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CA Intermediate · Advanced Accounting · AS 9 Revenue Recognition

Prakash Software Ltd grants a licence to use its software to Zenith Ltd for 3 years from 1 July 2024, for a total fee of Rs 36,00,000 received in advance on 1 July 2024. Prakash has no further obligations and the fee is a charge for the right to use, spread evenly over the term. The year-end is 31 March. What revenue should be recognised for the year ended 31 March 2025 as per AS 9 (royalty accrues per the agreement)?

Revenue of Rs 9,00,000 should be recognised. Royalty or licence fees accrue over the agreement period under AS 9, so the Rs 36,00,000 for 36 months equals Rs 1,00,000 monthly, and nine months from July to March produce Rs 9,00,000, whatever the date of cash receipt.

  1. ARs 36,00,000
  2. BRs 9,00,000Correct
  3. CRs 12,00,000
  4. DRs 3,00,000

Explanation

Royalties are recognised on an accrual basis in accordance with the substance of the agreement. The fee covers 36 months, so Rs 1,00,000 per month. From 1 July 2024 to 31 March 2025 is 9 months: Rs 9,00,000. Option C wrongly gives a full year's share, and A recognises everything on receipt.

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