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CA Intermediate · Advanced Accounting · AS 9 Revenue Recognition

Arjun Finance Ltd lent Rs 20,00,000 at 12% p.a. on 1 October 2024. Interest is payable annually on 30 September, and the year-end is 31 March. How much interest revenue should Arjun Finance recognise for the year ended 31 March 2025 under AS 9?

Interest revenue of Rs 1,20,000 should be recognised. AS 9 requires interest to be recognised on a time proportion basis on the principal outstanding at the agreed rate, so six months from October to March at 12% on Rs 20,00,000 accrues even though payment falls due later.

  1. ARs 2,40,000
  2. BRs 1,20,000Correct
  3. CRs 60,000
  4. DNil, since interest is not yet received

Explanation

Interest accrues on a time basis over the amount outstanding at the agreed rate. Period 1 Oct to 31 Mar is 6 months: 20,00,000 x 12% x 6/12 = Rs 1,20,000. Option A gives a full year, which is wrong, and option D ignores accrual.

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