• As per the definition given under the Sale of Goods Act, 1930, in respect of such
goods, the sale will take place or the property in the goods pass to the buyer:
(i) When he signifies his approval or acceptance to the seller;
(ii) When he does some act adopting the transaction;
(iii) If he does not signify his approval or acceptance to the seller but retains the goods without giving notice of rejection, on the expiry of the specified time (if a time has been fixed) or on the expiry of a reasonable time
• Accounting entries depend on the fact whether the business sends goods on sale or
approval basis (i) casually; (ii) frequently; and (iii) numerously.
Multiple Choice Questions
Ques 1: When a large number of articles are sent frequently on a sale or return basis, it is necessary to maintain
(a) Sale journal
(b) Goods returned journal
(c) Sale or return journal
Ques 2: Sale or Return Day Book and Sale or Return Ledger are known as
(a) principal books
(b) subsidiary books
(c) memorandum books
Ques 3: A sent some goods costing ₹ 3,500 at a profit of 25% on sale to B on sale or return basis. B returned goods costing ₹800. At the end of the accounting period i.e. on 31st December, 2016, the remaining goods were neither returned nor were approved by him. The Inventories on approval will be shown in the balance sheet at ₹
(c) 2,700 less 25% of 2,700.
Ques: 4 A sent some goods costing ₹ 3,500 at a profit of 25% on sale to B on sale or return basis. B returned goods costing ₹ 800. At the end of the accounting period i.e. on 31st December, 2016, the remaining goods were neither returned nor were approved by him. The Inventories on approval will be shown in the balance sheet at ₹
(c) 2,700 less 25% of 2,700.
Ques 5: Umesh sends goods on approval basis as follows:
The Inventories of goods sent on approval basis on 31st January will be"
(a) ₹500. (b) Nil. (c) ₹ 260.
Ques 6: A company sends its cars to dealers on ‘sale or return’ basis. All such transactions are however treated like actual sales and are passed through the sales day book. Just before the end of the financial year, two cars which had cost ₹ 55,000 each have been sent on ‘sale or return’ and have been debited to customers at ₹ 75,000 each, cost of goods
lying with the customers will be
(b) ₹ 55,000.
(c) ₹ 75,000.
Ques 7: A trader has credited certain items of sales on approval aggregating ₹60,000 to Sales Account. Of these, goods of the value of ₹16,000 have been returned and taken into Inventories at cost ₹8,000 though the record of return was omitted in the accounts. In respect of another parcel of ₹12,000 (cost being ₹ 6,000) the period of approval did not expire on the closing date. Cost of goods lying with customers should be
(a) ₹ 12,000.
(b) ₹ 54,000.
(c) ₹ 6,000.
Ques 8: Under sales on return or approval basis, the ownership of goods is passed only
(a) when the retailer gives his approval
(b) if the goods are not returned within specified period.
(c) Both (a) and (b)
Ques 9: Under sales on return or approval basis, when transactions are few, the seller,
while sending the goods, treats them as
(a) an ordinary sale but no entry is passed in the books
(b) an ordinary sale and entry for normal sale is passed in the books
(c) Approval sale and no entry is passed
Ques 10: Under sales on return or approval basis, when transactions are few and the seller at the end of the accounting year reverse the sale entry, then what will be the
accounting treatment for the goods returned by the customers on a subsequent date?
(a) No entry will be passed for such return of goods
(b) Entry for return of goods is passed by the seller
(c) Only the Inventories account will be adjusted
Ques 1: What are the features of sale of goods on approval or return basis? Explain in brief.
Ans: Features of sale of goods on approval or return basis: (i) There is a change in the
possession of goods from one person to another. (ii) It does not involve transfer of
ownership of goods. The ownership is passed only when the retailer gives his approval or if
the goods are not returned within that specified period. (iii) The retailer (customer) does
not incur any liability when the goods are merely sent to him.
Ques 2: When ‘sale or return basis’ transactions are numerous, what books are maintained by the business entity.
Ans: When transactions are numerous, a business maintains the following books: (a) Sale or Return Day Book; and (b) Sale or Return Ledger. ‘Ledger’ contains the accounts of the customers and the ‘Sale or Return’ Total account. ‘Day Book’ is the primary book which records all transactions, and from there these are entered in the ‘Sale or Return’ Total account. It is important to remember that both are Memorandum Books, i.e., these records are not a part of regular books of accounts.
Ques 1: A firm sends goods on sale or return basis. Customers having the choice of returning the goods within a month. During May 2016, the following are the details of goods sent:
Within the stipulated time, P and Q returned the goods and B, D, and E signified that they have accepted the goods.
Show in the books of the firm, the Sale or Return Account and Customer- P for Sale or Return Account on 15th June, 2016.
Ques 2: On 31st December, 2016 goods sold at a sale price of ₹ 3,000 were lying with customer, Ritu to whom these goods were sold on ‘sale or return basis’ were recorded as actual sales. Since no consent has been received from Ritu, you are required to pass adjustment entries presuming goods were sent on approval at a profit of cost plus 20%. Present market price is 10% less than the cost price.
Ques 3: X supplied goods on sale or return basis to customers, the particulars of which are as under.
Goods are to be returned within 15 days from the dispatch, failing which it will be treated
as sales. The books of ‘X’ are closed on the 31st December, 2016.
Prepare the following accounts in the books of ‘X’.
(a) Goods on “sales or return, sold and returned day books”.
(b) Goods on sales or return total account.