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CA Intermediate · Advanced Accounting · AS 25 Interim Financial Reporting

Rohini Chemicals Ltd incurs Rs 1,20,000 as annual plant overhaul expense which occurs every year in the third quarter. The company's year ends on 31 March and it reports quarterly. In the quarter ended 30 June, how should the company treat this expected cost under AS 25?

The overhaul cost must be recognised only in the quarter in which it is incurred. AS 25 permits anticipating or deferring costs at interim dates only if that would be appropriate at year end, and a planned overhaul gives no present obligation, so no provision is made.

  1. ARecognise Rs 30,000 as a provision in each quarter
  2. BRecognise Rs 1,20,000 in the quarter ended 30 June as an advance
  3. CDo not anticipate or defer it; recognise it in the quarter in which it is incurred, as it would not be recognised as a liability at the interim dateCorrect
  4. DRecognise Rs 40,000 in each of the first three quarters

Explanation

AS 25 states costs incurred unevenly during the year are anticipated or deferred in interim reports only if it would also be appropriate at year end. A planned overhaul creates no present obligation at the interim date, so no provision is made, and the cost is recognised when incurred. Spreading it evenly (options A and D) is the key error.

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