Nas 18 revenue

Nepal Accounting Standards
18- Revenue
CA. Krishna Niraula
CA. Krishna Niraula 11/12/2020

NAS 18
 OBJECTIVE:
 Income is defined in the Framework for the Preparation and Presentation of Financial
Statements as increases in economic benefits during the accounting period in the form of
inflows or enhancements of assets or decreases of liabilities that result in increases in
equity,
 ISSUE
 The primary issuein accounting for revenue is determining when to
recognize revenue.
• Revenues are recognized when they are earned usually when goods are transferred and
services rendered, no matters when cash is received.
• When future economic benefit flow to the entity and
• It can be measured reliably.

NAS 18
 Scope
• This Standard shall be applied in accounting for revenue arising from the following
transactions and events:
• (a) the sale of goods;
• (b) the rendering of services; and
• (c) the use by others of entity assets yielding interest,
royalties and dividends.
• Goods includes goods produced by the entity for the purpose of sale and goods
purchased for resale,
• The rendering of services typically involves the performance by the entity of a
contractually agreed task over an agreed period of time.
• interest—charges for the use of cash
• royalties—charges for the use of long-term assets (patents, trademarks)
• dividends—distributions of profits to holders

NAS 18
 NAS 18 doesn't apply to:
 a. lease agreements ;
 b. dividends arising from investments which are accounted under the equity method;
 c. insurance contracts of insurance companies;
 d. changes in the fair value of financial assets and financial liabilities or their disposal;
 e. changes in the value of other current assets;
 f. initial recognition and from changes in the fair value of biological assets related to agricultural activity;
 g. initial recognition of agricultural produce; and
 h. the extraction of mineral ores.

NAS 18
 Definitions
• Revenue is gross inflow of economic benefits during the accounting period arising from the ordinary operating
activities of an entity that result in increase in equity, other than increases relating to contributions from equity
participants. Ordinary activities mean sale of goods, rendering of services, income by way of royalty, interest
and dividend. Collections on behalf of third party do not increase entity’s equity, so they are not recognized as
revenue.
• Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable,
willing parties in an arm’s length transaction.
• (Amounts collected on behalf of third parties such as sales taxes, goods and services taxes and value added
taxes are not economic benefits)
 MEASUREMENT OF REVENUE
 Revenue shall be measured at the fair value of the consideration received or receivable. Fair value excludes
trade discounts and volume discounts allowed by the entity.
• In most cases, the consideration is in the form of cash or cash equivalents and the amount of revenue is the
amount of cash or cash equivalents received
• However, when the inflow of cash or cash equivalents is deferred, the fair value of the consideration may be
less than the nominal amount of cash received

NAS 18
❖ Belmullet Limited is a service company and provided services to Knock Limited, for which it received a car as payment.
• The car had a carrying value of €14,000 in the accounts of Knock Limited, but its market
value is €16,000.
• In this instance, Belmullet Limited should recognize revenue as €16,000 which is the fair value of the vehicle.
 AB Limited sold goods to its customers for Rs.500,000 inclusive of VAT of Rs.50,000 and Trade discounts of Rs.25,000. What
would the amount of revenue?
Answer: Revenue does not include amount received on behalf of other parties. The VAT received represents the money of
Government and cannot be included in revenue. Fair value of revenue is after deducting discounts and rebates so amount of
discounts should be deducted.
Hence the amount of revenue should be Rs.425,000.
 A company pays dividend to its shareholders. The shareholders receive the dividend net of tax deducted at source
(TDS) on dividends. Is it appropriate for shareholders to recognize its dividend revenue net of the tax withheld?
Answer: NAS 18 defines revenue as gross inflow of economic benefits received or receivable by the entity on its
own behalf.
In accordance with the above, revenue is to be recognized for the gross inflows, which are received and receivable by
the entity on its own account. The tax deducted at source by the company on dividend paid is deposited with the
government on behalf of the shareholders.

NAS 18
• For example, an entity may provide interest free credit to the buyer or accept a note receivable bearing a
below-market interest rate from the buyer as consideration for the sale of goods
• Ballina Limited sells a machine to Swinford Limited for Rs. 105,000 on 31 December2013 and gives them
12 months interest free credit.
• The discount rate appropriate for the transaction is 5%, and the discounted present value of the future receipt is
€100,000.
 Exchange of goods and services
 Exchange goods are of similar nature
When goods or services are exchanged with goods or services which are of a similar nature and value, the exchange
is not regarded as a transaction which generates revenue. Meaning thereby, this type of transaction is not included in
revenue.
 Exchange goods are of dissimilar nature
When goods or services are exchanged with goods or services which are of a dissimilar nature, the exchange is
regarded as a transaction which generates revenue. The revenue is measured at fair value of the goods or services
received, adjusted by the amount of cash or cash equivalent transferred.
When the fair value of goods or services received cannot be measured reliably, the revenue is measured at the fair
value of goods or services given up, adjusted by the amount of cash or cash equivalent transferred.

NAS 18
Sale of Goods Condition
• a) The entity has transferred to the buyer the significant risks and rewards of ownership of the goods;
• Example
• A person acquires a second hand car and will pay for the car over set period of time. The seller retains legal
title until the buyer has settled the outstanding debt . In this situation the buyer enjoys risk and reward of
ownership even through legal title has not yet transferred.
• (b) The entity retains neither continuing managerial involvement to the degree usually associated with
ownership nor effective control over the goods sold;
• Explanation
• Here situation related to shipping conditions. Revenue should be recognized depending on when the acquire
accept the risk and reward of product acquired. In these circumstances shipping condition are key indicator to
identify the transfer or risk
• (c) The amount of revenue can be measured reliably;
• This criterion is similar to the US GAAP requirement that the seller’s price is fixed or determinable.

NAS 18
Sale of Goods Condition contd….
• (d) It is probable that the economic benefits associated with the transaction will flow to the
entity;
• For example,
• it may be uncertain that a foreign governmental authority will grant permission to remit the consideration
from a sale in a foreign country. When the permission is granted, the uncertainty is removed and revenue is
recognized.
• (e) the costs incurred or to be incurred in respect of the transaction can be measured
reliably.
• Explanation;
• Revenue and expenses that relate to the same transaction this process is commonly referred to as the matching
of revenues and expenses. Expenses, including warranties and other costs to be incurred after the shipment of
the goods can normally be measured reliably when the other conditions for the recognition of revenue have
been satisfied. However, revenue cannot be recognized when the expenses cannot be measured reliably;

NAS 18
Revenue recognition when delivery of goods sold subject to condition
 Installation and inspection
Revenue should be recognized when goods are installed at the buyer’s place to his place and goods are inspected and
accepted by the customer.
 Sale on approval basis
Revenue should be recognized when the buyer approves the goods.
 Warranty sales
Sales should be recognized immediately but the provisions should be made to cover unexpired warranty.
 Consignment Sales
Revenue should be recognized only when the goods are sold to third party.
(even if consignment agent carries the risk of loss of goods in the Godown and the risk of collection from the buyer,
revenue recognized only when goods are sold to third party)

NAS 18
 Bill and Hold Sales
Bill and Hold sales, in which delivery is delayed at the buyer’s request but the buyer takes title and accepts billing.
Revenue is recognized when the buyer takes title, provided:
i. it is probable that delivery will be made;
ii. the item is on hand, identified and ready for delivery to the buyer at the time sale is recognized;
iii. the buyer specifically acknowledge the deferred delivery instructions; and
iv. the usual payment terms apply.
 Lay away Sales
Lay away sales under which the goods are delivered only when the buyer makes the final payment in a series of installments.
Revenue from such sales is recognized when the goods are delivered. However, when experience indicates that most such sales are
consummated, revenue may be recognized when a significant deposit is received provided the goods are on hand, identified and ready for
delivery to the buyer.
 Sale and Repurchase Agreement
Sale and repurchase agreement under which the seller concurrently agrees to repurchase the same goods at a later date.
When the risks and rewards of ownership is not transferred to the buyer, even though the legal title has been transferred, the transaction is a
financing arrangement and does not give rise to revenue.
 Real Estate Sales
Revenue is normally recognized when legal title passes to the buyer. However, if the seller is obliged to perform any significant acts after the
transfer of the title, revenue is recognized as the acts are performed. An example is building or other facility on which construction has not
been completed.CA. Krishna Niraula 11/12/2020

NAS 18
 Illustration
A car manufacturing company books order in 10 days advance and makes the car ready for delivery accordingly. It normally
takes 10% advance. Can the company recognize revenue at the time of receipt of advance?
Answer: No. It should recognize the revenue only when the car is delivered to the buyers.
 Illustration
A car manufacturing company books order in 10 days advance and makes the car ready for delivery accordingly. It normally
takes 90% advance. Can the company recognize revenue since the advance is substantial?
Answer: No. It should recognize the revenue only when the car is delivered to the buyers even when the amount of advance
is substantial.
Rendering of Services
• (a) The amount of revenue can be measured reliably;
• (b) It is probable that the economic benefits associated with the transaction will flow to the
entity;
• (c) The stage of completion of the transaction at the end of the reporting period can be
measured reliably; and
• (d) The costs incurred for the transaction and the costs to complete the transaction can be measured reliably.

NAS 18
 Installation Fees
Revenue should be recognized when the installation has been completed and accepted by the client.
 Admission Fees
Revenue from artistic performance, banquets and other special events should be recognized when event takes place.
 Tuition Fees
Revenue should be recognized over the period of instruction.
 Illustration
On 25th Poush 2075, ABC Advertising P Ltd obtained advertising right for ACC Football Cup to be held in Baisakh and
Jestha 2076 for Rs.520 lakhs. They furnish the follow information:
i. The company obtained the advertizing for 70% available time for Rs.700 lakhs by 25thFalgun 2075.
ii. For the balance time they got booking in 20thChaitra 2075 for Rs.240 lakhs.
iii. All the advertisers paid the full amount at the time of booking the advertisements.
iv. 40% of the advertisements appeared before the public in Baisakh and balance 60% appeared in the month of Jestha.
Calculate the amount of profit/loss to be recognized for the month Baisakh and Jestha 2075 as per NAS 18 ‘Revenue’.

NAS 18
Answer: As per the NAS 18 ‘Revenue’, in a transaction involving the rendering of services, performance should be
measured either under the completed service contract method or under the proportionate completion method, which
ever relates the revenue to the work accomplished.
Further as per NAS, it states that revenue from advertising should be recognized when the service is completed. The
service as regards advertisements is deemed to be completed when the related advertisement appears before the
public.
In the given case 40% advertisement appeared in the month of Baisakh 2076 and balance in the month of Jestha 2076.
Total profit is computed as follows:
The profit amounting to Rs.420 lakhs should be apportioned in the ratio of 40 : 60 for the month of Baisakh and
Jestha 2076. Hence the company should recognize a profit of Rs.168 lakhs (420 × 40%) in the month of Baisakh
2076 and Rs.252 lakhs (420 × 60%) in the month of Jestha 2076.

NAS 18
STAGE OF COMPLETION METHODS
• The stage of completion of a transaction may be determined by various methods such as the cost to cost method (i.e.
the proportion that costs incurred to date bear to the estimated total costs of the transaction).
• Under the percentage of completion method, revenue is recognized in the accounting periods in which the services
are rendered . Revisions to estimates of revenue are made when necessary as the service is performed
INTEREST, ROYALTIES AND DIVIDENDS
(a) it is probable that the economic benefits associated with the transaction will flow to the
entity; and
(b) the amount of the revenue can be measured reliably.
Revenue shall be recognized on the following bases:
(a) interest shall be recognized using the effective interest method Accrued interest of the preacquisition period is included
in the carrying amount of the investment.
(b) royalties shall be recognized on an accrual basis in accordance with the substance of the relevant agreement; and
(c) dividends shall be recognized when the shareholder’s right to receive payment is established. The right is established
when the dividend is declared in the shareholders meeting. When dividends on equity securities are declared from pre-
acquisition profits, those dividends are deducted from the cost of the securities.

NAS 18
 Illustration X Limited has recognized Rs.10 lakhs on accrual basis income from dividend on shares of the face value of
Rs.50 lakhs held by it as at the end of the financial year 32.3.2075. The dividends on shares were declared at the rate of
10% on 15.6.2075. The dividend was proposed on 10.4.2075 by declaring company. Whether the treatment is as per
relevant accounting standard? Answer with reference to provisions of NAS 18.
Ans: Dividends shall be recognized when the shareholder’s right to receive payment is established. The right is
established when the dividend is declared in the shareholders meeting. Hence the right to receive the payment is established
only on 15.6.2075. Hence, it should be recognized in FY 2075-76, not 2074-75.
 Uncertainty in collectability
Revenue is recognized only when it is probable that the economic benefits associated with the transaction will flow to the
entity. When an uncertainty arises about collectability of an amount already included in revenue, the uncollectible amount or
the amount in respect of which recovery has ceased to be probable, is recognized as an expense. Adjustment of the amount
of revenue originally recognized is not sufficient.
 Illustration SCL Limited sells agriculture products to dealers. One of the condition of sale is that interest is payable at
the rate of 2% p.a. for delayed payments. Percentage of interest recovery is only 10% on such overdue outstanding due
to various reasons. During the year 2075-2076 the company wants to recognize the entire interest receivable. Do you
agree?
Ans: Revenue arising from the use by others of enterprise resources yielding interest and royalties should be recognized
when no significant uncertainty as to measurability or collectability exists. Where there is no uncertainty as to ultimate
collection, revenue is recognized at the time of sale or rendering of service even though payments are made by installments.
Thus SCL Limited, should not recognize the interest amount unless the company actually receives it. 10% rate of recovery
on overdue outstanding is also an estimate and is not certain. Hence, the company is advised to recognize interest receivable
only on receipt basis.

NAS 18
 Disclosure
An entity shall disclose:
a. Accounting policies adopted for recognition of revenue under stage of completion methods including methods used
to determine the stage of completion.
b. Amount of revenue under each significant category:
i. sale of goods;
ii. rendering of services;
iii. interest;
iv. royalties
v. dividends
c. Amount of revenue arising from exchange of goods or services under each of the categories.

NAS 18
Past QA
1. X Limited has recognized Rs. 10 lakhs, on accrual basis, income from dividend on units of mutual funds of the face value of Rs.
50 lakhs held by it as at the end of the financial year 31st March, 2006. The dividends on mutual funds were declared at the rate of
20% on 15th June, 2006. The dividend was proposed on 10th April, 2006 by the declaring company. Whether the treatment is as per
the relevant Accounting Standard? (Inter Dec 2006, Q1b-4 Marks)
Answer NAS-18 Revenue, states that dividends should be recognized when the shareholders' right to receive payment is
establishment. In the given case, the dividend is proposed on 10th April 2006, while it is declared on 15th June 2006. Hence, the
right to receive payment is established on 15th June 2006. As per the above-mentioned paragraph, income from dividend on units of
mutual funds should be recognized by X Ltd. in the financial year ended on 31st March 2007.
2. A National Finance Company Ltd. recognized Rs. 5 lakhs, on accrual basis, income from dividend during the year 2071/72, on
shares of the face value of Rs. 25 lakhs held by it in Everest Bank Ltd. as at 31st Ashadh, 2072. Everest Bank Ltd. proposed dividend
@ 20% on 25th Shrawan, 2072. However, dividend was declared on 30th Ashoj 2072. Financial Statement of the National Finance
Company was approved on 15th Kartik, 2072 by the Board of Directors of the company. Please state with reference to relevant Nepal
Accounting Standard whether the treatment accorded by National Finance Company Ltd. is in order. (CAP Dec. 2015 Q-5c)
Answer Para 30 of NAS 18 "Revenue" states that dividends shall be recognized when the shareholder's right to receive payment is
established. Thus, an investment in shares dividend income is not recognized in the statement of Profit or Loss (or other
comprehensive income as per the categorization adopted for the investment) until the right to receive dividend is established.
In the given case, the dividend is proposed on 25th Shrawan, 2072, while it was declared on 30th Ashoj 2072. Hence, the right to
receive dividend is established on 30th Ashoj 2072 only. Therefore, on applying the provisions stated in the standard, income from
dividend on shares should be recognized by National Finance Company Ltd. in the financial year 2072/73 only.

NAS 18
3. Rajesh Suppliers purchased goods on credit from Prakash Hardwares for Rs. 1.5 crores for export. The export order was
cancelled. Rajesh Suppliers decided to sell the same goods in the local market with a price discount. Prakash Hardwares was
requested to offer a price discount of 15 %. The Chief Accountant of Prakash Hardwares wants to adjust the sales figures to
the extent of the discount requested by Rajesh Suppliers. Discuss whether the treatment is justified. (CAP Dec. 2013 Q5a-5
Marks)
Answer Prakash Hardwares has sold goods to Rajesh Suppliers on credit worth Rs. 1.5 Crores and the sale was completed in
all respects. Rajesh Supplier’s decision to sell the same in the domestic market at a discount does not affect the amount
recorded as sales by the Prakash Hardwares. The discount of 15% offered by Prakash Hardwares after request of Rajesh
Suppliers is in the nature of cash discount and not trade discount. Therefore, Prakash Hardware should record this as discount
provided rather than altering the amount of sales.

NAS 18
4. Vikas Electronics is a manufacturer of LED television sets since past 2 years. It deals in both wholesale trade via its dealers and
retail trade via its showroom located at 15 different places across the country. Vikas electronics has just received an order from a
newly established hotel for supply of 50 pieces of 32 inches LED sets and 100 pieces of 42 inches LED sets. Vikas electronics
entered into the agreement 3 months ago and all LED sets had already been supplied to the hotel. However, the hotel management
has found serious flaws on 25 pieces of 32 inches LED sets and 30 pieces of 42 inches LED sets. Since the warranty period of the
television sets had not expired, the hotel management has decided to return the damaged sets to Vikas electronics. Vikas electronics
seeks your advice as to how to recognize the revenue for this transaction. Advice the management. (CAP Dec. 2015 5a)
 Answer
Revenue from the sale of goods shall be recognized when all the following conditions have been satisfied:
 (a) the entity has transferred to the buyer the significant risks and rewards of ownership of the goods;
 (b) the entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective
control over the goods sold;
 (c) the amount of revenue can be measured reliably;
 (d) it is probable that the economic benefits associated with the transaction will flow to the entity; and
 (e) the costs incurred or to be incurred in respect of the transaction can be measured reliably.
The customer has returned goods on account of damages during the warranty period. It appears that the goods were sold under
warranty ad not sale on approval basis. Therefore, liability under warranty does not provide enough ground to implicate that the risk
and reward of ownership had not been transferred to the customer. Therefore, Vikas Electronics should recognize revenue on the
entire transaction. However, it should provide for adequate provision for liability under warranty and the recent return of goods
returned by the customer should be taken into consideration in estimation of the warranty provision.

NAS 18
5. Shree Ganesh Ltd., a manufacturing company produces durable consumer goods with an annual turnover of Rs. 100 crores. The
company receives orders from its commission agents all over the country, but goods are dispatched directly to the customers. The
documents including transport bills are sent through the bank for collection. At the end of the 6th year, it is found that documents
covering the dispatch of goods worth Rs. 10 crores were still lying with the banks not cleared by the customers even though the
normal collection period of 15 days from the date of dispatch has expired. Should revenue be recognized in the above case? (CAP
Dec. 2016 5a-5 Marks)
Answer According to NAS - 18, revenue from the sale of goods shall be recognized when
• the seller of goods has transferred to the buyer the significant risks and rewards of ownership of the goods;
• the seller retains neither continuing managerial involvement to the degree usually associated with ownership nor effective
• the amount of revenue can be measured reliably.
• It is probable that the economic benefits associated with the transaction will flow to the entity; and
• The costs incurred or to be incurred in respect of the transaction can be measured reliably.
Though the transport bills were sent through bank for collection, the seller neither retains risk and reward of ownership not has any
managerial involvement. The fact that the amount is lying unpaid after the expiry of normal credit period, does not necessarily
implicate that amounts will not be collected from the debtors. Hence the company is advised to recognize revenue pertaining to these
transactions. However, the fact that collection period has expired indicates impairment of trade receivables and adequate impairment
(provisions) shall be made in this regard with respect to the debtors.CA. Krishna Niraula 11/12/2020

NAS 18
6. Nepa Roadways has taken a transit insurance policy. Suddenly in the year 2073-2074 the percentage of accident has gone
up to 12% and the company wants to recognize insurance claim as revenue in 2073-2074 in accordance with relevant
Accounting Standard. Do you agree? (CAP Dec. 2017 Q5b-5 Marks)
Answer
 NAS 18 on “Revenue” defines revenue as “gross inflow of economic benefits during the period arising in the course of
the ordinary activities of an entity when those inflows result in increases in equity, other than increases relating to
contributions from equity participants”
 To recognize revenue NAS 18 requires that revenue arises from ordinary activities and that it can be measured reliably
and it is probable that the economic benefits associated with the transaction will flow to the entity.
 In the given case, Nepa Roadways wants to recognize insurance claim because it has increased over the previous year.
However, the claim is not to be in the course of ordinary activity of the company and therefore Nepa Roadways is not
advised to recognize the Insurance claim as revenue. It may however be required to separately disclose the amount of
income generated from transit insurance claim based on materiality.

NAS 18
7. How do you recognize income arising from following events:
i) Instalment sales, under which the consideration is receivable in instalments.
ii) Admission fees.
iii) Installation fees. (Inter. Dec. 2009 Q2b-3 Marks)
Answer
Instalment sales, under which the consideration is receivable in instalments
The amount of revenue that would be recognized on outright sales transaction is recorded as revenue as per NAS 17 Leases.
The balance of amount received against recognized sales is recognized as finance income on a systematic basis over the lease
term.
Admission fees
Revenue from artistic performances, banquets and other special events is recognized when the event takes place. When a
subscription to a number of events is sold, the fee is allocated to each event on a basis which reflects the extent to which
services are performed at each event.
Installation fees
Installation fees are recognized as revenue by reference to the stage of completion of the installation, unless they are
incidental to the sale of a product in which case, they are recognized when revenue from the sale of goods is recognized.CA. Krishna Niraula 11/12/2020

NAS 18
8. On 25th September, 2010, Planet Advertising Limited obtained advertisement rights for World Cup Hockey Tournament to be held in December,
2010 and January 2011 for Rs. 520 Lakhs. They furnish the following information:
i) The company obtained the advertisements for 70% of available time for Rs. 700 Lakhs by 30th September, 2010.
ii) For the balance time they got bookings in October, 2010 Rs. 240 Lakhs.
iii) All the advertisers paid the full amount at the time of booking the advertisements.
iv) 40% of the advertisements appeared before the public in December 2010 and balance 60% appeared in the month of January 2011.
v) Planet Advertising Limited follows Accounting year January-December.
You are required to calculate the amount of profit / loss to be recognized for the year 2010 and 2011 as per Nepal Accounting Standard- Revenue.
(Inter Dec. 2011 Q5a-5 Marks)
Answer As per paragraph NAS – 18 'Revenue' when the outcome of a transaction involving the rendering of services can be estimated reliably,
revenue associated with the transaction should be recognized by reference to the stage of completion.
In the given problem, 40% of the advertisement appeared before the public in December, 2010 and balance 60% appeared in January, 2011.
Total profit will be computed as follows: Rs. in Lakhs
 Advertisement for 70% of available time obtained by 30th Sep. 2010 700
 Advertisement for 30% of available time obtained by Oct. 2010 240
 Total 940
 Less: Cost of advertising rights 520
 Profit 420

NAS 18
9. What are the conditions that have to be satisfied for recognition of revenue from sale of goods? (CAP Jun. 2011 Q5b- 5
Marks; Inter Jun. 2003 Q9f- 3 Marks)
Answer As per NAS 18, Revenue from Sale of goods shall be recognized when all the following conditions have been
satisfied:
i. The entity has transferred to the buyer the significant risks and rewards of ownership of goods;
ii. The entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective
iii. The amount of revenue can be measured reliably;
iv. It is probable that the economic benefits associated with the transaction will flow to the entity; and
v. The cost incurred or to be incurred in respect of the transaction can be measured reliably.

NAS 18
10. Rajesh Brothers sells their goods to their approved customers on “Sale or Return” basis treating all such transactions as actual sales at the
time of dispatch. They sent on 15th December goods costing Rs. 10,000 to Rama Stores at 20% profit on sale and passed the goods through
Sales Day Book. How would you adjust the transaction on 31st December, if Rama Store’s consent is pending? (CAP Jun. 2012 Q4a– 5
Marks) Rs.
 Cost of goods sent to customers 10,000
 Add: 20% Profit on sales i.e. 25% on cost. 2,500
 Selling price of goods sent to customer 12,500
As stated in the question, Rajesh Brothers sells their
goods to approved customers on "Sale or Return"
basis treating all such transactions as actual sales
at the time of dispatch.
So following journal entry must have been passed
at the time the goods were sent to Rama Stores:

NAS 18
11. The following information are related with Purple Nepal Ltd.
i) Goods of Rs. 60,000 were sold on 20-3-2074 but at the request of the buyer these were delivered on 10-4-2074.
ii) On 15-3-2074 goods of Rs. 1,50,000 were sent on consignment basis of which 20% of the goods unsold are lying with the consignee as on 31-3-2074.
iii) Rs. 1,20,000 worth of goods were sold on approval basis on 1-12-2073. The period of approval was 3 months after which they were considered sold. Buyer sent approval for 75%
goods up to 31-1-2074 and no approval or disapproval received for the remaining goods till 31-3-2074.
iv) Apart from the above, the company has made cash sales of Rs. 7,80,000 (gross). Trade discount of 5% was allowed on the cash sales.
You are required to advise the accountant of Purple Nepal Ltd. with valid reasons, the amount to be recognized as revenue in above cases in the context of NAS -18 and also
determine the total revenue to be recognized for the year ending 31-3-2074. (CAP Jun. 2018 Q5a-5 Marks)
Answer As per NAS 18, Revenue from Sale of goods shall be recognized when all the following conditions have been satisfied:
i. The entity has transferred to the buyer the significant risks and rewards of ownership of goods;
ii. The entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
iii. The amount of revenue can be measured reliably;
iv. It is probable that the economic benefits associated with the transaction will flow to the entity; and
v. The cost incurred or to be incurred in respect of the transaction can be measured reliably.
In case (i): The sale is complete but delivery has been postponed at buyer's request. Purple Nepal Ltd. should recognize the entire sale of Rs. 60,000 for the year ended 31st Ashadh,
2074.
In case (ii): 20% goods lying unsold with consignee should be treated as closing inventory and sales should be recognized for Rs. 1,20,000 (80% of Rs. 1.50,000). In case of
consignment sale revenue should not be recognized until the goods are sold to a third party.
In case (iii): In case of goods sold on approval basis, revenue should not be recognized until the goods have been formally accepted by the buyer or the buyer has done an act
adopting the transaction or the time period for rejection has elapsed or where no time has been fixed, a reasonable time has elapsed. Therefore in case (iii) revenue should be
recognized for the total sales amounting Rs.1,20,000 as the time period for rejecting the goods had expired.
In case (iv): Trade discounts given should be deducted in determining revenue. Thus Rs. 39,000 should be deducted from the amount of turnover of Rs.7,80,000 for the purpose of
recognition of revenue. Thus, revenue should be Rs. 7,41,000.
Thus total revenue amounting Rs. 10,41,000 (60,000+1,20,000+1,20,000+7,41,000) will be recognized for the year ended 31st Ashadh, 2074 in the books of Purple Nepal Ltd.

NAS 18
12. On 1st Shrawan 2071, Dillibazar Furniture sold some furniture to his regular customer M/S Zebra for Rs. 400,000
with three years interest-free credit. Dillibazar Furniture’s cost of capital is 8%. You are required to advise how much
revenue should be recognized in fiscal year ending on Ashadh 2072, 2073 and 2074 in accordance with NAS 18? (CAP
Jun. 2019 Q5c-5 Marks)
 Answer
 On Shrawan 2071, sales revenue will be Rs. 317,532.90 i.e. (400,000×1/(1.08)3. Also, Dillibazar Furniture will
recognize interest income of Rs. 25,402.63 i.e. 317,532.90 ×8% on Ashadh 2072.
 In 2073 Ashadh, interest income will be Rs. 27,434.84 i.e. (317,532.90+25,402.63)×8%.
 In 2074 Ashadh, remaining amount out of Rs. 400,000 i.e. Rs. 29,629.63 will be recognized as interest income.
Thank You.
Sources:
The Institute of Chartered Accountants of Nepal (www.ican.org.np)
www.ifrs.org

Nas 18 revenue

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