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Solutions & Practice Qns - Final Accounts 1

The document provides practice questions and solutions related to preparing Profit & Loss accounts and revenue recognition under Accounting Standards. It includes case studies demonstrating correct and incorrect revenue recognition policies for different companies, emphasizing the importance of customer acceptance and inspection. The document also discusses how to handle sales with satisfaction guarantees in compliance with revenue recognition standards.

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4 views

Solutions & Practice Qns - Final Accounts 1

The document provides practice questions and solutions related to preparing Profit & Loss accounts and revenue recognition under Accounting Standards. It includes case studies demonstrating correct and incorrect revenue recognition policies for different companies, emphasizing the importance of customer acceptance and inspection. The document also discusses how to handle sales with satisfaction guarantees in compliance with revenue recognition standards.

Uploaded by

ishaainamdar190
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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Accounting for Managers – Practice Questions for Final Accounts

Q1.

Prepare the Profit & Loss a/c for the company.

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Solution

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Q2.

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Q3.

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Q4.

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Revenue Recognition (AS 9)

https://www.youtube.com/watch?v=X-fiBTfSJ74 (revenue recognition with small example)

CASE-1
Powers India Ltd, is a company whose business is manufacturing and installing of water pump
sets. During the year he sold 30 pump sets to Ace Plantations Limited. As per the terms of
sale, Ace Plantations Limited will inspect the units and confirm whether they are fit for
acceptance.
The accountant of Powers India Ltd says that revenue shall not be recognised until installation
and inspection is completed.
Is he correct ?

Yes.

Revenue should normally not be recognized until the customer accepts delivery and
installation and inspection are complete.
In some cases, however, the installation process may be so simple in nature that it may be
appropriate to recognize the sale notwithstanding that installation is not yet completed (e.g.
installation of a factory-tested television receiver normally only requires unpacking and
connecting of power and antennae).

Hence the accountant of Powers India Limited is correct.


CASE-2
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Aareen fashion house Ltd, is a Company manufacturing designer clothes. As per the industry
norms, the company sends the clothes to various designers for putting them up in their
boutique. The Policy of the Company is that, it recognizes revenue once the clothes are sent to
designers.
Is the revenue recognition policy correct?

NO.
Revenue should not be recognized until the goods have been formally accepted by the buyer
or the buyer has done an act adopting the transaction or the time period for rejection has
elapsed or where no time has been fixed, a reasonable time has elapsed.

The revenue shall be recognized only when the designers have accepted the clothes or not
conveyed their rejection before elapse of a fixed time period.

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CASE-4
Emami Ltd, manufactures herbal creams and lotions. As this is a startup Company, the
management wants to introduce a scheme of ‘money back if not completely satisfied’ for a
period of one year.

The accountant wants your help as he is not clear about the revenue recognition in
compliance with AS 9

YES

In the case of retail sales offering a guarantee of “money back if not completely satisfied” it
may be appropriate to recognize the sale but to make a suitable provision for returns based
on previous experience
Accordingly, Emami Ltd, shall recognize revenue and it shall make suitable provisions for the
returns.

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