Advanced Accounting · AS 9 Revenue Recognition

Revenue from Interest, Royalties and Dividends under AS 9

Updated 4 October 2026 · Fact-checked

Under AS 9, interest is recognised on a time basis using the amount outstanding and the rate applicable. Royalties are recognised on accrual as per the agreement. Dividends are recognised when the shareholder's right to receive payment is established. Collectability must be reasonably certain for each.

Understand Revenue from Interest, Royalties and Dividends

AS 9 deals with revenue from three kinds of income that arise from other people using your resources: interest (use of money), royalties (use of intangible assets like patents, trademarks, copyrights) and dividends (return on equity investments).

The common idea is that this income is not earned by a single act like delivering goods. It is earned over time, or it arises from a right. So the recognition point is not cash receipt. It is accrual, as long as there is no significant uncertainty about collection.

Interest is charged for the use of cash or cash equivalents, or for amounts due to the enterprise. You recognise it on a time basis. It depends on the amount outstanding and the rate applicable. So interest for part of a year is recognised for that part, whether or not it has been received.

Royalties are recognised on an accrual basis in accordance with the substance of the relevant agreement. If the agreement says royalty is a percentage of sales by the user, you recognise it as those sales happen. If it is a fixed amount per year, you recognise it year by year. Where it is effectively a sale of the right for a fixed fee, the substance may justify recognising it at once.

Dividends from investments in shares are recognised when the owner's right to receive payment is established. That is the rule in AS 9. As an application of this rule, a final dividend is usually established when the shareholders approve it at the general meeting, so a mere board proposal does not create the right. An interim dividend is usually established when the board declares it. If the right is established only after the year end, the dividend is not recognised in that year.

If there is significant uncertainty about the amount or its collection, revenue recognition is postponed until the uncertainty is resolved. Where an uncertainty arises about an amount already recognised, you make a separate provision for the doubtful amount instead of reversing the revenue.

Key rules to remember

Interest income (time basis): Interest = Principal outstanding × Rate % × Time (in years or months ÷ 12); Recognise for the period that has passed, whether or not received. Use the amount actually outstanding in each period.
Royalty income: Royalty = Agreed rate × Base (e.g. sales, units, or fixed amount for the period); Recognise on accrual as per the agreement. Read the base and the period carefully.
Dividend recognition rule: Recognise when the right to receive payment is established; This is the AS 9 rule. As an application, a final dividend is usually established on approval by shareholders in the general meeting, and an interim dividend on declaration by the board. A board proposal for a final dividend alone does not usually create the right.
Uncertainty rule: Significant uncertainty about collection → postpone recognition; If uncertainty arises after recognition, provide for the doubtful amount instead of reversing revenue.
Accrued interest on investments bought cum-interest: Interest for the period before purchase = Principal × Rate × Months before purchase ÷ 12; This part is a recovery of the price paid, not income. Only the post-purchase portion is income.

How to solve Revenue from Interest, Royalties and Dividends questions

Use this method for any question on interest, royalty or dividend income. It works for both short theory and numerical questions.

1Identify the type of income: interest, royalty or dividend. Each has its own recognition point.
2Note the period in question, usually the financial year, and the dates of key events like purchase, sale, declaration or agreement terms.
3For interest, find the principal outstanding in each period and the rate. Calculate for the time that has passed only.
4For royalty, read the agreement. Find the base (sales, units or fixed amount) and calculate the amount that has accrued for the year.
5For dividend, check whether the right to receive is established in the year. As an application, a final dividend approved by shareholders in the year, or an interim dividend declared by the board in the year, usually means income. A dividend only proposed, or approved after the year end, means no income in that year.
6Check collectability. If there is significant uncertainty, postpone recognition, or provide for the doubtful amount if already recognised.
7Separate any pre-acquisition portion. Interest accrued before purchase is not income. State the final amount and the journal or treatment clearly.

Quickest way: Three-question check

When to use it: Use it for MCQs and for short numerical parts of written answers when time is tight.

Ask: what is the income? Interest means time, royalty means agreement, dividend means right established.
Ask: how much belongs to this year? Use months ÷ 12 for interest and the agreement base for royalty. Ignore cash received.
Ask: is there any trap? Common traps are a proposed dividend, pre-purchase interest, or uncertain collection.
In written answers, write the rule in one line, then the working with the formula, then the final amount. This earns step marks even if the figure slips.
For MCQs, eliminate options that recognise income on cash receipt or on a board proposal. These are almost always wrong.

Common mistakes in Revenue from Interest, Royalties and Dividends

Recognising interest only when cash is received.
Students mix up the cash basis with accrual.
Fix: Under AS 9, interest accrues with time. Recognise it for the period elapsed even if unpaid, subject to collectability.
Treating a dividend proposed by the board as income.
The word 'declared' is confused with 'recommended'.
Fix: Under AS 9, recognise a dividend when the right to receive it is established. As an application, a final dividend is usually established when the shareholders approve it at the general meeting, and an interim dividend when the board declares it. A dividend whose right is established after the year end is not recognised in that year.
Taking a full year's interest when the investment was bought mid-year.
Students forget to split the interest around the purchase date.
Fix: Count only the months after purchase as income. Interest for the earlier months is part of the cost recovered, so it is not income.
Calculating royalty on the wrong base or period.
Students skim the agreement and use total sales or a full year.
Fix: Underline the base and period in the question. Apply the rate to that base only.
Reversing revenue already recognised when collection becomes doubtful.
Students link doubt to the amount of revenue.
Fix: Keep the revenue and create a separate provision for the doubtful amount. Postponement applies only when the uncertainty exists at the time of recognition.
Using the original principal after part repayment.
Students ignore that the amount outstanding changes.
Fix: Split the year into periods and apply the rate to the balance outstanding in each period.

Worked examples

Example 1

On 1 July 2026, Alpha Ltd lent ₹10,00,000 to Beta Ltd at 12% p.a. On 1 October 2026, Beta repaid ₹4,00,000. Interest is payable at the end of the loan term and none has been received. Compute interest income to be recognised by Alpha Ltd for the year ended 31 March 2027.

Show the solution

Interest is recognised on a time basis on the amount outstanding. Cash receipt does not matter.
Period 1: 1 July to 30 September 2026 is 3 months on ₹10,00,000. Interest = 10,00,000 × 12% × 3 ÷ 12 = ₹30,000.
Balance outstanding from 1 October 2026 = 10,00,000 − 4,00,000 = ₹6,00,000.
Period 2: 1 October 2026 to 31 March 2027 is 6 months. Interest = 6,00,000 × 12% × 6 ÷ 12 = ₹36,000.
Total = 30,000 + 36,000 = ₹66,000, assuming collection is reasonably certain.

Answer: Interest income of ₹66,000 is recognised for the year ended 31 March 2027.

Example 2

On 1 January 2027, Gamma Ltd bought 10% debentures of face value ₹5,00,000 at a total price of ₹5,25,000, which includes accrued interest. Interest is payable on 31 March and 30 September each year. The year-end is 31 March 2027. (a) Compute the interest to be treated as income for the year ended 31 March 2027. (b) Also, Gamma held equity shares in Delta Ltd. Delta's board proposed a final dividend on its equity shares on 20 March 2027, and Delta's shareholders approved it at the general meeting on 10 May 2027. The dividend receivable by Gamma on its shares is ₹3,00,000. State the treatment in Gamma's books for the year ended 31 March 2027.

Show the solution

Interest on debentures last paid on 30 September 2026. At purchase on 1 January 2027, interest has accrued from 1 October to 31 December 2026, which is 3 months.
Pre-purchase interest = 5,00,000 × 10% × 3 ÷ 12 = ₹12,500. This is a recovery of cost, not income.
Cost of the investment excluding accrued interest = 5,25,000 − 12,500 = ₹5,12,500.
Post-purchase interest: 1 January to 31 March 2027 is 3 months. Income = 5,00,000 × 10% × 3 ÷ 12 = ₹12,500.
Check: on 31 March 2027 the interest of 6 months (₹25,000) is received, of which ₹12,500 is recovery of the pre-purchase amount and ₹12,500 is income.
Dividend: AS 9 says dividend income is recognised when the owner's right to receive payment is established. The standard states only this general rule. Applying it, the right to a final dividend is usually established when the shareholders approve it at the general meeting. The board's proposal on 20 March 2027 does not by itself create the right.
Shareholders approved the dividend on 10 May 2027, after the year end of 31 March 2027. So the right was not established in the year, and no dividend income is recognised in the year ended 31 March 2027. The ₹3,00,000 is recognised in the next year, 2027-28.

Answer: (a) Income for 2026-27 = ₹12,500 (1 January to 31 March 2027). The pre-purchase interest of ₹12,500 received on 31 March is not income. It is deducted from the amount paid, so the cost of the investment is ₹5,12,500. (b) No dividend is recognised in 2026-27, because the right to receive the final dividend was established only on shareholders' approval on 10 May 2027, after the year end. The ₹3,00,000 is income of 2027-28.

Exam tips

Read dates twice. Most numerical questions test whether you split a period at the purchase, repayment or approval date.
In theory questions, write the rule for each income in one sentence, then the condition of collectability. This structure covers the whole answer.
For dividend questions, state clearly whether the right to receive is established and by what event. Use that line as your conclusion.
In MCQs, watch for options based on cash receipt or board proposal. These are usually the distractors.
Show the formula line before each calculation. Step marks are given for method even if the final figure is off.

Practice questions from AS 9 Revenue Recognition

Revenue from Interest, Royalties and Dividends: frequently asked questions

When is dividend income recognised as per AS 9?

Under AS 9, dividend income is recognised when the owner's right to receive payment is established. As an application, a final dividend is usually established when shareholders approve it at the general meeting, and an interim dividend when the board declares it. A mere board proposal of a final dividend does not usually create this right.

On what basis is interest recognised under AS 9?

Interest is recognised on a time basis, determined by the amount outstanding and the rate applicable. It accrues as time passes, whether or not cash has been received. Collectability must be reasonably certain.

How is royalty recognised under AS 9?

Royalty is recognised on an accrual basis in accordance with the substance of the agreement. If it depends on the user's sales or units, you recognise it as those occur. If it is a fixed periodic amount, recognise it period by period.

What if collection of interest or royalty is doubtful?

If there is significant uncertainty at the time of recognition, you postpone recognising the revenue. If the doubt arises after revenue is recognised, you make a separate provision for the doubtful amount rather than reversing the revenue.