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CA Intermediate · Advanced Accounting · AS 9 Revenue Recognition

Kaveri Finance Ltd lent Rs 20,00,000 on 1 January 2025 at 12% p.a. simple interest, payable at the end of the loan term of 2 years. The company's year ends on 31 March. There is no uncertainty about collection. As per AS 9, what interest revenue should be recognised for the year ended 31 March 2025?

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 when collection is certain. Three months of interest on Rs 20,00,000 at 12% gives Rs 60,000, regardless of the payment date.

  1. ANil, because interest is payable only at maturity
  2. BRs 2,40,000, being a full year's interest
  3. CRs 4,80,000, being two years' interest
  4. DRs 60,000, being three months' interest on a time proportion basisCorrect

Explanation

AS 9 requires interest to be recognised on a time proportion basis, based on the amount outstanding and the rate applicable, provided collection is not uncertain. Interest for 3 months = 20,00,000 x 12% x 3/12 = Rs 60,000. Waiting till maturity (nil) would breach accrual accounting.

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