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CA Intermediate · Advanced Accounting · AS 9 Revenue Recognition

Gupta Tech Ltd holds 40,000 equity shares of face value ₹10 in Rao Industries Ltd. Rao Industries declared a 25% dividend for the year ended 31 March 2025 at its AGM held on 20 July 2025. Gupta Tech's accounting year ends 31 March, and its accounts for 2024-25 were approved on 30 June 2025. In which year should Gupta Tech recognise the dividend income and in what amount?

Gupta Tech should recognise ₹1,00,000 in 2025-26. Under AS 9, dividend income arises when the shareholder's right to receive payment is established, which happens when the dividend is declared at the AGM on 20 July 2025. It is calculated as 40,000 shares × ₹10 × 25%.

  1. A2024-25, ₹1,00,000, because the dividend relates to that year
  2. B2024-25, ₹1,00,000, as a contingent asset
  3. C2025-26, ₹1,00,000, because the right to receive is established when declared at the AGMCorrect
  4. D2025-26, ₹4,00,000, being dividend on market value

Explanation

AS 9 states that dividends from investments in shares are recognised when the owner's right to receive payment is established, which is on declaration at the AGM on 20 July 2025, falling in 2025-26. Amount = 40,000 × ₹10 × 25% = ₹1,00,000. Option 1 wrongly follows the year to which the dividend relates.

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