CA CPT -Accounting for Goods Sold on Approval or Sale or Return basis

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  • I actually came on here to find out the answer to that question. If you check F3 past papers Q24 December 2006, you will see a question that asks about goods sold on a sale or return basis before the year end of 31/10/06. The customer approves half of the goods and the other half are returned in Nov 2006, after the year end. The answer given is that the sales and receivables should be reduced by the amounts originally attributable to the sale and the inventory should be increased by the goods value at cost or N.R.V., whichever is the lower. This conforms with the answer above, and it makes sense because the financial statements should have been adjusted in this way when the goods were not approved at the year end. The fact that the accounts may not yet have been approved is immaterial.
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  • what, if the approval receive after year ending i.e. 31st march.
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  • look into this
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CA CPT -Accounting for Goods Sold on Approval or Sale or Return basis

  1. 1. Accounting for "Goods Sold on Approval" or " Sale or Return" Basis Accounting for "Goods Sold on Approval" or " Sale or Return" Basis Goods are sometimes sent to the customers on approval basis. Goods sent on ‘approval’ means goods sent to the customers with the option to the buyer to retain or return the goods within a specified period. The ownership of the goods is passed only when the buyer gives his approval or if the goods are not returned within that specified period . When the Business sends goods casually on Sale or Return : When the transactions are few, the seller treats the transactions as an ordinary sale. If the goods are returned a reverse entry is passed to cancel the previous transaction. If, at the year–end, goods are lying with the customer entry for sales made earlier is cancelled and the value of the goods with the customers treated as closing stock . Journal Entries When goods are sent Sundry Debtors A/c Dr. (Invoice Price or Selling Price) To Sales A/c When goods are returned or rejected Sales A/c Dr. (Invoice Price or Selling Price) To Sundry Debtors A/c When goods are accepted ---------No Entry ( When goods are sent on Sale or Return basis the normal entry for sale has been already recorded , and hence on goods accepted by the Customers again no entry is required to be passed . ) When unapproved goods are existing on the last day of the year I) Sales A/c Dr. To Sundry Debtors A/c (Invoice Price or Selling Price) (When the above unapproved goods are returned in future no entry will be passed to record the same. )II) Should be included in Closing stock and valued at Cost or Market Value whichever is lower Stock with Customers on sale or Return A/C.-----Dr. To Trading A/C . VXplain 2 Score More - Post your Doubts to us at vxplain@gmail.com
  2. 2. Accounting for "Goods Sold on Approval" or " Sale or Return" Basis Example : A Ltd sells goods to its customers on Sale or Return basis. The following data is provided :Sep-15 Sent goods to its customers on Sale or Return basis(at Cost plus 33.33% ) Rs. 1,00,000Oct-20 Goods returned by Customers Rs. 40,000Nov-25 Received letters of approval from customers Rs. 40,000Dec-31 Goods with customers awaiting approval Rs. 20,000Sep-15 Sundry Debtors A/c Dr. 1,00,000 To Sales A/c 1,00,000 (Being goods sent to Customers on Sale or Return basis . )Oct-20 Returns Inward A/C. Dr. 40,000 To Sundry Debtors A/C. 40,000 (Being goods sent to Customers on Sale or Return basis, returned by Customers . )Nov-25 Goods approved by Customers------------ No Entry Required .Dec-31 Sales A/C Dr. 20,000 To Sundry Debtors A/C. 20,000 (Being cancellation of original entry of sale in respect of goods on sale or return basis lying with the Customers at the Year end awaiting approval )Dec-31 Stock with Customers on sale or Return A/C.-----Dr. 15,000 To Trading A/C . 15,000 (Being adjusting for cost of goods lying with the Customers at the Year end awaiting approval ) Calculation of goods with Customers = (20,000 X 100 ) / 133.33 at Cost = Rs .15000 Note : Unapproved Stock at the Year end with Customers on sale or Return basis will be added to the Cl. Stock on the Asset Side of the Balance Sheet and will be valued at Cost or Market Value whichever is lower . VXplain 2 Score More - Post your Doubts to us at vxplain@gmail.com
  3. 3. Accounting for "Goods Sold on Approval" or " Sale or Return" BasisWhen the Business sends goods frequently on Sale or Return Basis :In this method a specially ruled Sale or Return Journal is maintained. Entries for goods sent ,goods returned and goods approved are recorded in the same book. Entry for approved goods isposted to the individual Debtors A/c and the total is posted to the credit of Sales A/c.When the Business sends Goods numerously on sale or return :When transactions are numerous, the seller keeps the following additional booksa ) Sale or Return Day Book and b ) Sale or Return Ledger .The Ledger contains the accounts of the customers and the ‘Sale or Return’ A/c. Both these booksare Memorandum BooksThe following entries are recorded in the Sale or Return BookWhen goods are sentCustomer A/c Dr. To Sale or Return A/cWhen goods are approved / ReturnedSale or Return A/c-------Dr. To Customer A/cWhen the goods are approved entry for the same is made in the Sales Book VXplain 2 Score More - Post your Doubts to us at vxplain@gmail.com
  4. 4. Accounting for "Goods Sold on Approval" or " Sale or Return" Basis VXplain 2 Score More - Post your Doubts to us at vxplain@gmail.com
  5. 5. Accounting for "Goods Sold on Approval" or " Sale or Return" Basisck on the VXplain 2 Score More - Post your Doubts to us at vxplain@gmail.com

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