Y Ltd., used certain resources of X Ltd. In return X Ltd. received 10 lakhs and 15 lakhs as interest and royalties respective from Y Ltd. during the…
CA Intermediate · Advanced Accounting · MTP · May 2024
Y Ltd., used certain resources of X Ltd. In return X Ltd. received 10 lakhs and 15 lakhs as interest and royalties respective from Y Ltd. during the year 2022-23. You are required to state whether and on what basis these revenues can be recognized by X Ltd.
Suggested Answer and Working Notes:
As per AS 9 on Revenue Recognition, revenue arising from the use by others of enterprise resources yielding interest and royalties should only be recognized when no significant uncertainty as to measurability or collectability exists. These revenues are recognized on the following bases: (i) Interest: on a time proportion basis taking into account the amount outstanding and the rate applicable. Therefore X Ltd. should recognize interest revenue of 10Lakhs. (ii) Royalties: on an accrual basis in accordance with the terms of the relevant agreement. X Ltd. therefore should recognize royalty revenue of 15Lakhs.
Topics: AS 9
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