CA Intermediate · Advanced Accounting · AS 25 Interim Financial Reporting

Sundaram Textiles Ltd. prepares quarterly interim financial reports. Its annual advertising cost of Rs 12,00,000 is incurred entirely in the first quarter, and the benefit of the advertisement is received only in that quarter. Under AS 25, how should the cost be treated in the interim reports?

The Rs 12,00,000 advertising cost is recognised wholly in the first quarter. AS 25 applies the same recognition rules as annual reporting, so a cost whose benefit is received in that quarter is not deferred or smoothed across later interim periods.

ARecognised entirely in the first quarter, as the expense is incurred thenCorrect
BSpread equally at Rs 3,00,000 per quarter over the year
CDeferred and recognised only in the fourth quarter
DShown as a prepaid asset till the year-end audit

Explanation

AS 25 requires the same recognition principles as annual statements. A cost that does not meet the asset definition at interim date, and whose benefit is exhausted in the quarter, is expensed when incurred. Spreading it equally is wrong because costs are not anticipated or deferred artificially.

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