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Goods on hand on year end

prashant dayma (articleship) (38 Points)

06 June 2015

Dear All,

Kindly clarify my doubt,

1. If Sales invoice is made on 31st March 2015 & goods are hand delivered on 1st April 2015 when shall the revenue to be recognised on 31st March or on 1st April?

2. Are such goods in hand to be treated as stock in trade for 14-15?

Kindly clarify with details so that i can refer them

Thank you

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VENKATA PRANEETH MANEPALLI (Student CA IPC / IPCC) (23 Points)
Replied 06 June 2015

As per AS 7 , "REVENUE RECOGNIZITION", the revenue arising from the sale of goods should be recognized as & when the risks and rewards incidental to the ownership of the goods have been passed from the seller to the buyer(i.e.at the time of making the sale and transferring the ownership), provided that at the time of such recognition , there does not exist any uncertainity regarding the receipt of ultimate payment from the buyer(in respect of sale price) & also the sale price could be measured with reasonable degree of certainity.

The Indian Contract Act, 1872 , permits the parties to a contract to provide for the transfer of significant risks & rewards incidental to the ownership to be transferred at a point of time which is diferrent from the time at which the ownership is transferred , by a special agreement in this behalf, . Hence the main focus should be on the date of transfer of the above stated risks and rewards and not merely on the transfer of title.

As per the given situation the sale revenue of goods sold on 31st march 2015 should be recognized for the year ended 31st march 2015 itself. This is because the invoice has been raised(i.e. certainity about sale price) and it can be reasonably assumed that the risks and rewards have also been transferrred.

It is noteworthy that the revenue should be recognized in it's entirity for the year 2014-15, irrespective of whether the delivery of goods has been made in the next financial year(or) that the sale price is being received in installments.

The above stated goods should not be treated as stock in trade for the year 14-15. They should be omitted from the closing stock qty and value , since the criteria for stock to be included in closing inventory is legal ownership and not mere physical possession.