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CA Intermediate · Advanced Accounting · AS 9 Revenue Recognition

Nisha Ltd. owns 40,000 equity shares of Rs 10 each in Ojas Ltd. Ojas Ltd. declared a dividend of 15% for the year ended 31 March 2025 at its annual general meeting on 10 July 2025, after which the shareholders' right to receive payment was established. Nisha's accounts for 2024-25 were approved on 30 June 2025. The company also earned Rs 25,000 royalty on a time basis under an agreement for the year 2024-25, due in 2025-26. What income from these two items should Nisha recognise in the year 2024-25 as per AS 9?

Nisha should recognise Rs 25,000, being the royalty only. AS 9 recognises royalties on accrual according to the agreement, but dividends are recognised only when the right to receive payment is established, which happened in July 2025, so the Rs 60,000 dividend falls in the next year.

  1. ARs 85,000
  2. BRs 25,000Correct
  3. CRs 60,000
  4. DNil

Explanation

Dividends are recognised when the right to receive payment is established, which here arose on 10 July 2025, so dividend of 40,000 x 10 x 15% = Rs 60,000 belongs to 2025-26. Royalty is recognised on an accrual basis as per the agreement, so Rs 25,000 belongs to 2024-25. Rs 85,000 wrongly includes dividend.

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