Revenue recognision - as - 9

A company has given unsecured loan to another company in the month of Dec 16 at 15 % interest. This loan is repayable on demand. In march 17 the amount has been demanded. But till the signing of FS neither loan nor interest has been received. The borrower has not deducted TDS on the accrual basis. As per AS 9, the interest income should be recognised or not.
Replies (5)
Yes, refer para 9 and 13 of AS-9.

Caluse 13 of AS -9 says:

"Revenue arising from the use by others of enterprise resources yielding interest, royalties and dividends should only be recognised when no significant uncertainty as to measurability or collectability exists."

How this uncertainity in our case is determined. Does non payment till date of signing of BS is sufficient to say that it is uncertain that income will be earned?

 

This single test will not make it significantly uncertain and it also does not mean that the company would forego the claim if not received till date. This would be decided as per the loan terms, like what would be on the default, etc.

I think that interest should be recognized and provision, if any, could be made as per AS-4.

 

Opinions of others are warmly welcomed.

From the Companies Act perspective, it is good to recognise the income and then make provsion for doubtful debs. But the problem arises with the Income Tax Act. This will become income under the head "Income from other sources" and the benefit of provision will not be extended. The Company is pursuaded to pay taxes on the income which is not realisable.Eventually this is loss.

This single test will not make it significantly uncertain and it also does not mean that the company would forego the claim if not received till date. This would be decided as per the loan terms, like what would be on the default, etc. I think that interest should be recognized and provision, if any, could be made as per AS-4. 

 

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