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CA Intermediate · Advanced Accounting · AS 9 Revenue Recognition

Kaveri Software Ltd. sells perpetual licences and also charges an annual fee for updates. On 1 January 2025 it received Rs 1,20,000 as a 12-month update subscription fee, in advance, for updates to be provided evenly through the year. The company closes its books on 31 March. Under AS 9, how much revenue should Kaveri Software recognise for the year ended 31 March 2025?

Rs 30,000 should be recognised. AS 9 requires service revenue to be recognised as the service is performed, and updates are given evenly over 12 months. Three months have elapsed by 31 March, so three-twelfths of Rs 1,20,000 is earned and the rest is deferred.

  1. ARs 1,20,000
  2. BRs 30,000Correct
  3. CRs 90,000
  4. DRs 10,000

Explanation

Revenue from services is recognised as the service is performed, here evenly over 12 months. From 1 January to 31 March is 3 months, so 1,20,000 x 3/12 = Rs 30,000. Recognising the whole amount (Rs 1,20,000) is wrong because it ignores performance; Rs 90,000 is the unearned portion that is deferred.

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