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CA Intermediate · Advanced Accounting · AS 9 Revenue Recognition

Gagan Software Ltd entered into a contract to provide 24 months of customer support for Rs 7,20,000, starting 1 January 2025, with the full fee received in advance on that date. Services are performed evenly over the period. Under AS 9 (proportionate completion), the revenue to be recognised for the year ended 31 March 2025, and the unearned amount to be shown as a liability, are respectively:

Revenue is Rs 90,000 and the unearned balance is Rs 6,30,000. The fee of Rs 7,20,000 spreads evenly over 24 months, giving Rs 30,000 a month, and three months of service were performed by 31 March 2025. Cash received in advance does not itself create revenue.

  1. ARs 7,20,000 and Rs 0
  2. BRs 90,000 and Rs 6,30,000Correct
  3. CRs 1,80,000 and Rs 5,40,000
  4. DRs 3,60,000 and Rs 3,60,000

Explanation

Revenue from services is recognised proportionately as performed. Monthly revenue is 7,20,000/24 = Rs 30,000, and 3 months elapsed gives Rs 90,000. The balance 7,20,000 - 90,000 = Rs 6,30,000 is unearned. Rs 7,20,000 wrongly recognises on receipt of cash.

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