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CMA Intermediate · Corporate Accounting and Auditing · Accounts of Banking, Electricity and Insurance Companies

A bank's interest on advances for the year is Rs 900 lakh, interest on investments is Rs 300 lakh and interest on balances with RBI is Rs 50 lakh. Rs 40 lakh of interest on advances is overdue and not recognised as income under NPA norms. What amount is reported as Interest Earned (Schedule 13)?

Interest Earned is Rs 1,210 lakh. Add interest on advances, investments and RBI balances to get Rs 1,250 lakh, then remove Rs 40 lakh of NPA interest that is not recognised as income. Reporting Rs 1,250 lakh would overstate income.

  1. ARs 1,210 lakhCorrect
  2. BRs 1,250 lakh
  3. CRs 1,160 lakh
  4. DRs 1,290 lakh

Explanation

Total interest = 900 + 300 + 50 = 1,250 lakh. Overdue NPA interest of 40 lakh is not recognised, so Interest Earned = 1,250 - 40 = 1,210 lakh. Rs 1,250 lakh ignores the NPA adjustment.

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