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CA Intermediate · Advanced Accounting · AS 9 Revenue Recognition

Kaveri Finance Ltd lent Rs 10,00,000 at 12% p.a. on 1 October 2024, with interest payable annually in arrears on 30 September. The company's financial year ends 31 March 2025. What interest income should be recognised for the year ended 31 March 2025 under AS 9, assuming ultimate collection is reasonably certain?

Rs 60,000 should be recognised. AS 9 requires interest to be accrued on a time proportion basis on the amount outstanding at the applicable rate, so six months of interest at 12% on Rs 10,00,000 is earned by 31 March 2025, regardless of the payment date.

  1. ARs 60,000Correct
  2. BNil, as interest is due only on 30 September 2025
  3. CRs 1,20,000
  4. DRs 1,00,000

Explanation

AS 9 requires interest to be recognised on a time proportion basis, taking into account the amount outstanding and the rate applicable. Interest for 6 months (October to March) = 10,00,000 x 12% x 6/12 = Rs 60,000. Rs 1,20,000 is wrong because it takes a full year's interest, ignoring the time proportion.

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