AS-9 Revenue Recognition: Practical Questions and Answers
For a better understanding of AS-9 Revenue Recognition, it is recommended to explore these practical questions and answers. These selected scenarios will help you grasp the fundamentals of Accounting Standards.
1. Interest Income Recognition
Arjun Ltd. sold farm equipment through its dealers with a condition of payment within 14 days, after which interest @15% p.a. is chargeable. The company has never realized interest before but wants to recognize Rs. 9 lakhs of interest due for FY ending 31.03.2006. Can this income be recognized under AS-9?
Answer:
As per AS-9, if ultimate collection is uncertain, revenue recognition is postponed. Since the company has never realized such interest, it should recognize the income only if collection is reasonably certain. Hence, the interest income of Rs. 9 lakhs should not be recognized.
2. Recognition of Interest and Royalty
Y Ltd. used resources of X Ltd. and paid Rs. 10 lakhs as interest and Rs. 15 lakhs as royalties during 2007–2008. How should X Ltd. recognize this revenue under AS-9?
Answer:
As per AS-9, interest should be recognized on a time basis, and royalties should be recognized on an accrual basis according to the terms of the relevant agreement.
3. Revenue Recognition from Sales
According to AS-9, when should revenue from sales be recognized?
Answer:
Revenue from sales is recognized when:
- The property or risks and rewards of goods are transferred to the buyer, and the seller retains no effective control.
- No significant uncertainty exists regarding the amount of consideration to be derived from the sale.
4. Dividend Income Recognition
M/s Sea Ltd. recognized Rs. 5 lakhs as income from dividend during 2010–11 for shares held in Rock Ltd. Dividend was declared on 30th June 2011. Is this treatment in line with AS-9?
Answer:
Per AS-9, dividend income is recognized only when the right to receive is established. Since the right was established on 30th June 2011, income should be recognized in FY 2011–12, not 2010–11.
5. Recognition of Sales Revenue
M/s Moon Ltd. sold goods worth Rs. 6,50,000 with a trade discount of Rs. 53,000. Defective goods worth Rs. 67,000 were returned. The accountant recorded the sale as Rs. 5,30,000. Is this correct as per AS-9?
Answer:
As per AS-9, revenue is the gross inflow after deducting trade discounts and returns. The correct revenue should be Rs. 5,97,000 (Rs. 6,50,000 - Rs. 53,000 - Rs. 67,000). The accountant's booking of Rs. 5,30,000 is incorrect.
6. Retrospective Price Increase
On 31.03.2011, X Ltd. decided to increase the sales price retrospectively from 1st Jan 2011, resulting in Rs. 5 lakhs receivable. Should this be recognized in FY 2010–11?
Answer:
As per AS-9, additional revenue from retrospective price increases should be recognized only if ultimate collection is reasonably certain. Otherwise, revenue recognition must be postponed.