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Mercury Ltd. sells goods to Mars Ltd. for ₹10 lakh, receivable in 3 installments of ₹3,33,333 over 2 years (1 Apr 20X1, 31 Mar 20X2, 31 Mar 20X3). Cash-on-sale discount available is 5% (₹50,000). Implicit interest rate is 5.36% p.a. Under Ind AS 115:
ARevenue from sale of goods = ₹9.5 lakh (cash equivalent ≈ contract price net of significant financing component); the ₹50,000 differential is recognised as INTEREST INCOME over the 2-year financing period using EIR
BRevenue ₹10 lakh recognised on sale date — contract price governs
CRevenue ₹3,33,333 recognised each year as cash is received
DRevenue ₹9.5 lakh; the ₹50,000 differential expensed immediately as financing cost
Answer & Solution
Correct answer: A. Revenue from sale of goods = ₹9.5 lakh (cash equivalent ≈ contract price net of significant financing component); the ₹50,000 differential is recognised as INTEREST INCOME over the 2-year financing period using EIR
Ind AS 115 para 60-65 — when a contract contains a SIGNIFICANT FINANCING COMPONENT (over 1 year), the transaction price is the cash-equivalent selling price (₹9.5 lakh = cash discount price). The ₹50,000 implicit interest is recognised separately as interest income over the financing period via effective interest method. Revenue and interest income are presented separately in the statement of profit and loss.
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