well solved question for accounts

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CA Foundation
Principles and Practices of Accounting
Assignment
Sale of Goods on Approval or Return Basis
Q. NO. Questions & Solutions
1. CE sends goods to his customers on Sale or Return basis. The following transactions
took place during 2020:
Date Particulars ₹
Sept. 15 Sent goods to customers on sale or return basis at cost plus 1,00,000
1
33 %
3
Oct. 20 Goods returned by customers 40,000
Nov. 25 Received letters of approval from customers 40,000
Dec. 31 Goods with customers awaiting approval 20,000
CE records sale or return transactions as ordinary sales. You are required to pass the
necessary Journal Entries in the books of CE assuming that accounting year closes on
31st December, 2020.
[ICAI SM/Past Exam May 2018(Modified)]
Sol. In the books of CE
Journal Entries
Date Particulars Dr. (₹) Cr. (₹)
2020
Sept. 15 Trade Receivables A/c Dr. 1,00,000
To Sales A/c 1,00,000
(Being the goods sent to customers on sale
or return basis.)
Oct. 20 Return Inward A/c (Note 1) Dr. 40,000
To Trade receivables A/c 40,000
(Being the goods returned by customers to
whom goods were sent on sale or return
basis.)
Dec. 31 Sales A/c Dr. 20,000
To Trade receivables A/c 20,000
(Being the cancellation of original entry of
sale in respect of goods on sale or return
basis.)
Dec. 31 Inventories with customers on Sale or Dr. 15,000
Return A/c
To Trading A/c (Note 3) 15,000
(Being the adjustment for cost of goods
lying with customers awaiting approval.)
Note:
1) Alternatively, Sales account can be debited in place of Return Inwards account.
2) No entry is required for receiving letter of approval from customer.
3) Cost of goods with customers = (₹ 20,000×100)/133.33 = ₹ 15,000.




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2. S. Ltd sends out its goods to dealers on Sale or Return basis. All such transactions are,
however, treated as actual sales and are passed through the day book. Just before the
end of the accounting year on 31.03.2020, 200 such goods have been sent to a dealer
at ₹ 250 each (cost ₹ 200 each) on sale or return basis and debited to his account. Of
these goods, on 31.03.2020, 50 were returned and 70 were sold while for the other
goods, date of return has not yet expired.
Pass necessary adjustment entries on 31.03.2020. (ICAI SM)
Sol. In the books of S. Ltd.
Journal Entries
Date Particulars Dr. (₹) Cr. (₹)
2020
March 31 Return Inwards A/c (₹250 × 50) Dr. 12,500
To Trade receivables A/c 12,500
(Being the adjustment for 50 units of
goods returned by customers to whom
goods were sent on sale or return basis.)
March 31 Sales A/c (₹250 × 80) (Note 1) Dr. 20,000
To Trade receivables A/c 20,000
(Being the cancellation of original entry for
sale in respect of 80 units of goods not yet
returned or approved by customers.)
March 31 Inventories with Customers on Sale or Dr. 16,000
Return A/c
To Trading A/c (₹200 × 80) 16,000
(Being the cost of goods sent to customers
on approval or return basis not yet
approved, adjusted.)

Note: 1) Quantity of goods lying with dealer as on 31.3.2020 = 200 – 50 – 70 = 80
3. Caly Company sends out its gas containers to dealers on Sale or Return basis. All such
transactions are, however, treated as actual sales and are passed through the Day
Book. Just before the end of the financial year, 100 gas containers, which cost them ₹
900 each have been sent to the dealer on ‘sale or return basis’ and have been debited
to his account at ₹ 1,200 each. Out of this only 20 gas containers are sold at ₹ 1,500
each.
You are required to pass necessary adjustment entries for the purpose of Profit and
Loss Account and Balance Sheet. (ICAI SM)




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