## Revenue Recognition: Sale of Goods

Revenue from sale of goods is recognised only when ALL of the following conditions are met:

### Conditions for Revenue Recognition

1. Transfer of property — The seller has transferred the property in goods to the buyer.

2. Risks & Rewards — All significant risks and rewards of ownership have been transferred to the buyer.

3. No effective control — The seller retains no effective control over the goods transferred.

4. No uncertainty of consideration — There is no significant uncertainty regarding the amount that will be received.

> The critical test is transfer of risks and rewards, not merely physical delivery or legal title.

### Timing

Revenue is booked on the date when all above conditions are satisfied — typically the date of delivery.

Worked example

### Example 1

AK Ltd. sells goods worth ₹1,00,000 on 01/04 with delivery on 05/04. Legal title passes on delivery.

Revenue is recognised on 05/04 (date of delivery and transfer of risks & rewards), not 01/04.

### Example 2

A company sells goods but retains the right to repurchase them. Since risks & rewards have NOT truly transferred, this is a financing arrangement — no revenue is recognised.

⚠️ Common exam mistakes

Recognising revenue on the date of invoice/billing rather than when risks and rewards actually transfer.
Booking revenue even when there is significant uncertainty about collectability at the time of sale — revenue should be postponed in such cases.
Assuming legal title transfer alone is sufficient — what matters is transfer of economic risks and rewards.

Bare-Act text Para 11 – Sale of Goods · AS 9 – Revenue Recognition (ICAI) · click to expand

In a transaction involving the sale of goods, performance should be regarded as being achieved when the following conditions have been fulfilled: (i) the seller of goods has transferred to the buyer the property in the goods for a price or all significant risks and rewards of ownership have been transferred to the buyer and the seller retains no effective control of the goods transferred to a degree usually associated with ownership; and (ii) no significant uncertainty exists regarding the amount of the consideration that will be derived from the sale of the goods.

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AS 9 – Revenue from Sale of Goods

Worked example

⚠️ Common exam mistakes