Question
Explain the following briefly with appropriate example:
Revenue Recognition (Realisation) Concept.
Revenue Recognition (Realisation) Concept.
✓
Answer
Revenue Recognition (Realisation) Concept: According to the Revenue Recognition Concept, revenue is considered to have been realised when a transaction has been entered into and the obligation to receive the amount is established. It is to be noted that recognising revenue and receipt of an amount are two separate aspects.
Example: An enterprise sells goods in February, 2018 and receives the amount in April, 2018. Revenue of this sales should be recognised in February, 2018, i.e., when the goods are sold because the legal obligation to receive the amount is established (upon sales) in February, 2018. Let us take another example. Suppose, an enterprise has received an advance in February, 2018 for the sales to be made in May, 2018, revenue shall be recognised in May, 2018, upon sales having been made because the legal obligation to receive the amount is established in May, 2018.
Example: An enterprise sells goods in February, 2018 and receives the amount in April, 2018. Revenue of this sales should be recognised in February, 2018, i.e., when the goods are sold because the legal obligation to receive the amount is established (upon sales) in February, 2018. Let us take another example. Suppose, an enterprise has received an advance in February, 2018 for the sales to be made in May, 2018, revenue shall be recognised in May, 2018, upon sales having been made because the legal obligation to receive the amount is established in May, 2018.
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Prepare the purchase book of M/s Shiv Stationers from the following:
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2010
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June 1
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Purchased from Gagan Stationery Mart on credit
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70 dozens pencils @ ₹ 25 per dozen.
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10 dozens registers @ ₹ 15 per register.
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June 10
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Purchased from Amrit Furniture.
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2 Tables @ ₹ 1,500 per table.
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June 15
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Purchased 3 dozens ink pots @ ₹ 80 per dozen from Mehar Paper Co. And received cash discount of ₹ 50.
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June 18
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Purchased from Rehman Bros. on credit.
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5 reams of white paper @ ₹ 50 per ream
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120 pens @ ₹ 60 per dozen
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Less: trade discount of 10%.
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Pass Journal entry for purchase of goods by Amrit, Delhi from Add Gel Pens, Delhi for ₹ 15,000 less Trade Discount 10% and Cash Discount 3%. CGST and SGST is levied @ 6% each. Assume payment is made at the time of purchase.
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On checking the Bank Pass Book it was found that it showed an overdraft of ₹ 5,220 as on 31.12.2014, while as per Ledger it was different to Bank Debit. The following differences were noted:
- Cheques deposited but not yet credited by bank ₹ 6,000.
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- Wrongly credited by bank to account, deposit of some other party ₹ 900.
- Cheques issued but not presented for payment ₹ 400.
Rectify the following errors:
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- Credit purchases from Nayna ₹ 8,000 were recorded as ₹ 8,800.
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- Mahabir Prashad had paid into the Bank on 26th June four cheques for ₹ 3,000; ₹ 6,000; ₹ 8,000 and ₹ 10,000. Of these, the cheque for ₹ 6,000 was credited by the bank in July 2014.
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When the bill was retained by Darshan till the date of its maturity.
When Darshan immediately discounted the bill @6% p.a. with his bank.
When the bill was endorsed immediately by Darshan in favour of his creditor Suresh.
When three days before its maturity, the bill was sent by Darshan to his bank for collection.
When the bill was retained by Darshan till the date of its maturity.
When Darshan immediately discounted the bill @6% p.a. with his bank.
When the bill was endorsed immediately by Darshan in favour of his creditor Suresh.
When three days before its maturity, the bill was sent by Darshan to his bank for collection.