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CA Intermediate · Advanced Accounting · AS 9 Revenue Recognition

Narmada Industries Ltd. holds shares of Tapti Ltd. On 15 June 20X1 Tapti Ltd. declared a dividend of Rs 5 per share at its AGM, for the year ended 31 March 20X1, on 40,000 shares held by Narmada. The dividend was received on 10 July 20X1. Narmada's year ends on 31 March. As per AS 9, when and how much dividend revenue should Narmada recognise?

Narmada should recognise Rs 2,00,000 in the year ended 31 March 20X2. AS 9 recognises dividend when the shareholder's right to receive payment is established, which happened on declaration on 15 June 20X1, irrespective of the year the profits relate to.

  1. ARs 2,00,000 in the year ended 31 March 20X1, as the dividend relates to that year
  2. BRs 2,00,000 in the year ended 31 March 20X2, when the right to receive payment is establishedCorrect
  3. CRs 1,00,000 in each of the years ended 31 March 20X1 and 20X2
  4. DRs 2,00,000 in the year ended 31 March 20X3

Explanation

Under AS 9, dividends from investments in shares are recognised when the owner's right to receive payment is established, here at declaration on 15 June 20X1, which falls in the year ended 31 March 20X2. Amount: 40,000 x Rs 5 = Rs 2,00,000. Recognising it in 20X1 based on the year to which it relates is incorrect, and splitting it has no basis.

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