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CA Intermediate · Advanced Accounting · AS 25 Interim Financial Reporting

Mehta Foods Ltd earned ₹50 lakh of profit in the first quarter before charging a one-time advertising campaign. The campaign cost ₹12 lakh, ran only in the first quarter, and produced no asset. The company had planned further, different campaigns for later quarters. Under AS 25, what profit should be reported for the first quarter?

First-quarter profit is ₹38 lakh. Under AS 25, unevenly incurred costs are deferred or spread only where that would also be appropriate at the year end. The advertising created no asset, so the whole ₹12 lakh is expensed in the quarter incurred, giving 50 minus 12 equals 38.

  1. A₹38 lakhCorrect
  2. B₹47 lakh
  3. C₹50 lakh
  4. D₹62 lakh

Explanation

AS 25 allows costs incurred unevenly during the year to be anticipated or deferred only if that would also be appropriate at the year end. The ₹12 lakh advertising does not qualify as an asset at year end, so it is expensed in Q1. Profit = 50 − 12 = ₹38 lakh. Spreading it over four quarters (₹3 lakh in Q1) would give ₹47 lakh, which is wrong.

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