Mihir Manohar (CA Final - Article Assistant) (474 Points)
20 April 2014A Ltd ('A") enters into an agreement to sell goods to B Ltd ("B"). Agreement states that the prices may escalate upto 20%. Prices actually escalate before the balance sheet date itself. Due to some sudden contigencies, A wants to escalate the price by 30%. Negotiations happen before the balance sheet date and continues even after the accounts gets approved by the BOD. Rate accepted 25%.
What should be the disclosure in the books of accounts of A?
Mihir Manohar
(CA Final - Article Assistant)
(474 Points)
Replied 20 April 2014
I hold the following view:
AS 9: Revenue should be recognised as and when the property gets transfered to the buyer. Here the same happens and only the negotiation continues for the escalation beyond 20%. Only the escalation beyond 20% is reasonably uncertain to realise. So revenue should not be recognised to that extent only.
AS 4: The negotiation gets complete for 25% after the balance sheet date. Consequenlty this is a non-adjusting event. The escalation beyond 20% cannot be recognised in the financial year in which the sale takes place. It will find a disclosure in the Director's report.
I am eagerly waiting for your Intellectual views.
Thanking you.
CAclubindia
