Question 2 OR (c)
Advertising revenue of a monthly magazine under AS-9
4 marks
- Time to write
- About 8 minutes
- Notes
- Crux notes
Question
Question 2 OR (c) · 4 marksTara Publications brings out a monthly magazine on the 20th of every month. Advertising space in the magazine is sold to advertisers on terms of 75% sale value payable in advance, with the balance due within 45 days of the release of the publication. Space for the March 2025 issue was sold in February 2025. The magazine was published its scheduled date. It received 4,50,000 on 12-3-2025 and 1,50,000 on 25-4-2025 for the March 2025 issue.
In the context of AS 9, discuss how much revenue is to be recognized and the treatment of the sums received from advertisers for the year ending 31-3-2025. What will the treatment be if the publication is delayed till 5-4-2025?
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
- how muchFormula first, then the working, then the answer with its unit (₹, %, units).
What the paper leaves open
The paper says the magazine "was published its scheduled date". We read it as published on its scheduled date (the 20th in our version), so the advertisements appeared before the year end.
Write it in this order
A step that gives the answer away stays hidden: tap it to see it.
- Read the data; note exactly what is asked 1 min
- 1 Basis: advertising space is a service, recognised when the issue is released AS-9 1 mark 2 min
- 2 Published on schedule revenue; advance applied 2 marks 3 min
- 3 Publication delayed past the year end: nil revenue 1 mark 2 min
Short on time? Step 2 carries 2 of the 4 marks: guard its minutes.
Try it first. About 8 minutes for 4 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.
The test being applied
Selling space in an issue of a magazine is the rendering of a service. AS-9 measures performance of a service under the completed service contract method or the proportionate completion method, whichever relates the revenue to the work done, and treats performance as achieved once there is no significant uncertainty about the consideration.
Carrying an advertisement in one issue is a single act, so the completed service contract method fits: the service is performed when the issue is released, not when the space is booked or the money arrives. AS-9's own appendix applies the same test to advertising agencies, whose media commissions are normally recognised when the advertisement appears before the public.
The sale value. The ₹4,50,000 received is the 75% payable in advance, so the sale value of the space is ₹4,50,000 ÷ 75% = ₹6,00,000, and the balance is ₹1,50,000 (25%).
(a) The magazine was published on its scheduled date, 20 March 2025
- When the ₹4,50,000 arrived on 12 March 2025, the issue had not yet appeared. It was an advance from advertisers, a liability, not income.
- On 20 March 2025 the issue was released, inside the year ending 31 March 2025. The service was then performed and there was no uncertainty about the consideration, so the advance became revenue.
- Revenue recognised for the year ending 31 March 2025: ₹6,00,000, the whole sale value, not just the cash collected.
- The ₹1,50,000 still unpaid at 31 March 2025 is shown as a receivable (amount due from advertisers). It was collected on 25 April 2025, 36 days after release and within the 45 days allowed.
(b) If publication is delayed till 5 April 2025
- The advertisements had not appeared by 31 March 2025, so the service was not performed in that year.
- No revenue is recognised for the year ending 31 March 2025.
- The ₹4,50,000 received is shown at 31 March 2025 as advance from advertisers, a liability.
- The whole ₹6,00,000 is recognised in the year ending 31 March 2026, when the issue is released on 5 April 2025.
The two cases side by side
| At 31 March 2025 | Published 20 Mar 2025 | Delayed till 5 Apr 2025 |
|---|---|---|
| Revenue recognised for the year | 6,00,000 | 0 |
| Receivable from advertisers (asset) | 1,50,000 | 0 |
| Advance from advertisers (liability) | 0 | 4,50,000 |
The cash is the same in both cases. The delay moves ₹6,00,000 of revenue into the next year and turns the ₹4,50,000 from part of earned revenue into a liability.
Where the 4 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Basis: advertising space is a service, recognised when the issue is released (AS-9) | 1 |
| 2 | Published on schedule: ₹6,00,000 revenue; advance applied; ₹1,50,000 receivable | 2 |
| 3 | Publication delayed past the year end: nil revenue; ₹4,50,000 a liability | 1 |
| Total | 4 |
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