CMA Foundation · Fundamentals of Financial and Cost Accounting · Capital and Revenue Transactions
Nair & Sons received Rs 3,60,000 from a customer as advance rent for 12 months, starting 1 January, for a shop it lets out. The firm closes its books on 31 March. How much rent income should be recognised for the year ending 31 March as revenue?
Rent income recognised for the year is Rs 90,000. The monthly rent is Rs 30,000 and only three months, January to March, fall in the year. The remaining Rs 2,70,000 is rent received in advance and is carried forward as a liability, not revenue.
- ARs 3,60,000
- BRs 90,000Correct
- CRs 1,20,000
- DRs 30,000
Explanation
Rent is Rs 3,60,000 / 12 = Rs 30,000 per month. January to March is 3 months, so revenue is 30,000 x 3 = Rs 90,000. The remaining Rs 2,70,000 is rent received in advance, a liability. Option 1 wrongly treats the whole cash received as revenue of the year.
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