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CA Intermediate · Advanced Accounting · AS 9 Revenue Recognition

Sunrise Finance Ltd. holds Rs 10,00,000 of 9% debentures of Zenith Ltd., with face value Rs 100 each, bought on 1 October 2024 at par. Interest is payable annually on 30 September. Sunrise closes books on 31 March. Under AS 9, interest income to be recognised for the year ended 31 March 2025 is:

Rs 45,000 is recognised. AS 9 requires interest to be accrued on a time basis at the stated rate on the amount outstanding. Annual interest is Rs 90,000 and six months have elapsed between purchase and the year end, so half of it is income of the year.

  1. ARs 90,000
  2. BRs 45,000Correct
  3. CRs 22,500
  4. DNil, as interest is not yet received

Explanation

Interest accrues on a time basis on the amount outstanding at the rate applicable. Annual interest = 10,00,000 x 9% = Rs 90,000. For 1 October to 31 March is 6 months: 90,000 x 6/12 = Rs 45,000. Rs 90,000 ignores the time proportion; Nil wrongly applies the cash basis.

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