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CA Intermediate · Advanced Accounting · AS 9 Revenue Recognition

Kapoor Finance Ltd. holds Rs 20,00,000 of 9% debentures of Ambar Ltd., purchased on 1 October 2024. Interest is payable annually on 30 September. No other interest was received in the year ended 31 March 2025. Under AS 9, how much interest income should Kapoor Finance recognise for the year ended 31 March 2025?

Interest income is Rs 90,000. AS 9 requires interest to be accrued on a time proportion basis at the rate on the amount outstanding. Annual interest is Rs 1,80,000 and only six months fall in the year, so half of it is recognised even though no cash was received.

  1. ARs 1,80,000
  2. BRs 90,000Correct
  3. CRs 60,000
  4. DRs 1,20,000

Explanation

Interest is recognised on a time proportion basis, taking into account the amount outstanding and the rate. Annual interest = 20,00,000 x 9% = Rs 1,80,000. For 6 months, October 2024 to March 2025: 1,80,000 x 6/12 = Rs 90,000. Recognising the full year's interest would ignore time proportion.

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