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Under Ind AS 115, an entity recognises a refund liability when:
AThe entity decides to provide a goodwill discount unilaterally
BThe customer-related accounts receivable becomes past due
CIt receives consideration from a customer and expects to refund some or all of that consideration
DA customer threatens legal action regardless of contractual right of return
Answer & Solution
Correct answer: C. It receives consideration from a customer and expects to refund some or all of that consideration
Para 55 of Ind AS 115 requires a refund liability whenever the entity receives consideration but does NOT expect to be entitled to it (e.g., sales with right of return, refunds for poor customer satisfaction, retrospective price concessions). The refund liability is measured at the amount the entity does not expect to be entitled to and updated each reporting date.
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