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CA Intermediate · Advanced Accounting · AS 9 Revenue Recognition

Kaveri Finance Ltd. lent Rs 10,00,000 to a customer on 1 October 2024 at 12% p.a. simple interest, with interest payable in full on repayment of principal on 30 September 2026. The company follows the accrual basis, and there is no uncertainty about collection. What interest revenue should Kaveri recognise for the year ended 31 March 2025?

Kaveri should recognise Rs 60,000. AS 9 treats interest as accruing on a time proportion basis on the amount outstanding at the applicable rate, so six months at 12% on Rs 10,00,000 gives Rs 60,000 irrespective of the fact that cash is due only at maturity.

  1. ANil
  2. BRs 60,000Correct
  3. CRs 1,20,000
  4. DRs 2,40,000

Explanation

AS 9 requires interest to be recognised on a time proportion basis, taking into account the amount outstanding and the rate applicable, regardless of when it is received. From 1 October 2024 to 31 March 2025 is 6 months. Interest = 10,00,000 x 12% x 6/12 = Rs 60,000. Nil is wrong because it follows cash receipt, and Rs 1,20,000 is a full year.

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