Case: The sales account of Panna Gems Ltd includes ₹2,40,000 for goods sent to customers on 'sale or return' basis at cost plus 20%. The customers have not yet communicated acceptance and the return period has not expired. Under AS 9, the value at which these goods should be included in closing inventory is:

Correct answer: B) ₹2,00,000

Explanation

Revenue on goods sent on approval is recognised only when the buyer accepts the goods or the time for rejection has elapsed. The 2,40,000 must be reversed from sales and the goods included in inventory at cost: 2,40,000 x 100/120 = ₹2,00,000. Deducting 20% of the selling price (1,92,000) wrongly treats the mark-up as a margin on sales.