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CA Intermediate · Advanced Accounting · AS 9 Revenue Recognition

Kaveri Finance Ltd lent ₹10,00,000 to a borrower on 1 October 2024 at 12% p.a. simple interest, payable in full with the principal on 30 September 2026. The company's year ends 31 March. Collection of interest is reasonably certain. What interest revenue should Kaveri Finance recognise for the year ended 31 March 2025?

Kaveri Finance should recognise ₹60,000 as interest revenue. AS 9 requires interest to be accrued on a time proportion basis at the rate applicable on the outstanding principal, provided collection is certain. Six months at 12% on ₹10,00,000 gives ₹60,000, regardless of the date of actual receipt.

  1. A₹60,000Correct
  2. B₹1,20,000
  3. C₹2,40,000
  4. DNil, as interest is received only on 30 September 2026

Explanation

AS 9 recognises interest on a time proportion basis, taking into account the amount outstanding and the rate. Period from 1 October 2024 to 31 March 2025 is 6 months. Interest = 10,00,000 × 12% × 6/12 = ₹60,000. Option 4 wrongly applies the cash basis, and option 2 takes a full year.

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