Sales include goods worth Rs. 1,50,000 sent to a customer on approval and remaining unsold on 31.3.2013. The cost of the goods was Rs. 1, 00, 000 .?

Question

Answer

Explanation:

In this transaction, goods worth Rs. 1,50,000 were sent to a customer on approval. This means that the customer has the option to either purchase the goods or return them.

As of 31.3.2013, the goods remain unsold, which implies that the customer has not yet made a decision on whether to purchase them or not.

The cost of the goods sent on approval was Rs. 1,00,000. This cost includes the expenses incurred in producing and delivering the goods to the customer.

Since the goods remain unsold, they are still considered as inventory as of 31.3.2013.

The value of the unsold inventory at the end of the accounting period is Rs. 1,50,000. This value is recorded as an asset on the balance sheet.

The cost of the unsold inventory is Rs. 1,00,000. This cost is recorded as an expense on the income statement under the Cost of Goods Sold (COGS) account.

It is important to note that if the customer decides to purchase the goods at a later date, the value of the inventory will be removed from the balance sheet and recorded as revenue on the income statement.

Answer

Treatment

Answer

To account for sales on approval, you wouldn't recognize revenue until the customer decides to keep the goods. So, on March 31, 2013, you would not record the Rs.1,50,000 as sales revenue but rather keep it as a receivable or an account titled 'Goods on Approval.' The cost of goods sold remains at Rs.1,00,000 until the customer decides to purchase the goods.

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