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CA Intermediate · Advanced Accounting · AS 9 Revenue Recognition

Arjun Finance Ltd. lent Rs 10,00,000 to a borrower on 1 October 2024 at 12% p.a. simple interest, with interest and principal payable on 30 September 2026. No interest has been received so far, and collection of interest is reasonably certain. What interest revenue should Arjun recognise for the year ended 31 March 2025 under AS 9?

Arjun should recognise Rs 60,000. Under AS 9, interest accrues on a time-proportion basis when collection is reasonably certain, regardless of receipt. Six months from 1 October to 31 March at 12% on Rs 10,00,000 gives Rs 60,000 for the year.

  1. ARs 60,000Correct
  2. BRs 1,20,000
  3. CRs 2,40,000
  4. DNil, as no interest has been received

Explanation

Interest accrues on a time basis, determined by the amount outstanding and the rate applicable, provided ultimate collection is not uncertain. Period is 1 Oct to 31 Mar = 6 months. Interest = 10,00,000 x 12% x 6/12 = Rs 60,000. Rs 1,20,000 is a full year's interest, which ignores the time proportion.

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