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CA Final · Financial Reporting · Accounting and Technology

Meera Retail Ltd purchases a cloud-based accounting software subscription for 3 years at Rs 18,00,000 paid upfront on 1 April 2024. It gives only access to the vendor's software on the vendor's servers, with no right to take possession of the software. Under Ind AS, how much is expensed in the year ended 31 March 2025?

Rs 6,00,000 is expensed. A cloud subscription without a right to take possession of the software is a service contract, so the upfront Rs 18,00,000 is a prepayment recognised as expense evenly over the three-year service period.

  1. ARs 6,00,000Correct
  2. BRs 18,00,000
  3. CRs 9,00,000
  4. DRs 0

Explanation

A cloud arrangement without a right to control or take possession of the software is a service contract, not an intangible asset. The upfront payment is a prepayment expensed over the service period: 18,00,000 / 3 = 6,00,000 per year. Capitalising and amortising as an intangible is the error behind other options, and expensing the whole sum immediately ignores the prepayment.

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