Chapter 8: Revenue Based Accounting Standards - Test 2: answer key

Question 1 · 2 marks · Chapter 8: Revenue Based Accounting Standards · hard

Scenario. Vardhan Infra Ltd. entered on 1 April 2025 into a fixed-price contract to construct a cable-stayed flyover for a state authority at an agreed price of ₹9,60,00,000. The contract is expected to take three years. At 31 March 2026, the first reporting date, the project records show: costs incurred to date ₹3,84,00,000; estimated further costs to complete ₹6,16,00,000; the engineer has certified work representing 38.4% of the contract; progress billings raised are ₹3,30,00,000; cash received against billings is ₹3,00,00,000. There are no variations, claims or incentives. Materials included in costs incurred are all consumed in work performed; no unused stock is included. The CFO has recorded revenue equal to progress billings and has carried the excess of costs over billings as contract work-in-progress. He argues that the contract will be completed only in Year 3, so the loss need not be recognised until then. The auditor contends that AS 7 requires the expected outcome to be assessed at each reporting date and that both revenue and any foreseeable loss must be accounted for now. The company prepares financial statements under the Companies Act, 2013, Schedule III Division I (non-Ind AS). The contract is not a cost-plus contract and has no escalation clause. Collection from the authority is not in doubt.

What is the total expected loss on the Vardhan Infra Ltd. contract that must be recognised immediately at 31 March 2026 under AS 7?

1. ₹15,36,000, being the gross loss on work certified to date
2. ₹24,64,000, being the additional provision after current-year gross loss
3. ₹40,00,000, being the excess of total expected cost over contract revenue (correct answer)
4. Nil, because the contract will be completed only in Year 3

Answer: C — ₹40,00,000, being the excess of total expected cost over contract revenue

Explanation. Total expected contract cost is ₹3,84,00,000 plus ₹6,16,00,000, i.e. ₹10,00,00,000. Contract revenue is ₹9,60,00,000. The total foreseeable loss is ₹40,00,000. AS 7 para 35 requires the expected loss to be recognised as an expense immediately when total contract costs are probable to exceed total contract revenue. It is not deferred merely because completion is in Year 3, and it is not limited to the current-year gross loss.

Where it goes wrong. Recognising only the current-period gross loss of ₹15,36,000 or only the additional provision of ₹24,64,000 instead of the full expected loss.

Authority. AS 7 para 35

Question 2 · 2 marks · Chapter 8: Revenue Based Accounting Standards · hard

How should Vardhan Infra Ltd. present the contract balance at 31 March 2026 under AS 7?

1. Gross amount due from customers ₹14,00,000 as an asset (correct answer)
2. Gross amount due from customers ₹54,00,000 as an asset
3. Gross amount due to customers ₹14,00,000 as a liability
4. Gross amount due from customers ₹84,00,000 as an asset

Answer: A — Gross amount due from customers ₹14,00,000 as an asset

Explanation. Gross amount due from or to customers is computed as costs incurred plus recognised profits less recognised losses less progress billings. Here it is ₹3,84,00,000 + Nil - ₹40,00,000 - ₹3,30,00,000 = ₹14,00,000 positive, so it is a gross amount due from customers, presented as an asset. Cash received is not netted in this disclosure; it is considered in the progress billings and receivables analysis separately.

Where it goes wrong. Using only costs incurred less progress billings, or netting cash received, which gives the wrong gross amount.

Authority. AS 7 paras 43-44

Question 3 · 2 marks · Chapter 8: Revenue Based Accounting Standards · medium

What amount of contract revenue should Vardhan Infra Ltd. recognise for the year ended 31 March 2026 under the percentage completion method?

1. ₹3,30,00,000, equal to progress billings raised
2. ₹3,68,64,000, based on 38.4% of the contract price (correct answer)
3. ₹3,84,00,000, equal to costs incurred to date
4. ₹3,60,00,000, based on 37.5% of the contract price

Answer: B — ₹3,68,64,000, based on 38.4% of the contract price

Explanation. When the outcome can be estimated reliably, AS 7 requires revenue to be recognised by reference to the stage of completion. The cost-to-cost stage is ₹3,84,00,000 divided by total expected cost of ₹10,00,00,000, i.e. 38.4%. Contract revenue is therefore 38.4% of ₹9,60,00,000, which equals ₹3,68,64,000. Progress billings and cash receipts do not determine revenue recognition.

Where it goes wrong. Recognising revenue equal to progress billings or equal to costs incurred rather than applying the stage of completion.

Authority. AS 7 para 21; AS 7 para 30

Question 4 · 2 marks · Chapter 8: Revenue Based Accounting Standards · hard

What total contract expense should be charged to the statement of profit and loss for the year ended 31 March 2026?

1. ₹3,84,00,000, being only costs incurred during the year
2. ₹4,24,00,000, being total expected cost plus the full expected loss
3. ₹4,00,00,000, being total expected contract cost
4. ₹4,08,64,000, being revenue recognised plus the total expected loss (correct answer)

Answer: D — ₹4,08,64,000, being revenue recognised plus the total expected loss

Explanation. Revenue recognised is ₹3,68,64,000. Since the contract is loss-making, the entire expected loss of ₹40,00,000 is recognised immediately under AS 7 para 35. Therefore, the contract expense for the year is revenue plus the loss, i.e. ₹3,68,64,000 + ₹40,00,000 = ₹4,08,64,000. This equals costs incurred of ₹3,84,00,000 plus the additional loss provision of ₹24,64,000.

Where it goes wrong. Charging only costs incurred, or adding the full expected loss to total expected cost instead of to revenue.

Authority. AS 7 para 21; AS 7 para 35

Question 5 · 2 marks · Chapter 8: Revenue Based Accounting Standards · medium

Scenario. Sterling Garments Ltd. is finalising its financial statements for the year ended 31 March 2026. It entered into three arrangements near the year-end. (1) On 24 March 2026 it invoiced and sold goods to Metro Retail Ltd. for ₹15,00,000. Metro requested delivery to be delayed to 10 April 2026 because its warehouse was under renovation. The goods were identified, segregated and kept ready for delivery; Metro accepted the invoice and legal title passed on 24 March. Cost to Sterling is ₹10,50,000. (2) On 10 March 2026 goods invoiced at ₹9,00,000 (cost ₹6,00,000) were sent to Trendz Retail on consignment. By 31 March Trendz had sold 60% of those goods to third-party customers for ₹6,30,000. Trendz sent sale confirmation on 4 April 2026; the balance remained unsold with Trendz. (3) On 1 March 2026 goods with an invoice value of ₹8,00,000 were delivered to a customer on a sale-on-approval basis with a three-month approval period. By 31 March the customer had formally accepted goods invoiced at ₹5,60,000; no acceptance had been received for the remaining goods. Sterling follows AS 9 and has not recorded any revenue for the above arrangements pending confirmation. The accountant believes physical dispatch is the sole test; the auditor is examining whether risks and rewards and acceptance conditions have been met.

For the Metro Retail Ltd. arrangement, what revenue should Sterling Garments Ltd. recognise for the year ended 31 March 2026?

1. Nil, because physical delivery will take place only on 10 April 2026
2. ₹15,00,000, because risks and rewards and title passed on 24 March 2026 (correct answer)
3. ₹10,50,000, being only the cost of goods sold
4. ₹12,00,000, being 80% of the invoice value due to delayed delivery

Answer: B — ₹15,00,000, because risks and rewards and title passed on 24 March 2026

Explanation. Revenue from sale of goods is recognised when the seller transfers property in the goods or all significant risks and rewards of ownership, retains no effective control, and consideration is measurable and collection is not uncertain. Here delivery is delayed at the buyer's request, the goods are identified and segregated, title has passed and the buyer has accepted billing. Revenue of ₹15,00,000 is therefore recognised on 24 March 2026.

Where it goes wrong. Treating physical dispatch as the sole test and postponing revenue until actual delivery.

Authority. AS 9 para 11

Question 6 · 2 marks · Chapter 8: Revenue Based Accounting Standards · hard

For the Trendz Retail consignment, what revenue should Sterling Garments Ltd. recognise for the year ended 31 March 2026?

1. ₹9,00,000, being the full invoice value of goods sent on consignment
2. ₹5,40,000, being 60% of the invoice value of goods sent
3. ₹6,30,000, being the sale proceeds of goods actually sold to third parties (correct answer)
4. Nil, because sale confirmation was received only on 4 April 2026

Answer: C — ₹6,30,000, being the sale proceeds of goods actually sold to third parties

Explanation. In a consignment, the consignor does not transfer risks and rewards merely by sending goods to the consignee. Revenue is recognised when the consignee sells the goods to third parties. By 31 March, 60% had been sold for ₹6,30,000. The sale confirmation received after the year-end is supporting evidence of a sale that occurred before the reporting date. Therefore revenue is ₹6,30,000, not the full invoice value or 60% of invoice value.

Where it goes wrong. Recognising the full consignment invoice value or applying 60% to the invoice value instead of using actual third-party sale proceeds.

Authority. AS 9 para 11

Question 7 · 2 marks · Chapter 8: Revenue Based Accounting Standards · medium

For the sale-on-approval arrangement, what revenue should Sterling Garments Ltd. recognise at 31 March 2026?

1. ₹5,60,000, being the invoice value of goods formally accepted by the customer (correct answer)
2. ₹8,00,000, being the full invoice value of goods delivered
3. Nil, because the three-month approval period has not yet expired
4. ₹2,40,000, being the invoice value of goods not yet accepted

Answer: A — ₹5,60,000, being the invoice value of goods formally accepted by the customer

Explanation. Under sale on approval, revenue is not recognised until the buyer formally accepts the goods, does an act adopting the transaction, or the rejection period expires. By 31 March 2026, acceptance had been received for goods invoiced at ₹5,60,000. For the remaining goods, no acceptance had been received and the approval period had not expired. Revenue of ₹5,60,000 is recognised.

Where it goes wrong. Recognising the full ₹8,00,000 merely because goods were delivered.

Authority. AS 9 para 11

Question 8 · 2 marks · Chapter 8: Revenue Based Accounting Standards · hard

What is the total revenue Sterling Garments Ltd. should recognise from the three arrangements for the year ended 31 March 2026?

1. ₹29,30,000
2. ₹28,40,000
3. ₹24,20,000
4. ₹26,90,000 (correct answer)

Answer: D — ₹26,90,000

Explanation. Revenue is ₹15,00,000 from Metro Retail because risks and rewards passed on 24 March 2026; ₹6,30,000 from the consignment because that portion was sold to third parties; and ₹5,60,000 from the sale-on-approval because that portion was formally accepted. Total revenue is ₹15,00,000 + ₹6,30,000 + ₹5,60,000 = ₹26,90,000. No revenue is taken for unsold consignment goods or unaccepted approval goods.

Where it goes wrong. Including the full consignment invoice value or the full sale-on-approval value.

Authority. AS 9 para 11

Question 9 · 2 marks · Chapter 8: Revenue Based Accounting Standards · medium

Scenario. Surya Buildcon Ltd. has a fixed-price contract of ₹50,00,000. At the reporting date, costs incurred are ₹18,00,000, estimated further costs to complete are ₹40,00,000, and work certified is 30%. What amount must be recognised immediately as expected loss under AS 7?

Surya Buildcon Ltd. has a fixed-price contract of ₹50,00,000. At the reporting date, costs incurred are ₹18,00,000, estimated further costs to complete are ₹40,00,000, and work certified is 30%. What amount must be recognised immediately as expected loss under AS 7?

1. ₹2,40,000, being 30% of the total expected loss
2. ₹8,00,000, being the excess of total expected cost over contract revenue (correct answer)
3. ₹5,60,000, being the additional provision after current gross loss
4. Nil, because work certified is only 30%

Answer: B — ₹8,00,000, being the excess of total expected cost over contract revenue

Explanation. Total expected cost is ₹18,00,000 + ₹40,00,000 = ₹58,00,000. Contract revenue is ₹50,00,000. The total expected loss is ₹8,00,000. AS 7 requires the entire expected loss to be recognised immediately when total contract costs are expected to exceed total contract revenue, irrespective of the stage of completion or the percentage of work certified.

Where it goes wrong. Recognising only a proportionate part of the expected loss based on work certified.

Authority. AS 7 para 35

Question 10 · 2 marks · Chapter 8: Revenue Based Accounting Standards · hard

Scenario. At 31 March 2026, a contractor has costs incurred ₹45,00,000, recognised profits ₹5,00,000, recognised losses ₹2,00,000, progress billings ₹50,00,000 and advances received ₹8,00,000. How should these be presented under AS 7?

At 31 March 2026, a contractor has costs incurred ₹45,00,000, recognised profits ₹5,00,000, recognised losses ₹2,00,000, progress billings ₹50,00,000 and advances received ₹8,00,000. How should these be presented under AS 7?

1. Net amount due to customers ₹10,00,000 as a liability only
2. Gross amount due from customers ₹2,00,000 as an asset and advances ₹8,00,000 as an asset
3. Gross amount due to customers ₹2,00,000 as a liability and advances ₹8,00,000 as a liability (correct answer)
4. Only advances received ₹8,00,000 as a liability; no gross contract balance

Answer: C — Gross amount due to customers ₹2,00,000 as a liability and advances ₹8,00,000 as a liability

Explanation. The gross amount is costs incurred plus recognised profits less recognised losses less progress billings: ₹45,00,000 + ₹5,00,000 - ₹2,00,000 - ₹50,00,000 = minus ₹2,00,000. A negative amount is a gross amount due to customers and is presented as a liability. Advances received are a separate liability and are not netted against the gross contract balance.

Where it goes wrong. Netting advances received against the gross amount due to customers.

Authority. AS 7 paras 43-44

Question 11 · 2 marks · Chapter 8: Revenue Based Accounting Standards · hard

Scenario. Zenith Constructions has a contract price of ₹120,00,000. Costs incurred to date are ₹35,00,000, which include unused materials of ₹5,00,000 stored for future use. Estimated future costs to complete are ₹65,00,000. What revenue should be recognised using the cost-to-cost method?

Zenith Constructions has a contract price of ₹120,00,000. Costs incurred to date are ₹35,00,000, which include unused materials of ₹5,00,000 stored for future use. Estimated future costs to complete are ₹65,00,000. What revenue should be recognised using the cost-to-cost method?

1. ₹37,89,474, approximately ₹37.89 lakh (correct answer)
2. ₹35,00,000, equal to costs incurred
3. ₹42,10,526, approximately ₹42.11 lakh
4. ₹44,21,053, approximately ₹44.21 lakh

Answer: A — ₹37,89,474, approximately ₹37.89 lakh

Explanation. Unused materials stored for future activity are excluded from costs incurred for work performed. Cost for work performed is ₹35,00,000 - ₹5,00,000 = ₹30,00,000. Total estimated cost is ₹30,00,000 + ₹65,00,000 = ₹95,00,000. Stage of completion is 30/95 = 31.5789%. Revenue is ₹120,00,000 × 31.5789% = ₹37,89,474 approximately.

Where it goes wrong. Including unused materials in the numerator and denominator, which gives 35% and ₹42 lakh.

Authority. AS 7 para 30

Question 12 · 2 marks · Chapter 8: Revenue Based Accounting Standards · medium

Scenario. Orion Electronics Ltd. shipped televisions by sea on 20 March 2026. Legal title passes only when goods reach the customer on 12 April 2026. Orion bears risk and has insured the goods until arrival. When should Orion recognise revenue?

Orion Electronics Ltd. shipped televisions by sea on 20 March 2026. Legal title passes only when goods reach the customer on 12 April 2026. Orion bears risk and has insured the goods until arrival. When should Orion recognise revenue?

1. On 20 March 2026, when the goods are dispatched
2. On 31 March 2026, because the reporting date falls during transit
3. On 12 April 2026, when title and significant risks and rewards pass (correct answer)
4. When the transit insurance policy expires

Answer: C — On 12 April 2026, when title and significant risks and rewards pass

Explanation. Revenue from sale of goods requires transfer of property or transfer of significant risks and rewards of ownership, with no effective control retained by the seller. Orion retains risk and legal title until the goods reach the customer on 12 April 2026. Dispatch on 20 March or the year-end on 31 March does not complete performance. Revenue is recognised on 12 April 2026.

Where it goes wrong. Recognising revenue at dispatch or at year-end merely because goods are in transit.

Authority. AS 9 para 11

Question 13 · 2 marks · Chapter 8: Revenue Based Accounting Standards · hard

Scenario. Kiran Traders sells goods with an invoice value of ₹10,00,000 on 1 January 2026 and simultaneously agrees to repurchase them on 30 June 2026 for ₹11,00,000. How should this be accounted?

Kiran Traders sells goods with an invoice value of ₹10,00,000 on 1 January 2026 and simultaneously agrees to repurchase them on 30 June 2026 for ₹11,00,000. How should this be accounted?

1. Recognise revenue ₹10,00,000 and finance cost ₹1,00,000
2. Recognise revenue ₹11,00,000 on repurchase
3. Recognise revenue ₹10,00,000 only, with no finance cost
4. Recognise no sale revenue; treat ₹10,00,000 as borrowing and ₹1,00,000 as finance cost (correct answer)

Answer: D — Recognise no sale revenue; treat ₹10,00,000 as borrowing and ₹1,00,000 as finance cost

Explanation. A sale with a simultaneous repurchase agreement is in substance a financing arrangement, not a sale. The seller continues to bear the risks and rewards of ownership. Accordingly, no revenue is recognised. The ₹10,00,000 received is treated as a borrowing, and the excess repurchase price of ₹1,00,000 is recognised as finance cost over the arrangement period.

Where it goes wrong. Recording the transaction as a sale and later purchase, which overstates revenue.

Authority. AS 9 para 6; AS 1 disclosure of accounting policies

Question 14 · 2 marks · Chapter 8: Revenue Based Accounting Standards · hard

Scenario. Meera Ltd. sells goods with a list price of ₹5,00,000, allows a trade discount of 10%, and offers a cash discount of 2% for payment within 15 days. The customer pays within the discount period. What revenue should Meera Ltd. recognise under AS 9?

Meera Ltd. sells goods with a list price of ₹5,00,000, allows a trade discount of 10%, and offers a cash discount of 2% for payment within 15 days. The customer pays within the discount period. What revenue should Meera Ltd. recognise under AS 9?

1. ₹4,50,000 (correct answer)
2. ₹5,00,000
3. ₹4,90,000
4. ₹4,41,000

Answer: A — ₹4,50,000

Explanation. Trade discounts are deducted in determining revenue. Cash discounts are not deducted from revenue; they are recognised as an expense when the customer pays early. Revenue is therefore ₹5,00,000 less 10% trade discount = ₹4,50,000. The 2% cash discount is a finance or expense item and does not reduce revenue.

Where it goes wrong. Deducting both trade discount and cash discount, giving ₹4,41,000.

Authority. AS 9 para 4

Question 15 · 2 marks · Chapter 8: Revenue Based Accounting Standards · medium

Scenario. A contractor has one contract covering construction of two identical warehouses for the same customer. Separate proposals were submitted for each warehouse, each was separately negotiated and the customer could accept or reject each part, and costs and revenues of each warehouse are separately identifiable. How should the contract be treated under AS 7?

A contractor has one contract covering construction of two identical warehouses for the same customer. Separate proposals were submitted for each warehouse, each was separately negotiated and the customer could accept or reject each part, and costs and revenues of each warehouse are separately identifiable. How should the contract be treated under AS 7?

1. As a single construction contract because there is one customer and one contract document
2. By combining it with all other contracts of the contractor for the same customer
3. As a cost-plus contract regardless of the contract terms
4. As two separate construction contracts for accounting purposes (correct answer)

Answer: D — As two separate construction contracts for accounting purposes

Explanation. AS 7 requires each asset covered by a contract to be treated as a separate construction contract when separate proposals have been submitted, each asset has been separately negotiated and the contractor and customer could accept or reject each part, and costs and revenues of each asset can be identified. All three conditions are satisfied, so two separate construction contracts are recognised.

Where it goes wrong. Treating the arrangement as one contract merely because it is documented as a single contract.

Authority. AS 7 para 8

Question 16 · 2 marks · Chapter 8: Revenue Based Accounting Standards · hard

Scenario. Pinnacle Ltd. sells a machine for ₹20,00,000 on 28 March 2026. The machine requires complex installation that is significant for it to be used in the intended manner. Installation is completed on 15 April 2026. What revenue should Pinnacle Ltd. recognise for the year ended 31 March 2026?

Pinnacle Ltd. sells a machine for ₹20,00,000 on 28 March 2026. The machine requires complex installation that is significant for it to be used in the intended manner. Installation is completed on 15 April 2026. What revenue should Pinnacle Ltd. recognise for the year ended 31 March 2026?

1. ₹20,00,000, because the machine was accepted on 28 March 2026
2. ₹18,00,000, being 90% of the sale value
3. Nil, because installation significant to the sale is not complete (correct answer)
4. ₹2,00,000, being the balance attributable to installation

Answer: C — Nil, because installation significant to the sale is not complete

Explanation. Where goods sold are subject to complex installation that is significant for the customer to use the goods in the intended manner, revenue is not recognised until installation is satisfactorily completed. Since installation is completed only on 15 April 2026, no revenue is recognised for the year ended 31 March 2026. Acceptance of the machine alone does not complete performance.

Where it goes wrong. Recognising revenue on acceptance of the machine even though significant installation remains pending.

Authority. AS 9 para 11

Question 17 · 2 marks · Chapter 8: Revenue Based Accounting Standards · hard

Scenario. At the reporting date, a construction contract shows costs incurred ₹80,00,000, recognised profits ₹12,00,000, recognised losses ₹5,00,000 and progress billings ₹70,00,000. What is the gross amount due from customers under AS 7?

At the reporting date, a construction contract shows costs incurred ₹80,00,000, recognised profits ₹12,00,000, recognised losses ₹5,00,000 and progress billings ₹70,00,000. What is the gross amount due from customers under AS 7?

1. ₹17,00,000 (correct answer)
2. ₹10,00,000
3. ₹22,00,000
4. ₹5,00,000 due to customers

Answer: A — ₹17,00,000

Explanation. Gross amount due from customers is costs incurred plus recognised profits less recognised losses less progress billings: ₹80,00,000 + ₹12,00,000 - ₹5,00,000 - ₹70,00,000 = ₹17,00,000 positive. It is presented as an asset. Using only costs incurred less progress billings gives ₹10,00,000, which ignores recognised profits and losses.

Where it goes wrong. Computing costs incurred less progress billings only and ignoring recognised profits and losses.

Authority. AS 7 paras 43-44

Question 18 · 2 marks · Chapter 8: Revenue Based Accounting Standards · hard

Scenario. In Year 1, Nirmal Ltd. recognised a ₹6,00,000 provision for an expected loss on a construction contract. In Year 2, revised estimates show that the cumulative expected loss is only ₹2,00,000 and no other change has occurred. What is the Year 2 effect under AS 7?

In Year 1, Nirmal Ltd. recognised a ₹6,00,000 provision for an expected loss on a construction contract. In Year 2, revised estimates show that the cumulative expected loss is only ₹2,00,000 and no other change has occurred. What is the Year 2 effect under AS 7?

1. Recognise a further loss of ₹2,00,000
2. Recognise a reversal income of ₹6,00,000
3. Make no adjustment because the contract is still continuing
4. Recognise a reversal income of ₹4,00,000 as a change in accounting estimate (correct answer)

Answer: D — Recognise a reversal income of ₹4,00,000 as a change in accounting estimate

Explanation. The percentage completion method is applied cumulatively using current estimates. A change in the estimate of contract costs or outcome is accounted for as a change in accounting estimate under AS 5. The provision previously recognised was ₹6,00,000, but only ₹2,00,000 is now required. The excess provision of ₹4,00,000 is reversed and recognised in Year 2 profit or loss.

Where it goes wrong. Continuing the old provision or reversing the entire ₹6,00,000 instead of only the excess ₹4,00,000.

Authority. AS 7 para 38; AS 5

Question 19 · 2 marks · Chapter 8: Revenue Based Accounting Standards · medium

Scenario. At 31 March 2026, AB Ltd. has interest accrued on fixed deposits for January to March 2026 not yet received, royalty accrued under a patent agreement, and a dividend declared by an investee on 5 April 2026. Which revenue can AB Ltd. recognise at 31 March 2026 under AS 9?

At 31 March 2026, AB Ltd. has interest accrued on fixed deposits for January to March 2026 not yet received, royalty accrued under a patent agreement, and a dividend declared by an investee on 5 April 2026. Which revenue can AB Ltd. recognise at 31 March 2026 under AS 9?

1. Interest, royalty and dividend, because all relate to the year ended 31 March 2026
2. Interest and royalty only (correct answer)
3. Dividend only, because the other amounts are not received
4. None of the three, because all are not received by 31 March 2026

Answer: B — Interest and royalty only

Explanation. Interest is recognised on a time proportion basis, and royalties are recognised on an accrual basis as per the agreement, provided there is no significant uncertainty. Dividend revenue is recognised only when the owner's right to receive payment is established. Since the dividend is declared on 5 April 2026, no right exists at 31 March 2026. Therefore, only interest and royalty are recognised.

Where it goes wrong. Accruing dividend before declaration because it relates to the current year.

Authority. AS 9 para 8

Question 20 · 2 marks · Chapter 8: Revenue Based Accounting Standards · medium

Scenario. On 20 March 2026, Sunrise Ltd. sold goods for ₹8,00,000 to a customer whose ability to pay was doubtful. At 31 March 2026, ultimate collection was not reasonably certain. The customer paid ₹8,00,000 on 10 May 2026. How should revenue be recognised for the year ended 31 March 2026?

On 20 March 2026, Sunrise Ltd. sold goods for ₹8,00,000 to a customer whose ability to pay was doubtful. At 31 March 2026, ultimate collection was not reasonably certain. The customer paid ₹8,00,000 on 10 May 2026. How should revenue be recognised for the year ended 31 March 2026?

1. Nil in FY 2025-26; recognise ₹8,00,000 in FY 2026-27 when collection becomes certain (correct answer)
2. Recognise ₹8,00,000 in FY 2025-26 because the sale was completed
3. Recognise ₹4,00,000 in each of FY 2025-26 and FY 2026-27
4. Recognise ₹8,00,000 as other income in FY 2025-26

Answer: A — Nil in FY 2025-26; recognise ₹8,00,000 in FY 2026-27 when collection becomes certain

Explanation. AS 9 requires revenue recognition to be postponed where the ability to assess ultimate collection with reasonable certainty is lacking at the time of sale. At 31 March 2026, collection was not reasonably certain, so no revenue is recognised in FY 2025-26. When the amount is collected in May 2026 and uncertainty is resolved, revenue is recognised in FY 2026-27.

Where it goes wrong. Recognising revenue at the sale date despite significant uncertainty over ultimate collection.

Authority. AS 9 para 10