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CA Intermediate · Advanced Accounting · AS 25 Interim Financial Reporting

Kaveri Foods Ltd. incurs a major annual repair cost of ₹8,00,000 in the third quarter (October-December) and the repair benefits the whole year. The company has no obligation to defer it under any other AS, and the cost would not be deferred in the annual accounts. How should it be treated in the interim report for the quarter ended 31 December?

The full ₹8,00,000 should be recognised in the third quarter. AS 25 permits anticipating or deferring uneven costs in interim reports only when that would be appropriate at year end, and the repair would not be deferred in the annual accounts, so it is expensed when incurred.

  1. ASpread equally at ₹2,00,000 in each of the four quarters
  2. BRecognise the full ₹8,00,000 in the third quarter as incurred, with no deferral or anticipationCorrect
  3. CDefer the entire amount to the fourth quarter
  4. DRecognise ₹4,00,000 in the third quarter and the balance in the fourth quarter

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. A repair cost that is expensed in the annual accounts when incurred must be fully recognised in the interim period in which it is incurred. Spreading it (A, D) would amount to smoothing, which is not allowed.

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