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CA Intermediate · Advanced Accounting · AS 25 Interim Financial Reporting

Kaveri Auto Ltd earns a bonus-linked annual turnover that is seasonal. Its quarterly revenues are Q1 ₹40 lakh, Q2 ₹30 lakh, Q3 ₹50 lakh, Q4 ₹180 lakh. At the end of Q2, the management wishes to report revenue for the half-year, and also considers whether to show 'anticipated' Q3 and Q4 revenue by averaging. Under AS 25, what revenue should be recognised in the half-year interim report, and how should the seasonality be handled?

Revenue for the half-year is ₹70 lakh (40 + 30). AS 25 requires that revenue earned seasonally be recognised only when it occurs, not anticipated or smoothed by averaging, and the seasonal nature of the business should be disclosed so users do not misread interim results.

  1. A₹70 lakh for the half-year, with disclosure of the seasonal nature of the businessCorrect
  2. B₹150 lakh, being half of the annual revenue of ₹300 lakh
  3. C₹100 lakh, being the average of the first three quarters multiplied by two quarters
  4. D₹70 lakh for the half-year, with ₹80 lakh of Q4 revenue pulled forward to smooth the results

Explanation

Revenue received seasonally is recognised when it occurs; it is not anticipated or deferred at interim date if anticipating or deferring would not be appropriate at year end. Half-year revenue is 40 + 30 = ₹70 lakh. AS 25 encourages disclosing seasonality and, for such businesses, reporting additional information for the 12 months ending on the interim date. Averaging or smoothing is not allowed.

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