Accounting of interest income

AS 740 views 4 replies

ancy

article

94 Points Joined February 2010

A company had calculated interest accrued but not due on their fixed deposit as on 31-3-2010.

However, the company before approval of accounts made a pre-mature withdrawal of the FD. As a result the company had to bear loss of interest.

Suppose, interest accrued but not due accounted is Rs. 7 crore.

but on pre mature withdrawal they received only rs. 5 crore.

should the proportionate reduction in interest income be shown in accounts considering the effect of AS 4-events occuring after balance sheet date and AS -9 revenue recognition(i.ei income should be realizable or realized). if yes, then how? because i have never heard of provision for interest accrued.

Replies (4)

ACCOUNTANT

Student

559 Points Joined September 2011

Provision can only be created on Accrued expenses and losses if any......Provision can never be created for accrued income under Prudence concept.....when interest is received.....it'll be recognised as income.......

CA Sachin Rastogi

Audit/IFRS Manager

338 Points Joined September 2009

Premature withdrawl of FD's is an adjusting event in accordance with AS-4. Thus, accrued interest income earlier booked for INR 7 crores should be reduced in the books as of 31 Mar 2010 only.

Provisions are recognised only when the entity has a present obligation to transfer economic benefits as a result of past events. In your case, premature withdrawl is purely a treasury department transaction and in no case it should be considered as an obligation of the company which requires provision in the books.

thanks

CA PARTH SHAH

In Practice

1951 Points Joined December 2009

Premature withdrawal and subsequent loss on interest cant br taken as Event occuring after balance date as per AS 4 as it eas thr condition prevailing in the balance date.