Skip to content

CA Intermediate · Advanced Accounting · AS 25 Interim Financial Reporting

Kaveri Foods Ltd (calendar-year company) incurred a major repair expense of Rs 6,00,000 in the first quarter, which benefits only that quarter. A similar repair is also expected in Q3 at Rs 6,00,000, but none has yet occurred. The company wants to spread the annual repair cost of Rs 12,00,000 equally at Rs 3,00,000 per quarter in its interim reports. What is the repair expense to be recognised in Q1 under AS 25?

The Q1 expense is Rs 6,00,000, the amount actually incurred. AS 25 does not permit anticipating or deferring costs in interim reports unless that would be appropriate at year end, so expenses cannot be evenly spread by creating provisions or deferrals without a present obligation.

  1. ARs 3,00,000
  2. BRs 6,00,000Correct
  3. CRs 9,00,000
  4. DRs 12,00,000

Explanation

AS 25 requires costs incurred unevenly during the year to be anticipated or deferred in interim reports only if it would also be appropriate at year end. Smoothing by creating a provision for costs not yet incurred is not allowed, as there is no obligation. Hence the actual Rs 6,00,000 is recognised in Q1. Rs 3,00,000 wrongly smooths the cost.

Did you get it right without looking?

One question tells you little. A timed set on AS 25 Interim Financial Reporting shows your real accuracy, how long you take and where you lose marks.

Practise AS 25 Interim Financial ReportingFree diagnostic mock

More AS 25 Interim Financial Reporting questions