenue.
Hence no revenue to be recognized in the given case.
iv)
a. Revenue arising from the use by others of enterprise resources yielding interest and
royalty should be recognized when no significant uncertainty as to measurability or
collectability exists. The interest should be recognized on time proportion basis taking
into account the amount outstanding and rate applicable.
b. The royalty should be recognized on accrual basis in accordance with the terms of
 AS 9.24

relevant agreement.
AS 9

v) 40% goods lying unsold with consignee should be treated as closing inventory and sales
should be recognized for ` 2,40,000 (60% of ` 4,00,000). In case of consignment sale revenue
should not be recognized until the goods are sold to a third party.

9. RTP MAY 21
Tonk Tanners is engaged in manufacturing of leather shoes. They provide you the following
information for the year ended 31st March,2020:
(i) On 31st December, 2019 shoes worth ` 3,20,000 were sent to Mohan Shoes for sale on
consignment basis of which 25% shoes were unsold and lying with Mohan Shoes as on
31st March, 2020.
(ii) On 10th January, 2020, Tonk Tanner supplied shoes worth ` 4,50,000 to Shani Shoes and
concurrently agrees to re-purchase the same goods on 11th April. 2020.
(iii) On 21st March, 2020 shoes worth ` 1,60,000 were sold to Shoe Shine but due to refurbishing
of their showroom being underway, on their request, shoes were delivered on 12th April,
2020.
You are required to advise the accountant of Tonk Tanners, when amount is to be recognised as
revenue in 2019 -20 in above cases in the context of AS 9.

SOLUTION
REFERENCE:
As per AS 9 “Revenue Recognition”, in a transaction involving the sale of goods, performance
should be regarded as being achieved when the following conditions are fulfilled:
(i) The seller of goods has transferred to the buyer the property in the goods for a price or all
significant risks and rewards of ownership have been transferred to the buyer and the
seller retains no effective control of the goods transferred to a degree usually associated
with ownership; and
(ii) No significant uncertainty exists regarding the amount of the consideration that will be
derived from the sale of the goods.
ANALYSIS (i):
In case goods are sent for consignment sale, revenue is recognized when significant risks of
ownership have passed from seller to the buyer. In the given case, Mohan Shoes is the consignee
 AS 9.25

i.e., an agent of Tonk Tanners and not the buyer. Therefore, the risk and reward is considered to

AS 9
vest with Tonk Tanners only till the time the sale is made to the third party.
CONCLUSION:
In the year 2019- 2020, the sale will be recognized for the amount of goods sold by Mohan Shoes
to the third party i.e. for ` 3,20,000 x 75% = ` 2,40,000.
ANALYSIS (ii):
Sale and re-purchase of same goods are classified as transactions that are in substance a
financing agreement, for which the resulting cash inflow is not revenue and should not be
recognised as revenue in the year 2019-2020.
CONCLUSION:
Sale of ` 4,50,000 to Shani Shoes should not be recognized as revenue.
ANALYSIS (iii):
On 21st March, 2020, the sale is complete but delivery has been postponed at buyer’s request.
Hence both the conditions for recognition of revenue are satisfied.
CONCLUSION:
Revenue shall be recognized in the year 2019-2020 irrespective of the fact that the delivery is
delayed on the request of Shoe Shine.

10. MOCK TEST OCT. 21 SERIES 1 / RTP NOV 20

Fashion Limited is engaged in manufacturing of readymade garments. They provide you the
following information on 31st March, 2021:
(i) On 15th January, 2021 garments worth ` 4,00,000 were sent to Anand on consignment basis
of which 25% garments unsold were lying with Anand as on 31st March, 2021.
(ii) Garments worth ` 1,95,000 were sold to Shine boutique on 25th March, 2021 but at the request
of Shine Boutique, these were delivered on 15th April, 2021.
(iii) On 1st November, 2020 garments worth ` 2,50,000 were sold on approval basis. The period of
approval was 4 months after which they were considered sold. Buyer sent approval for 75%
goods up to 31st December, 2020 and no approval or disapproval received for the remaining
goods till 31st March, 2021.
You are required to advise the accountant of Fashion Limited, the amount to be recognised as
revenue in above cases in the context of AS 9.
 AS 9.26

SOLUTION
AS 9

REFERENCE:
As per AS 9 “Revenue Recognition”, in a transaction involving the sale of goods, performance
should be regarded as being achieved when the following conditions are fulfilled:
(i) The seller of goods has transferred to the buyer the property in the goods for a price or all
significant risks and rewards of ownership have been transferred to the buyer and the
seller retains no effective control of the goods transferred to a degree usually associated
with ownership; and
(ii) No significant uncertainty exists regarding the amount of the consideration that will be
derived from the sale of the goods.
ANALYSIS (i):
In case of consignment sale revenue should not be recognized until the goods are sold to a third
party. As the risk and rewards are not transferred, it cannot be recognized.
CONCLUSION:
25% goods lying unsold with consignee should be treated as closing inventory and sales should
be recognized for ` 3,00,000 (75% of Rs. 4,00,000) for the year ended on 31.3.21.
ANALYSIS (ii):
The sale is complete but delivery has been postponed at buyer’s request. Hence both the conditions
for recognition of revenue are satisfied.
CONCLUSION:
Fashion Ltd. should recognize the entire sale of Rs.1,95,000 for the year ended 31st March, 2021.
ANALYSIS (iii):
In case of goods sold on approval basis, revenue should not be recognized until the goods have
been formally accepted by the buyer or the buyer has done an act adopting the transaction or
the time period for rejection has elapsed or where no time has been fixed, a reasonable time has
elapsed.
CONCLUSION:
Revenue should be recognized for the total sales amounting Rs. 2,50,000 as the time period for
rejecting the goods had expired.
Total revenue amounting Rs. 7,45,000 (3,00,000+1,95,000+2,50,000) will be recognized for the year
ended 31st March, 2021 in the books of Fashion Ltd.

11. QP MAY 2023

Toy Ltd. is engaged in manufacturing toys. They provide you the
Following information as on 31 March, 2023:
(i) On 15th January, 2023, Toys worth ₹5,00,000 were sent to A Ltd.
on consignment basis of which 25% Toys unsold were lying with A Ltd. as on 31 March, 2023.
 AS 9.27

(ii) Toys worth ₹2,25,000 were sold to S Ltd. on 25th March, 2023 but at the request of S Ltd.,

AS 9
these were delivered on 15th April, 2023.
(iii) On 1st November, 2022, toys worth ₹3,50,000 were sold on approval basis. The period of
approval was 4 months after which they were considered sold. Buyer sent approval for 75% goods
upto 31st December, 2022 and no approval or disapproval received for the remaining goods till 31
March, 2023.
You are required to advise the accountant of Toy Ltd., the amount to be recognised as revenue in
above cases in the context of AS-9.

SOLUTION
REFERENCE:
As per AS 9 “Revenue Recognition”, in a transaction involving the sale of goods, performance
should be regarded as being achieved when the following conditions are fulfilled:
(i) The seller of goods has transferred to the buyer the property in the goods for a price or all
significant risks and rewards of ownership have been transferred to the buyer and the
seller retains no effective control of the goods transferred to a degree usually associated
with ownership; and
(ii) No significant uncertainty exists regarding the amount of the consideration that will be
derived from the sale of the goods.
Case (i) 25% toys lying unsold with consignee should be treated as closing inventory and sales should not be recognized
for ` 1,25,000 (25% of ` 5,00,000). In case of consignment sale revenue should not be recognized until the
goods are sold to a third party. Sales for ` 3,75,000 (75% of ` 5,00,000) should be recognized for the year ended
31st March, 2023.
Case (ii) The sale is complete but delivery has been postponed at buyer’s request. The entity should recognize
the entire sale of ` 2,25,000 for the year ended 31st March, 2023.
Case (iii) In case of goods sold on approval basis, revenue should not be recognized until the goods have
been formally accepted by the buyer or the buyer has done an act adopting the transaction or the time period
for rejection has elapsed or where no time has been fixed, a reasonable time has elapsed. Therefore,
revenue should be recognized for the total sales amounting ` 3,50,000 as the time period for rejecting the
goods had expired.
 AS 9.28

12. ICAI ILLUSTRATION 1 (New Syllabus)

AS 9

Zigato runs a food-delivery business. As per the arrangement, Zigato allows customers to order
food from local restaurants and is responsible the delivery of the food within stipulated time.
During a particular year, it collects the money on orders made online as under:
Total price for the food item - ` 200 lakhs
Delivery charges - ` 60 lakhs
GST - ` 40 lakhs
Total - ` 300 lakhs
Zigato has received ` 300 lakhs for the above orders from customers and the orders were delivered
to the customer in stipulated time.
How much revenue should be recognised by restaurants and how much revenue should be
recognised by Zigato for the year?

SOLUTION
The risks and rewards associated with the food item are not with Zigato. When a customer has
ordered a food item, whether the item will be prepared or not is the responsibility of the restaurant
and not Zigato. Similarly, the responsibility to deliver the food item is with Zigato and the
restaurant does not undertake responsibility for the same.
Therefore, the restaurant undertakes the principal’s responsibility to prepare the food and ensure
its quality. Zigato, on the other hand, is only responsible to deliver the food. Thus, Zigato is acting
as an agent. Hence, it can only recognize revenue relating to that activity (which it does in the
ordinary course of business). The revenue for Zigato, therefore, is ` 60 lakhs, whereas, the revenue
for restaurants will be ` 200 lakhs.
It may be noted that the GST of ` 40 lakhs is a liability payable to the Government (third party),
hence it does not form part of revenue.

13. ICAI ILLUSTRATION 2 (New Syllabus)

AB sells goods to CD on 1st March 20X1. CD is having significant cash flows issues since last few
months. However, it is trying to raise funding through bank loan to be able to run its operations
in future. On 5th of May 20X1, CD is able to seek the funding and is expected to be able to pay
for the goods in future.
 AS 9.29

At the time of sale, it is difficult for AB to ascertain whether it will be able to collect the amount

AS 9
from CD due to poor financial conditions.
Explain how the recognition of revenue be done by AB?

SOLUTION
In the above case, AB should not recognise any revenue on 1st of March and until that uncertainty
of recovery is clear. Hence, the revenue can only be recognised by AB on 5th of May 20X1. The
inventory transferred to CD until that date is required to be shown as its own inventory [inventory
lying with customers].

14. ICAI ILLUSTRATION 3 (New Syllabus)

AB sells goods to CD on 1st January 20X1 for ` 2 lakhs. After the sale was made, CD is having
significant cash flows issues. It is trying to raise funding through bank loan to be able to run its
operations in future. However, it is unable to do so and has gone under liquidation on 15th of March
20X1.
At the time of sale, there was no reason for AB to believe that it will not be able to collect the
amount from CD in future.
Explain how the recognition of revenue be done by AB for the year ended 31 st March 20X1?

SOLUTION
In the above case, at the time of sale, it was not unreasonable for AB to expect ultimate collection
from CD. Therefore, AB should recognise the revenue of ` 2 lakhs on 1st of January 20X1 and
recognise a receivable for the same amount.
Later, since CD went into liquidation, AB should write off the receivables and book a loss in his
books.
 AS 9.30

Accounting in the books of AB

AS 9

1st January 20X1

CD A/c (Receivables) Dr. ` 2 lakhs
To Revenue A/c ` 2 lakhs
(Being goods sold to CD Ltd)
15th March 20X1
Bad Debts A/c Dr. ` 2 lakhs
To CD A/c (Receivables)A/c ` 2 lakhs

(Being receivables from CD written off due to its

liquidation)

15. ICAI ILLUSTRATION 4 (New Syllabus)

During the year ended 31st March 20X1, ZX Enterprises has recognized ` 100 lakhs on accrual basis
income from dividend on units of mutual funds held by it. The dividends on mutual funds were
declared on 15th June, 20X1. The dividend was proposed on 10th April, 20X1.
Whether the above treatment is as per the relevant Accounting Standard?

SOLUTION
Dividends from investments in shares are not recognized in the statement of profit and loss until
a right to receive payment is established. In the given situation, the dividend is proposed on 10th
April, 20X1, while it is declared on 15th June, 20X1. Thus, the right to receive the payment of
dividend gets established on 15th June, 20X1.
The recognition of ` 100 lakhs on accrual basis in the financial year 20X0-20X1 is not correct as
per AS 9 'Revenue Recognition'.

16. ICAI P.Q.6

GH manufactures and sells televisions. The televisions are shipped to the customer by sea. In order
to transfer risk related to the shipment of the televisions, GH also gets an insurance coverage for
the goods while they are in transit from the factory to customer’s location.
 AS 9.31

The insurance policy will reimburse GH for the value of the goods in the event of loss or damage

AS 9
arising anytime up to these goods reaching customer’s location. The legal title passes when the
goods arrive at the customer’s premises one month later.
When should Entity GH recognize revenue in its books?

SOLUTION
GH should recognize revenue for the sale when the goods arrive at the customer’s premises. GH
has not transferred the televisions’ significant risks and rewards of ownership to the customer
when the goods depart from the factory. This is evidenced by the fact that any insurance proceeds
received from the goods’ damage or destruction will be repaid to GH. Further, the legal title does
not pass until the goods arrive at the customer’s premises.

17. ICAI P.Q.8

For the year ended 31st March 20X1, KY Enterprises has entered into the following transactions.
On 31 March 20X1, KY supplied two machines to its customer ST. Both machines were accepted
by ST on 31 March 20X1. Machine 1 was a machine that was routinely supplied by KY to many
customers and the installation process was very simple.
Machine 1 was installed on 2 April 20X1 by ST’s employees.
Machine 2 being more specialised in nature requires an installation process which is more
complicated, requiring significant assistance from KY. Machine 2 was installed between 2 and 5
April 20X1. Details of costs and sales prices are as follows:
Machine 1 Machine 2
Sale Price 3,20,000 3,00,000
Cost of production 1,60,000 1,50,000
Installation fee nil 10,000
How should above transactions be recognized by KY Enterprises for the year ended 31st March
20X1?
 AS 9.32

SOLUTION
AS 9

Machine 1: As the installation process is simple, revenue from Machine 1 will be recognized on
31 March 20X1.
Revenue (Machine 1) ` 3,20,000
Cost of Goods Sold ` 1,60,000
Profit during the period ` 1,60,000
Since the question specifies that the machine is already accepted by ST on 31 March 20X1, the
revenue arising from sale of the machine needs to be recognized for the year ending 31 March
20X1. This is because acceptance of the machine indicates that the risks and rewards pursuant
to the ownership are transferred to ST.
Machine 2: Installation process for Machine 2 is more complicated, requiring significant
assistance from KY Ltd. However, question specifies that the machine is already accepted by
ST on 31 March 20X1. Assuming that there is no further approval/acceptance required from the
buyer for the Machine sold, revenue from sale of Machine 2 can be recognized for the year
ending 31 March 20X1.
Revenue (Machine 2) ` 3,00,000
Cost of Goods Sold ` 1,50,000
Profit during the period ` 1,50,000
However, installation fee which is for rendering installation services cannot be recognized until
the installation is complete. Since the machine is pending installation, the revenue in respect
of installation charges `10,000 needs to be recognized on 5 April 20X1 once the installation process
gets completed.
 AS 9.33

AS 9 – REVENUE RECOGNITION
AS 9

SECTION B (EXAM ORIENTED)

PAGE DATE
No. QUESTION R1 R2 R3 REMARK
NO.
1 QP JULY 21
2 EXAM NOV 22
3 MOCK TEST 2 Q NO 1 (A)
4 RTP MAY 18 Q NO 15(B)
5 RTP NOV 19
RTP MAY 20 / ICAI P.Q.
6
10
RTP MAY 2019 Q15, IPCC
7
RTP MAY 2019
(RTP NOV 2014) (NOV.
8 2008 – FINAL NEW
COURSE)
9 RTP IPCC (GR-1) NOV, 09
10 (RTP MAY, 2011 (NEW)
11 RTP MAY 2013
12 IPCC RTP NOV 2014 Q19 B
IPCC RTP May 2016 Q20a
13
/ IPCC RTP NOV 17
14 IPCC RTP Nov 2016 Q19a
IPCC RTP May 17 / ICAI P.
15
Q. 1
16 RTP NOV 21
17 RTP NOV 21
MTP OCT. 21 SERIES 1 /
18
RTP NOV 20
19 RTP MAY 22
20 RTP May 22
21 MTP MAR 22 SERIES 1
22 RTP Nov 22
23 MTP Oct 22 (Series 2)
24 RTP Nov 23
 AS 9.34

1. QP JULY 21

AS 9
A Limited sells goods with unlimited right of return from its customers. The following pattern has
been observed in the Return of Sales:
Time frame of Return from date of purchase % of Cumulative Sales
Between 0-1 month 6%
Between 1-2 months 7%
Between 2-3 months 8%

The Company has made Sales of ` 36 Lakhs in the month of January, ` 48 Lakhs in the month
of February and of ` 60 Lakhs in the month of March. The Total Sales for the Financial Year have
been ` 400 Lakhs and the Cost of Sales was ` 320 Lakhs. You are required to determine the
amount of Provision to be made and Revenue to be recognized for the year ended 31st March.

SOLUTION
REFERENCE: As per AS 29, 'Provisions, Contingent Liabilities and Contingent Assets', a provision
should be created on the Balance sheet date, for sales returns after the Balance Sheet date, at
the best estimate of the loss expected, along with any estimated incremental cost that would be
necessary to resell the goods expected to be returned.
According to AS 9 “Revenue Recognition”, in a transaction involving the sale of goods, performance
should be regarded as being achieved when the following conditions have been fulfilled:
a. the seller of goods has transferred to the buyer the property in the goods for a price or all
significant risks and rewards of ownership have been transferred to the buyer and the seller
retains no effective control of the goods transferred to a degree usually associated with
ownership and
b. no significant uncertainty exists regarding the amount of the consideration that will be
derived from the sale of the goods.
ANALYSIS:
The goods are sold with a right to return. The existence of such right gives rise to a present
obligation on the company. Revenue in respect of sale of goods is recognized fully at the time of
sale itself assuming that the company has complied with the conditions stated in AS 9 relating
to recognition of revenue in the case of sale of goods.
 AS 9.35

Sales during Sales value Sales value (cumulative) Likely returns Likely returns ` Provision @ 20% (` in
AS 9

(` in lacs) ` (in lacs) (%) (in lacs) lacs) (Refer W.N.)

March 60 60 6% 3.60 0.720

February 48 108 7% 7.56 1.512

January 36 144 8% 11.52 2.304

Total 22.68 4.536

Therefore, sale of ` 36 lakhs, ` 48 lakhs and ` 60 lakhs made in the months of January, February
and March will be recognized at full value. Thus, total revenue to be recognized for ` 400 lacs for
the year.
Working Note:
Calculation of Profit % on sales
(` in lacs)
Sales for the year 400
Less: Cost of sales (320)
Profit 80
Profit mark up on sales (80/400) x 100 = 20%

2. EXAM NOV 22
Indicate in each case whether revenue can be recognized and when it will be recognized as per
AS 9.
(i) Delivery is delayed at buyer’s request but buyer taken title and accepts billing.
(ii) Instalment Sales
(iii) Trade discounts and volume rebates.
(iv) Insurance agency commission for rendering services.
(v) Advertising Commission.
 AS 9.36

SOLUTION

AS 9
As per AS 9, revenue should be recognized as per below provisions:
(i) Delivery is delayed at buyer’s request and buyer take title and accepts billing: Revenue should
be recognized notwithstanding that physical delivery has not been completed so long as there
is every expectation that delivery will be made. However, the item must be on hand, identified
and ready for delivery to the buyer at the time the sale is recognized.
(ii) Instalment sales: When the consideration is receivable in instalments, revenue attributable to
the sales price should be recognised at the date of sale.
(iii) Trade discounts and volume rebates: Discounts and rebates received are not encompassed
within the definition of revenue, since they represent a reduction of cost. Trade discounts and
volume rebates given should be deducted in determining revenue.
(iv) Insurance agency commissions: Insurance agency commissions should be recognised on the
effective commencement or renewal dates of the related policies.
(v) Advertising commissions: Revenue should be recognized when the service is completed. For
advertising agencies, media commissions will normally be recognized when the related
advertisement or commercial appears before the public and the necessary intimation is
received by the agency, as opposed to production commission, which will be recognized when
the project is completed.

3. MOCK TEST 2 Q NO 1 (A)

Ruby Ltd. sold goods through its agent. As per terms of sales, consideration is payable within
one month. In the event of delay in payment, interest is chargeable @ 10% p.a. from the agent.
The company has not realized interest from the agent in the past. For the year ended 31st March,
2017 interest due from agent (because of delay in payment) amounts to `5 lakhs. The
accountant of Ruby Ltd. booked Rs. 5 lakhs as interest income in the year ended 31st March,
2017. Examine and discuss the contention of the accountant with reference to AS 9 “Revenue
Recognition”.

SOLUTION
FACTS:
As per the terms of sales, Interest of Rs. 5Lakh is receivable from an agent due to delay in
payment. Ruby Ltd. has not realized interest from the agent in the past.
 AS 9.37

REFERENCE:
AS 9

As per AS 9 Revenue Recognition, where the ability to assess the ultimate collection with
reasonable certainty is lacking at the time of raising any claim, e.g. for escalation of price, export
incentives, interest etc. the revenue recognition is postponed to the extent of uncertainty inverted.
In such cases, the revenue is recognized only when it is reasonably certain that the ultimate
collection will be made.
ANALYSIS:
In this case, the company never realized interest for the delayed payments made by the agent.
Hence, based on the past experience, the realization of interest for the delayed payments by the
agent is very much uncertain. The interest should be recognized only if the ultimate collection is
certain.
CONCLUSION:
1. The interest income of Rs. 5 lakhs should not be recognized in the books for the year ended
31st March, 2017. The contention of accountant is incorrect.
2. However, if the agents have agreed to pay the amount of interest and there is an element
of certainty associated with these receipts, the accountant is correct regarding booking of
Rs. 5 lakhs as interest amount.

4. RTP MAY 2018 Q NO 15(B)

A manufacturing company has the following stages of production and sale in manufacturing
fine paper rolls:
Date Activity Cost to Date (`) Net Realizable Value (`)
15.1.16 Raw Material 1,00,000 80,000
20.1.16 Pulp (WIP 1) 1,20,000 1,20,000
27.1.16 Rough & thick paper (WIP 2) 1,50,000 1,80,000
15.2.16 Fine Paper Rolls 1,80,000 3,50,000
20.2.16 Ready for sale 1,80,000 3,50,000
15.3.16 Sale agreed and invoice raised 2,00,000 3,50,000
02.4.16 Delivered and paid for 2,00,000 3,50,000
Explain the stage on which you think revenue will be generated and calculate how much would be
net profit for year ending 31.3.16 on this product as per AS 9.
 AS 9.38

SOLUTION

AS 9
REFERENCE:
As per AS 9 “Revenue Recognition”, in a transaction involving the sale of goods, performance
should be regarded as being achieved when the following conditions are fulfilled:
(i) The seller of goods has transferred to the buyer the property in the goods for a price or all
significant risks and rewards of ownership have been transferred to the buyer and the
seller retains no effective control of the goods transferred to a degree usually associated
with ownership; and
(ii) No significant uncertainty exists regarding the amount of the consideration that will be
derived from the sale of the goods.
ANALYSIS:
The conditions required for recognition of revenue are satisfied only on 15.3.2016 when sales are
agreed upon at a price and goods are allocated for delivery purpose through invoice.
CONCLUSION:
The amount of net profit ` 1,50,000 (3,50,000 – 2,00,000) should be recognized in the books for
the year ending 31st March, 2016.

5. RTP NOV 19
The Board of Directors decided on 31.3.2019 to increase the sale price of certain items
retrospectively from 1st January, 2019. In view of this price revision with effect from 1st January
2019, the company has to receive ` 15 lakhs from its customers in respect of sales made from
1st January, 2019 to 31st March, 2019. Accountant cannot make up his mind whether to include
` 15 lakhs in the sales for 2018-2019. Advise.

SOLUTION
FACTS:
Retrospective increase of Sales price has been made resulting in increase in sales value by ` 15
lakhs
REFERENCE:
As per AS 9 on Revenue Recognition, Revenue from sales or service transactions should be
recognised when the requirements as to performance are satisfied, provided that at the time of
 AS 9.39

performance it is not unreasonable to expect ultimate collection. If at the time of raising of any
AS 9

claim it is unreasonable to expect ultimate collection, revenue recognition should be postponed.

ANALYSIS:
Price revision was effected during the current accounting period 2018-2019. As a result, the
company stands to receive ` 15 lakhs from its customers in respect of sales made from 1st
January, 2018 to 31st March, 2019. If the company is able to assess the ultimate collection with
reasonable certainty, then additional revenue arising out of the said price revision may be
recognized.
CONCLUSION:
The additional revenue arising out of the said price revision may be recognized in 2018-2019.

6. RTP MAY 20 / ICAI PRACTICAL QUESTION 10

The following information of Meghna Ltd. is provided:
i. Goods of ` 60,000 were sold on 20-3-20X2 but at the request of the buyer these were
delivered on 10-4-20X2.
ii. On 15-1-20X2 goods of ` 1,50,000 were sent on consignment basis of which 20% of the
goods unsold are lying with the consignee as on 31-3-20X2.
iii. ` 1,20,000 worth of goods were sold on approval basis on 1-12-20X1. The period of approval
was 3 months after which they were considered sold. Buyer sent approval for 75% goods
up to 31-1-20X2 and no approval or disapproval received for the remaining goods till 31-
3-20X2.
iv. Apart from the above, the company has made cash sales of ` 7,80,000 (gross). Trade
discount of 5% was allowed on the cash sales.
You are required to advise the accountant of Meghna Ltd., with valid reasons, the amount to be
recognized as revenue in above cases in the context of AS 9.

SOLUTION
REFERENCE:
As per AS 9 “Revenue Recognition”, in a transaction involving the sale of goods, performance
should be regarded as being achieved when the following conditions are fulfilled:
 AS 9.40

(i) The seller of goods has transferred to the buyer the property in the goods for a price or all

AS 9
significant risks and rewards of ownership have been transferred to the buyer and the seller
retains no effective control of the goods transferred to a degree usually associated with
ownership; and
(ii) No significant uncertainty exists regarding the amount of the consideration that will be
derived from the sale of the goods.
However, the above is subject to trade discount and volume rebates received in the course of
carrying on business which shall be deducted in ascertaining revenue since they represent a
reduction of cost.
ANALYSIS (i):
The sale is complete but delivery has been postponed at buyer’s request. Hence both the
conditions for recognition of revenue are satisfied.
CONCLUSION:
The entity should recognize the entire sale of ` 60,000 for the year ended 31st March, 20X2.
ANALYSIS (ii):
In case of consignment sale revenue should not be recognized until the goods are sold to a third
party. As the risk and rewards are not transferred, it cannot be recognized.
CONCLUSION:
20% goods lying unsold with consignee should be treated as closing inventory and sales should
be recognized for ` 1,20,000 (80% of ` 1,50,000).
ANALYSIS (iii):
In case of goods sold on approval basis, revenue should not be recognized until the goods have
been formally accepted by the buyer or the buyer has done an act adopting the transaction or
the time period for rejection has elapsed or where no time has been fixed, a reasonable time has
elapsed.
CONCLUSION:
Revenue should be recognized for the total sales amounting ` 1,20,000 as the time period for
rejecting the goods had expired.
ANALYSIS (iv):
The amount of trade discounts is not receivable from the customer. The Trade discount given
should be deducted in determining revenue.
CONCLUSION:
` 39,000 should be deducted from the amount of turnover of ` 7,80,000 for the purpose of
recognition of revenue. Thus, revenue should be ` 7,41,000.

7. RTP MAY 2019 Q15, IPCC RTP MAY 2019

Raj Ltd. entered into an agreement with Heena Ltd. to dispatch goods valuing ` 5,00,000 every
month for next 6 months on receipt of entire payment. Heena Ltd. accordingly made the entire
 AS 9.41

payment of ` 30,00,000 and Raj Ltd. started dispatching the goods. In fourth month, due to fire
AS 9

in premise of Heena Ltd., Heena Ltd. requested to Raj Ltd. not to dispatch goods worth ` 15,00,000
ready for dispatch. Raj Ltd. Accounted ` 15,00,000 as sales and transferred the balance to Advance
received against Sales account.
Comment upon the above treatment by Raj Ltd. with reference to the provision of AS-9.

SOLUTION
FACTS:
Heena Ltd. requested to Raj Ltd. not to dispatch goods worth ` 15,00,000 ready for dispatch but
the payment for the goods and sales agreement have been made.
REFERENCE:
As per AS 9 “Revenue Recognition”, in a transaction involving the sale of goods, performance
should be regarded as being achieved when the following conditions are fulfilled:
(i) The seller of goods has transferred to the buyer the property in the goods for a price or all
significant risks and rewards of ownership have been transferred to the buyer and the
seller retains no effective control of the goods transferred to a degree usually associated
with ownership; and
(ii) No significant uncertainty exists regarding the amount of the consideration that will be
derived from the sale of the goods.
ANALYSIS:
In the given case, transfer of property in goods results in or coincides with the transfer of
significant risks and rewards of ownership to the buyer. Also, the sale price has been recovered
by the seller. Hence, the sale is complete but delivery has been postponed at buyer’s request.
CONCLUSION:
Raj Ltd. should recognize the entire sale of ` 30,00,000 (` 5,00,000 x 6) and no part of the same
is to be treated as Advance Received against Sales.

8. (RTP NOV 2014) (NOV. 2008 – FINAL NEW COURSE)

SCL Ltd. sells agriculture products to dealers. One of the condition of sale is that interest is
payable at the rate of 2% p.m., for delayed payments. Percentage of interest recovery is only
 AS 9.42

10% on such overdue outstanding due to various reasons. During the year 2005-2006 the company

AS 9
wants to recognise the entire interest receivable. Do you agree.

SOLUTION
FACTS:
SCL Ltd. Has interest recoverable on delayed payments from dealers. Percentage of interest
recovery is only 10% on such overdue outstanding.
REFERENCE:
As per AS 9 Revenue Recognition, where the ability to assess the ultimate collection with
reasonable certainty is lacking at the time of raising any claim, e.g. for escalation of price, export
incentives, interest etc. the revenue recognition is postponed to the extent of uncertainty inverted.
In such cases, the revenue is recognized only when it is reasonably certain that the ultimate
collection will be made.
ANALYSIS:
Where there is no uncertainty as to ultimate collection, revenue is recognised at the time of sale
or rendering of service even though payments are made by installments.
SCL Ltd. cannot recognize the interest amount unless the company actually receives it. 10% rate
of recovery on overdue outstanding is also an estimate and is not certain.
CONCLUSION:
SCL Ltd., is advised to recognize interest receivable only on receipt basis.

9. (RTP IPCC (GR-1) NOV, 2009)

Arjun Ltd. sold farm equipment’s through its dealers. One of the conditions at the time of sale is,
payment of consideration in 14 days and in the event of delay interest is chargeable @ 15% per
annum. The Company has not realized interest from the dealers in the past. However, for the year
ended 31.3.2008, it wants to recognise interest due on the balances due from dealers. The amount
is ascertained at Rs.9 lakhs. Decide whether the income by way of interest from dealers is eligible
for recognition as per AS 9.
 AS 9.43
AS 9

SOLUTION
REFERENCE:
As per AS 9 Revenue Recognition, where the ability to assess the ultimate collection with
reasonable certainty is lacking at the time of raising any claim, e.g. for escalation of price, export
incentives, interest etc. the revenue recognition is postponed to the extent of uncertainty inverted.
In such cases, the revenue is recognized only when it is reasonably certain that the ultimate
collection will be made.
ANALYSIS:
In this case, the company never realized interest for the delayed payments made by the dealer.
Hence, based on the past experience, the realization of interest for the delayed payments by the
dealer is very much uncertain.
CONCLUSION:
The interest income of Rs. 9 lakhs should not be recognized in the books for the year ended 31st
March, 2008. The contention of accountant is incorrect. However, if the dealers have agreed to
pay the amount of interest and there is an element of certainty associated with these receipts,
the accountant is correct regarding booking of Rs. 9 lakhs as interest amount.

10. (RTP MAY, 2011 (NEW)

On 25th January, 2010. Planet Advertising Limited obtained advertisement rights for World Cup
Hockey Tournament to be held in March/April, 2010 for Rs.520 lakhs.
They furnish the following information:
1) The company obtained the advertisements for 70% of available time for Rs.700 lakhs by 31st
January, 2010.
2) For the balance time they got bookings in February, 2010 for Rs.240 lakhs.
3) All the advertisers paid the full amount at the time of booking the advertisements.
4) 40% of the advertisements appeared before the public in March, 2010 and balance 60%
appeared in the month of April, 2010.
You are required to calculate the amount of profit/loss to be recognized in the financial year 2009-
10 as per AS 9.
 AS 9.44

AS 9
SOLUTION
REFERENCE:
As per AS 9 ‘Revenue Recognition’, in a transaction involving the rendering of services, performance
should be measured either under the completed service contract method or under the proportionate
completion method, whichever relates the revenue to the work accomplished.
ANALYSIS:
Appendix to AS 9 states that revenue from advertising should be recognized when the service is
completed. The service as regards advertisement is deemed to be completed when the related
advertisement appears before the public.
In the given problem, 40% of the advertisement appeared before the public in March, 2010 and
balance 60% in April, 2010.
Total profit will be computed as follows:
Particulars Rs. in lakhs
Advertisement for 70% of available time obtained by 31st January, 2010 700
Advertisement for 30% of available time obtained by February, 2010 240
Total 940
Less: Cost of advertisement rights (520)
Profit 420
Profit to be recognized in March, 2010 i.e., F Y 2009-10 (Rs.420 lakhs x 40%) 168
Profit to be recognized in April, 2010 i.e., F Y 2010-11 (Rs.420 lakhs x 60%) 252
The profit amounting Rs.420 lakhs should be apportioned in the ratio of 40:60 for the months of
March and April, 2010.

11. (RTP MAY 2013)

M Ltd. manufactures machinery used in Steel Plants. It quotes prices in various tenders issued by
Steel Plants. As per terms of contract, full price of machinery is not released by the steel plants,
but 10% thereof is retained and paid after one year if there is satisfactory performance of the
machinery supplied. The company accounts for only 90% of the invoice value as sales income and
the balance amount in the year of receipt to the extent of actual receipts only. Comment on the
treatment done by M Ltd.
 AS 9.45
AS 9

SOLUTION
REFERENCE:
According to AS 9 “Revenue Recognition”, in a transaction involving the sale of goods, performance
should be regarded as being achieved when the following conditions have been fulfilled:
(i) The seller of goods has transferred to the buyer the property in the goods for a price or all
significant risks and rewards of ownership have been transferred to the buyer and the seller
retains no effective control of the goods transferred to a degree usually associated with
ownership and
(ii) No significant uncertainty exists regarding the amount of the consideration that will be
derived from the sale of the goods.
ANALYSIS:
In the present case, the goods, as well as the risks and rewards of ownership have been transferred
to the steel plants. The invoice raised by M Ltd. is for the full price. M Ltd. receives 90% as 10%
is kept as ‘Retention Money’. Thus, M Ltd. should recognise revenue at the full invoice price, i.e.,
100% of the sale price.
Depending on the past experience of recovering the balance 10% from the steel plants, M Ltd. can
make a provision for sales income which is not likely to be realised.
CONCLUSION:
The practice adopted by M Ltd. is not in consonance with AS 9.

12. IPCC RTP NOV 2014 Q19 B

Victory Ltd. purchased goods on credit from Lucky Ltd. for ` 250 crores for export. The export
order was cancelled. Victory Ltd. decided to sell the same goods in the local market with a price
discount. Lucky Ltd. was requested to offer a price discount of 15%. The Chief Accountant of
Lucky Ltd. wants to adjust the sales figure to the extent of the discount requested by Victory
Ltd. Discuss whether this treatment is justified.
 AS 9.46

AS 9
SOLUTION
REFERENCE:
According to AS 9 “Revenue Recognition”, Recognition of revenue requires that revenue is
measurable and that at the time of sale or the rendering of the service it would not be
unreasonable to expect ultimate collection.
When the uncertainty relating to collectability arises subsequent to the time of sale or the
rendering of the service, it is more appropriate to make a separate provision to reflect the
uncertainty rather than to adjust the amount of revenue originally recorded.
ANALYSIS:
Lucky Ltd. had sold goods to Victory Ltd on credit worth for ` 250 crores and the sale was
completed in all respects. Victory Ltd’s decision to sell the same in the domestic market at a
discount does not affect the amount recorded as sales by Lucky Ltd. The price discount of 15%
offered by Lucky Ltd. after request of Victory Ltd. was not in the nature of a discount given during
the ordinary course of trade because otherwise the same would have been given at the time of
sale itself. It is the special discount which is being allowed at the request of the buyer. Therefore,
it would be appropriate to make a separate provision rather than to adjust the amount of revenue
originally recorded.
CONCLUSION:
The discount of 15% provided should be written off to the profit and loss account and should not
be shown as deduction from the sales figure.

13. IPCC RTP May 2016 Q20a / IPCC RTP NOV 17

X Limited sold goods worth ` 13 Lakhs to Mr. Y. Mr. Y asked for a Trade Discount amounting to
` 1,06,000 and the same was agreed to by X Limited. Such discount was allowed in the ordinary
course of business. The sale was effected and goods were dispatched. On receipt of goods, Mr. Y
has found that goods worth ` 1,34,000 are defective. Mr. Y returned defective goods to X Limited
and made payment amount to ` 10,60,000. The Accountant of X Limited booked the sale for `
10,60,000.
Discuss the contention of the Accountant with reference to relevant Accounting Standard.
 AS 9.47
AS 9

SOLUTION
REFERENCE:
As per AS 9, "Revenue Recognition" is the inflow of cash, receivable or other consideration arising
in the course of ordinary activities of an enterprise from the sale of Goods. However, the above is
subject to trade discount and volume rebates received in the course of carrying on business which
shall be deducted in ascertaining revenue since they represent a reduction of cost.
ANALYSIS:
As per the reference above, X Limited should deduct the trade discount from ` 13,00,000 and should
recognize gross sale at (` 13,00,000 - ` 1,06,000) = ` 11,94,000. Goods returned worth ` 1,34,000
should to be recorded in the form of sales return.
CONCLUSION:
The contention of the accountant to book sale of ` 10,60,000 is not correct.

14. IPCC RTP Nov 2016 Q19a

Khetan Ltd. has received two lakh subscriptions during the current year under its new scheme
whereby customers are required to pay a sum of ` 4,500 for which they will be entitled to receive
a magazine for a period of 3 years. Khetan wants to treat the entire amount as revenue for the
current year. Comment.

SOLUTION
FACTS:
2 Lakh subscriptions have been received for ` 4,500 each against which magazine will be provided
by Ketan Ltd for 3 years.
 AS 9.48

REFERENCE:

AS 9
As per AS 9 - Revenue Recognition, Revenue received or billed from subscriptions for publications
should be deferred and recognised either on a straight line basis over time or, where the items
delivered vary in value from period to period, revenue should be based on the sales value of the
item delivered in relation to the total sales value of all items covered by the subscription.
ANALYSIS:
The revenue of ` 4,500 for 2 Lakh subscriptions should be recognized on a straight line basis over
the period of 3 years.
CONCLUSION:
The accounting treating adopted by Khetan Ltd. to treat the entire amount as revenue for the
current year is not in accordance with AS 9.

15. IPCC RTP May 2017 / ICAI Practical Q 1

K Ltd. has sold its building for ` 50 lakhs to B Ltd. and has also given the possession to B Ltd.
The book value of the building is ` 30 lakhs. As on 31st March, 2016, the documentation and
legal formalities are pending. The company has not recorded the sale and has shown the amount
received as advance. Do you agree with this treatment?

SOLUTION
The economic reality and substance of the transaction is that the rights and beneficial interest
in the property has been transferred although legal title has not been transferred. K Ltd. should
record the sale and recognize the profit of ` 20 lakhs in its profit and loss account. The building
should be eliminated from the balance sheet.

16. RTP NOV 21

How will you recognize revenue in the following cases:
1. Installation Fees
2. Advertising and insurance agency commissions
3. Subscriptions for publications.
 AS 9.49
AS 9

SOLUTION
As per AS 9, revenue should be recognized as per below provisions:
1. INSTALLATION FEES: In cases where installation fees are other than incidental to the sale of a
product, they should be recognized as revenue only when the equipment is installed and
accepted by the customer.
2. ADVERTISING AND INSURANCE AGENCY COMMISSIONS:
1) Revenue should be recognized when the service is completed. For advertising agencies,
media commissions will normally be recognized when the related advertisement or
commercial appears before the public and the necessary intimation is received by the
agency, as opposed to production commission, which will be recognized when the project
is completed.
2) Insurance agency commissions should be recognized on the effective commencement or
renewal dates of the related policies.
3. SUBSCRIPTION FOR PUBLICATIONS: Revenue received or billed should be deferred and recognized
either on a straight-line basis over time or, where the items delivered vary in value from period
to period, revenue should be based on the sales value of the item delivered in relation to the
total sales value of all items covered by the subscription.

17. RTP NOV 21

Shipra Ltd., has been successful jewellers for the past 100 years and sales are against cash only
(returns are negligible). The company also diversified into apparels. A young senior executive was
put in charge of Apparels business and sales increased 5 times. One of the conditions for sales is
that dealers can return the unsold stocks within one month of the end of season. Sales return for
the year was 25% of sales. Suggest a suitable Revenue Recognition Policy, with reference to AS
9.
 AS 9.50

SOLUTION

AS 9
REFERENCE:
AS 9 on Revenue Recognition, is mainly concerned with the timing of recognition of revenue in the
Statement of Profit and Loss of an enterprise. The amount of revenue arising on a transaction is
usually determined by agreement between the parties involved in the transaction. However, when
uncertainties exist regarding the determination of the amount, or its associated costs, these
uncertainties may influence the timing of revenue recognition.
ANALYSIS:
In the case of the jewellery business the company is selling for cash and returns are negligible. In
Apparels Industry, the dealers have a right to return the unsold goods within one month of the
end of the season. In this case, the company is bearing the risk of sales return.
CONCLUSION:
Revenue related to Jewellery business can be recognized as sales. For Apparels business, the
company should not recognize the revenue to the extent of 25% of its sales. The company may
disclose suitable revenue recognition policy in its financial statements separately for both
Jewellery and Apparels business.

18. MOCK TEST OCT. 21 SERIES 1

Old Era Publication Publishes a popular monthly magazine on 15th of every month. The publication
sells the advertising space on terms of 90% payable in advance and the balance 10% payable
within 30 days of release of the publication. The space for March 2020 issue of the magazine was
sold in the month of February, 2020. The magazine was published as per schedule on 15 th of the
month. The amount of ` 2,70,000 has been received upto 31st March, 2020 and ` 30,000 was
received on 10th April, 2020 for advertisement published in the March issue of the publication.
Please advise the accountant the amount of revenue to be recognized in the context of the
provisions of AS 9 ‘Revenue Recognition’ during the year ending on 31 st March, 2020.

SOLUTION
REFERENCE:
As per AS 9 ‘Revenue Recognition’, in a transaction involving the rendering of services, performance
should be measured either under the completed service contract method or under the proportionate
completion method, whichever relates the revenue to the work accomplished.
 AS 9.51

ANALYSIS:
AS 9

In the given case, income accrues when the related advertisement appears before public. The
advertisement service would be considered as performed on the day the advertisement is appeared
for public and hence revenue is recognized on that date. In this case, it is 15.03.2020, the date of
publication of the magazine.
ACCOUNTING TREATMENT:
` 3,00,000 (` 2,70,000 + ` 30,000) is recognized as income in March, 2020. The terms of payment
are not relevant for considering the date on which revenue is to be recognized. ` 30,000 is treated
as amount due from advertisers as on 31.03.2020 and ` 2,70,000 will be treated as payment
received against the sale.

19. RTP MAY 22

An infrastructure company has constructed a mall and entered into agreement with tenants
towards license fee (monthly rental) and variable license fee, a percentage on the turnover of the
tenant (on an annual basis). Chief Financial Officer of the company wants to account/recognize
license fee as income for 12 months during current year and variable license fee as income during
next year, since invoice is raised in the subsequent year. Comment whether the treatment desired
by the CFO is correct or not.

SOLUTION
REFERENCE:
AS 9 on Revenue Recognition, is mainly concerned with the timing of recognition of revenue in the
Statement of Profit and Loss of an enterprise. The amount of revenue arising on a transaction is
usually determined by agreement between the parties involved in the transaction. However, when
uncertainties exist regarding the determination of the amount, or its associated costs, these
uncertainties may influence the timing of revenue recognition.
ANALYSIS:
As per accrual concept, revenue should be recognized as and when it is accrued i.e. recorded in
the financial statements of the periods to which they relate.
Monthly rental towards license fee and variable license fee as a percentage on the turnover of the
tenant (though on annual basis) is the income related to common financial year. Therefore,
 AS 9.52

recognizing the fee as revenue cannot be deferred simply because the invoice is raised in

AS 9
subsequent period. Hence it should be recognized in the financial year of accrual.
CONCLUSION:
The contention of the Chief Financial Officer is not in accordance with AS 9.

20. RTP May 22

Indicate in each case whether revenue can be recognized and when it will be recognized as per
AS 9.
1) Trade discount and volume rebate received.
2) Where goods are sold to distributors or others for resale.
3) Where seller concurrently agrees to repurchase the same goods at a later date.
4) Insurance agency commission for rendering services.

SOLUTION
1) Trade discounts and volume rebates received are not encompassed within the definition of
revenue, since they represent a reduction of cost. Trade discounts and volume rebates given
should be deducted in determining revenue.
2) When goods are sold to distributor or others, revenue from such sales can be recognized if
significant risks of ownership have passed; however, in some situations the buyer may in
substance be an agent and in such cases the sale should be treated as a consignment sale.
3) For transactions, where seller concurrently agrees to repurchase the same goods at a later date
that are in substance a financing agreement, the resulting cash inflow is not revenue as
defined and should not be recognized as revenue.
4) Insurance agency commissions should be recognized on the effective commencement or
renewal dates of the related policies.

21. MTP MARCH 2022 TEST SERIES 1

New Era Publications publishes a monthly magazine on 15th of every month. It sells advertising
space in the magazine to advertisers on the terms of 80% sale value payable in advance and the
balance within 30 days of the release of the publication. The sale of space for the March 2020
issue was made in February 2020. The magazine was published on its scheduled date. It received
2,40,000 on 10.3.2020 and ` 60,000 on 10.4.2020 for the March, 2020 issue.
 AS 9.53

Discuss in the context of AS 9 the amount of revenue to be recognized and the treatment of the
AS 9

amount received from advertisers for the year ending 31.3.2020. What will be the treatment if the
publication is delayed till 2.4.2020?

SOLUTION
REFERENCE:
As per AS 9 ‘Revenue Recognition’, in a transaction involving the rendering of services, performance
should be measured either under the completed service contract method or under the proportionate
completion method, whichever relates the revenue to the work accomplished.
ANALYSIS:
Income accrues when the related advertisement appears before public. The advertisement service
would be considered as performed on the day the advertisement is published and hence revenue
is recognized on that date.
Case 1: When magazine publication is made on 15.03.2020 - ` 3,00,000 (` 2,40,000 + ` 60,000) is
recognized as income in March, 2020. The terms of payment are not relevant for considering the
date on which revenue is to be recognized. Since, the revenue of ` 3,00,000 will be recognised in
the March, 2020, ` 60,000 will be treated as amount due from advertisers as on 31.03.2020 and `
2,40,000 will be treated as payment received against the sale.
Case 2: When Publication is delayed till 02.04.2020 - Revenue recognition will also be delayed till
the advertisements get published in the magazine. In that case revenue of ` 3,00,000 will be
recognized in the year ended 31.03. 2020 after the magazine is published on 02.04.2020. The
amount received from sale of advertising space on 10.03.2020 of ` 2,40,000 will be considered as
an advance from advertisers as on 31.03.2020.

22. RTP Nov 22

When revenue will be recognized in the following situation:
(i) Where the purchaser makes a series of installment payments to the seller and the seller
deliver the goods only when the final payment is received.
(ii) Where seller concurrently agrees to repurchase the same goods at a later date.
(iii) Where goods are sold to distributors, dealers or others for resale.
(iv) Commissions on service rendered as agent on insurance business.
 AS 9.54

AS 9
SOLUTION
(i) Revenue from sales where the purchaser makes a series of instalment payments to the seller,
and the seller delivers the goods only when the final payment is received, should not be
recognised until goods are delivered. However, when experience indicates that most such sales
have been consummated, revenue may be recognised when a significant deposit is received.
(ii) For sale where seller concurrently agrees to repurchase the same goods at a later date, such
transactions are in substance a financing agreement. In such a situation, the resulting cash
inflow should not be recognised as revenue.
(iii) Revenue from sales of goods to distributors, dealers or others for resale can generally be
recognised if significant risks of ownership have passed. However, in some situations the buyer
may in substance be an agent and in such cases the sale should be treated as a consignment
sale.
(iv) Commissions on service rendered as agent on insurance business should be recognised as
revenue when the service is completed. Insurance agency commissions should be recognised
on the effective commencement or renewal dates of the related policies.

23. MTP Oct 22 (Series 2)

Given below is the following information of B.S. Ltd.
(i) Goods of ` 50,000 were sold on 18-03-2021 but at the request of the buyer these were delivered
on 15-04-2021.
(ii) On 13-01-2021 goods of ` 1,25,000 are sent on consignment basis of which 20% of the goods
unsold are lying with the consignee as on 31-03-2021.
(iii) ` 1,00,000 worth of goods were sold on approval basis on 01-12-2020. The period of approval was
3 months after which they were considered sold. Buyer sent approval for 75% goods up to 31-01-
2021 and no approval or disapproval received for the remaining goods till 31 -03- 2021.
You are required to advise the accountant of B.S. Ltd., with valid reasons, the amount to be
recognized as revenue for the year ended 31st March, 2021 in above cases in the context of AS-9.
 AS 9.55
AS 9

SOLUTION
REFERENCE:
As per AS 9 “Revenue Recognition”, in a transaction involving the sale of goods, performance
should be regarded as being achieved when the following conditions are fulfilled:
(i) The seller of goods has transferred to the buyer the property in the goods for a price or all
significant risks and rewards of ownership have been transferred to the buyer and the
seller retains no effective control of the goods transferred to a degree usually associated
with ownership; and
(ii) No significant uncertainty exists regarding the amount of the consideration that will be
derived from the sale of the goods.
ANALYSIS:
Case (i) The sale is complete but delivery has been postponed at buyer’s request. B.S. Ltd. should
recognize the entire sale of ` 50,000 for the year ended 31st March, 2021.
Case (ii) In case of consignment sale revenue should not be recognized until the goods are sold
to a third party. 20% goods lying unsold with consignee should be treated as closing inventory
and sales should be recognized for ` 1,00,000 (80% of ` 1,25,000).
Case (iii) In case of goods sold on approval basis, revenue should not be recognized until the goods
have been formally accepted by the buyer or the buyer has done an act adopting the transaction
or the time period for rejection has elapsed or where no time has been fixed, a reasonable time
has elapsed. Therefore, revenue should be recognized for the total sales amounting ` 1,00,000 as
the time period for rejecting the goods had expired.
CONCLUSION:
Total revenue amounting `2,50,000 (50,000 + 1,00,000 + 1,00,000) will be recognized for the year
ended 31st March, 2021 in the books of B.S. Ltd.

24. RTP Nov 23

Given below are the following information of B.S. Ltd.
i) Goods of ` 50,000 were sold on 18-03-2023 but at the request of the buyer these were delivered
on 15-04-2023.
ii) On 13-01-2023 goods of ` 1,25,000 are sent on consignment basis of which 20% of the goods
 AS 9.56

unsold are lying with the consignee as on 31-03-2023.

AS 9
iii) ` 1,00,000 worth of goods were sold on approval basis on 01-12-2022. The period of approval
was 3 months after which they were considered sold. Buyer sent approval for 75% goods
up to 31-01-2023 and no approval or disapproval received for the remaining goods till 31-
03-2023.
You are required to advise the accountant of B.S. Ltd., with valid reasons, the amount to be
recognized as revenue for the year ended 31st March, 2023 in above cases in the context of AS-
9.

SOLUTION
As per AS 9 “Revenue Recognition”, in a transaction involving the sale of goods, performance should be regarded
as being achieved when the following conditions are fulfilled:
(i) the seller of goods has transferred to the buyer the property in the goods for a price or all significant risks
and rewards of ownership have been transferred to the buyer and the seller retains no effective control of the
goods transferred to a degree usually associated with ownership; and
(ii) no significant uncertainty exists regarding the amount of the consideration that will be derived from the sale of
the goods.
Case (i)
The sale is complete but delivery has been postponed at buyer’s request. B.S. Ltd. should recognize the entire sale
of ` 50,000 for the year ended 31st March, 2023.
Case (ii)
In case of consignment sale revenue should not be recognized until the goods are sold to a third party.20% goods
lying unsold with consignee should be treated as closing inventory and sales should be recognized for ` 1,00,000
(80% of ` 1,25,000).
Case (iii)
In case of goods sold on approval basis, revenue should not be recognized until the goods have been formally accepted
by the buyer or the buyer has done an act adopting the transaction or the time period for rejection has elapsed or
where no time has been fixed, a reasonable time has elapsed. Therefore, revenue should be recognized for the total sales
amounting ` 1,00,000 as the time period for rejecting the goods had expired.
Thus total revenue amounting ` 2,50,000 (50,000 + 1,00,000+ 1,00,000) will be recognized for the year ended 31st
March, 2023 in the books of B.S. Ltd.
 AS 9.57

MCQs
AS 9

1. Which of the conditions mentioned below must be met to recognize revenue from the sale of
goods?
i. the entity selling does not retain any continuing influence or control over the goods;
ii. when the goods are dispatched to the buyer;
iii. revenue can be measured reliably;
iv. the supplier is paid for the goods
v. it is reasonably certain that the buyer will pay for the goods;
vi. The buyer has paid for the goods.
a) (i), (ii) and (v)
b) (ii), (iii) and (iv)
c) (i), (iii) and (v)
d) (i), (iv) and (v)

2. Consignment inventory is an arrangement whereby inventory is held by one party but owned
by another party. Which of the following indicates that the inventory in question is a
consignment inventory?
a) Manufacturer cannot require the dealer to return the inventory
b) Dealer has the right to return the inventory
c) Manufacture is responsible for the pricing of goods and any changes in the pricing can only
be approved by the manufacturer .
d) Manufacture is responsible for the holding the goods and any changes in the pricing can
only be approved by the dealer

3. Which of the following transactions qualify as revenue for M/s AB Enterprises?

a) Sales of ` 20 lakhs made under consignment sales.
b) Sale of an old machine amounting ` 5 lakhs
c) Services provided to the customer in the normal course of business. Sales recorded is `
50,000.
d) Sales of ` 25 lakhs made under consignment sales

4. The Accounting Club has 100 members who are required to pay an annual membership fee of
` 5,000 each. During the current year, all members have paid the fee. However, 5 members
have paid an amount of ` 10,000 each. Of these, 3 members paid the current year’s fee and
also the previous year’s dues. Remaining 2 members have paid next years’ fee of ` 5,000 in
advance. Revenue from membership fee for the current year to be recognised will be:
 AS 9.58

a) ` 5,25,000

AS 9
b) ` 5,10,000
c) ` 5,00,000
d) ` 5,15,000

5. FlixNet International offers a subscription fee model to allow the paid subscribers an annual
viewing of movies, sports events and other content. It allows users to register for free and have
access to limited content for one month without any charges. The customer has a right to
cancel the subscription within a month’s time but is required to p ay for 1 year subscription
fee after the free period. XY has subscribed for free viewing on 1st March 20X1. After 1 month,
he has agreed to pay the annual membership and has paid ` 1,200 on 31st March 20X1 for the
subscription that is valid up to 31st of March 20X2. Revenue that can be recognized by FlixNet
for the year ended 31st March 20X2 is
a) ` 100
b) ` 1,200
c) Nil
d) ` 1,100

Answers
1. (a) 2. (c) 3. (c) 4. (c) 5. (b)