Question 1 (d)
Net revenue from advertisement rights recognised in June 2021 (AS 9)
3 marks
- Time to write
- About 6 minutes
From an older CBCS paper
Question
Question 1 (d) · 3 marksDESH Advertisers obtained advertisement rights, for a one day world cup cricket tournament due in May 2021, for ₹ 1,200 lakhs in February 2021.By 31/3/2020, they had paid ₹ 750 lakhs to secure these advertisements rights, and paid the balance ₹ 450 lakhs in April 2021. By March 2021, they had procured advertisement for 75% of the available time, for ₹ 1,500 lakhs; the advertisers paid 60 % of this by that date, and the balance 40 % was received in April 2021. Advertisements for the balance 25 % time were procured in April 2021 for ₹ 300 lakhs, paid in full by the advertisers on booking. It is expected that 25 % of the advertisement time will be available in May 2021, and the balance in June 2021. As per AS - 9, calculate the net revenue to be recognised in June, 2021. [3 Marks]
Reworded from the university paper: names and figures differ, the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.
Before you write
Read off the question and its marks
Read from the question
- calculateFormula first, then the working, then the answer with its unit (₹, %, units).
What the paper leaves open
"By 31/3/2020" is kept as printed; it is read as 31/3/2021, the year-end before the tournament. Net revenue for June is the June share of the advertisement revenue less the June share of the rights cost.
Write it in this order
- 1 Recognition principle and timing 1 mark 2 min
- 2 June revenue and cost 1½ marks 3 min
- 3 Net revenue ½ mark 1 min
Short on time? Step 2 carries 1½ of the 3 marks: guard its minutes.
Try it first. About 6 minutes for 3 marks. Write it out, then open the solution.
Solution
Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.
Principle. Revenue from services is recognised as the service is performed; for advertising, when the advertisement appears before the public. Advance receipts are a liability until then. The cost of the rights is matched with the revenue in the same proportion. "By 31/3/2020" is read as 31/3/2021, the year end before the tournament (paper note).
| Particulars | ₹ lakhs |
|---|---|
| Advertisement revenue: 75% of time booked by March 2021 | 1,500 |
| Advertisement revenue: 25% of time booked in April 2021 | 300 |
| Total advertisement revenue | 1,800 |
| Cost of the rights (750 + 450) | 1,200 |
The advertisements are shown 25% in May 2021 and 75% in June 2021.
| Particulars | ₹ lakhs |
|---|---|
| Revenue recognised in June (75% × 1,800) | 1,350 |
| Less: cost of rights charged in June (75% × 1,200) | 900 |
| Net revenue for June 2021 | 450 |
(No revenue is recognised by 31 March 2021, although ₹900 lakhs had been collected: it is an advance, a liability; the ₹750 lakhs paid for the rights is an advance payment, an asset.)
Where the 3 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Recognition principle and timing | 1 |
| 2 | June revenue and cost | 1.5 |
| 3 | Net revenue | 0.5 |
| Total | 3 |
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