Sumiti Jain (FP) (1364 Points)
27 February 2010X Ltd. entered into a contract with Y Ltd. to despatch goods valuing Rs. One lakh every month for six months upon receipt of entire payment. Y Ltd. accordingly made the payment. In 3rd month due to a natural calamity, Y Ltd. requested X Ltd. not to despatch until further notice.
X Ltd. accounted Rs. two lakhs as sales and transferred the balance to Advance Receipt against sales.
Is it right what the co. has done? Plz verify it with instructions of ICAI under AS-9.
Amir
(Learner)
(4016 Points)
Replied 01 March 2010
Dear Sumiti,
In the present case what is relevant that Y ltd. has deferred the delivery of goods becos of natural calamity but has not rescinded the contract - so if goods have been identified by the seller & are not subjected to any approval/inspection then X Ltd can recognize the revenue in respect of 3rd month...There should be an expectation that delivery shall be made in near future..
If circumstances are such that the contract itself becomes uncertain or goods requires approval/inspection of the buyer then revenue in respect of 3rd month cannot be recognized..........
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