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CA Intermediate · Advanced Accounting · AS 9 Revenue Recognition

Ganga Publications Ltd. receives annual subscriptions for a magazine. On 1 January 20X2 it received Rs 3,60,000 for 12 monthly issues starting January 20X2, each issue being of similar value and published on the first of each month. The company's year ends on 31 March 20X2. What revenue should be recognised for the year ended 31 March 20X2 and what should be shown as unearned revenue at that date?

Revenue of Rs 1,20,000 is recognised and Rs 2,40,000 is shown as unearned revenue. Three of twelve issues of similar value were delivered by 31 March, so three-twelfths of the Rs 3,60,000 subscription is earned, and the rest relates to future issues.

  1. ARevenue Rs 3,60,000; unearned Nil
  2. BRevenue Rs 1,20,000; unearned Rs 2,40,000Correct
  3. CRevenue Rs 90,000; unearned Rs 2,70,000
  4. DRevenue Rs 2,40,000; unearned Rs 1,20,000

Explanation

Revenue from services of similar value is recognised over the service period. Three issues (January, February, March) have been delivered by 31 March: 3,60,000 x 3/12 = Rs 1,20,000. The remaining Rs 2,40,000 is unearned. Recognising the full receipt ignores the performance of service, and the other splits use the wrong number of issues.

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