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CA Intermediate · Advanced Accounting · AS 9 Revenue Recognition

Sagar Finance Ltd lent Rs 20,00,000 to a borrower on 1 October 2025 at 12% per annum simple interest, payable on maturity. The financial year ends on 31 March 2026. Assuming ultimate collection is reasonably certain, how much interest revenue should be recognised for FY 2025-26 under AS 9?

The interest to be recognised is Rs 1,20,000. AS 9 recognises interest on a time proportion basis, so six months at 12% on Rs 20,00,000 accrues in FY 2025-26, regardless of the fact that cash will be received only at maturity.

  1. ARs 2,40,000
  2. BRs 1,20,000Correct
  3. CRs 60,000
  4. DNil, as interest is received only on maturity

Explanation

Interest accrues on a time basis on the amount outstanding at the rate applicable. Six months (October to March) at 12% p.a.: 20,00,000 x 12% x 6/12 = Rs 1,20,000. Rs 2,40,000 is a full year's interest and ignores the period. Receipt on maturity does not defer recognition under the accrual basis.

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