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CA Intermediate · Advanced Accounting · AS 9 Revenue Recognition

Mahalaxmi Finance Ltd lent Rs 10,00,000 at 12% per annum on 1 October 2024. Interest is payable annually on 30 September, and the first instalment is due 30 September 2025. The borrower is regular in payment and there is no uncertainty about collection. Under AS 9, interest income to be recognised for the year ended 31 March 2025 is:

Interest income of Rs 60,000 is recognised. AS 9 requires interest to be accrued on a time basis on the principal outstanding at the agreed rate, and six months have elapsed: Rs 10,00,000 x 12% x 6/12. The due date for payment does not delay recognition.

  1. ARs 0, as interest is due only in September 2025
  2. BRs 1,20,000
  3. CRs 60,000Correct
  4. DRs 30,000

Explanation

Interest accrues on a time basis on the amount outstanding at the rate applicable. Period from 1 October 2024 to 31 March 2025 is 6 months: 10,00,000 x 12% x 6/12 = Rs 60,000. Recognising nothing until the due date ignores accrual, and Rs 1,20,000 is a full year's interest.

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