CA Inter P5 · Chapter 10 · Question 7 of 11
During the audit of a bank branch, the auditor finds that interest on a loan account classified as NPA has been debited to the account and credited to interest income on an accrual basis. The auditor should:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Require the unrealised interest to be reversed from income, since income on NPAs is recognised only when actually realised
Explanation
Under RBI income recognition norms, interest on NPAs is not recognised on accrual basis but only when actually received. Interest already taken to income on an account that becomes NPA should be reversed if uncollected. The auditor checks that unrealised interest is not included in income.
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