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CA Intermediate · Advanced Accounting · AS 25 Interim Financial Reporting

Sunrise Pumps Ltd incurs ₹6,00,000 in April on an annual plant maintenance contract covering April to March. In its annual financial statements the company charges such costs to the statement of profit and loss in the year incurred, with nothing deferred at the year end. The company reports quarterly under AS 25. The expense to be recognised in the quarter ended 30 June is:

The full ₹6,00,000 is recognised in the quarter ended 30 June. AS 25 allows uneven costs to be deferred or anticipated in interim reports only if that treatment would also be appropriate at the year end, and here nothing would be deferred at year end.

  1. A₹1,50,000, spreading the cost equally over four quarters
  2. B₹3,00,000, spreading it over the first two quarters
  3. CNil, because the benefit relates mainly to later quarters
  4. D₹6,00,000, the full amount incurred in that quarterCorrect

Explanation

AS 25 states that costs incurred unevenly during the year are anticipated or deferred for interim purposes only if it would be appropriate to anticipate or defer them at the year end. Since the full amount is charged in the annual accounts in the year incurred and nothing is deferred at year end, the whole ₹6,00,000 is recognised in the quarter in which it was incurred. Spreading it equally would be an artificial smoothing that the standard does not permit.

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