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CA Intermediate · Advanced Accounting · AS 9 Revenue Recognition

Meera Software Ltd. signed a contract on 1 January 2025 to provide a customer with technical support for 12 months, starting immediately, for a fixed fee of Rs 4,80,000 received in advance. For the year ended 31 March 2025, the company's management considers that the service is performed evenly over the contract period. How much should be recognised as revenue for the year ended 31 March 2025 under AS 9?

Revenue of Rs 1,20,000 should be recognised. Under AS 9, service revenue follows the proportionate completion method, and three of the twelve months of support were completed by 31 March 2025. One quarter of Rs 4,80,000 is earned and the rest is treated as an advance.

  1. ARs 4,80,000
  2. BRs 1,20,000Correct
  3. CRs 40,000
  4. DRs 3,60,000

Explanation

Revenue from services is recognised proportionately by the performance method as the service is performed. The service is performed evenly, and 3 of 12 months are over by 31 March 2025. Revenue = 4,80,000 x 3/12 = Rs 1,20,000. The balance of Rs 3,60,000 is an advance received (unearned) and not revenue. Recognising the whole amount is wrong because cash receipt does not decide recognition.

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