## Audit of Other Income

### Categories Covered

1. Interest earned on Fixed Deposits (FDs)

2. Dividend Income

3. Gain / Loss on sale of Mutual Fund investments

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### 1. Interest on Fixed Deposits

Recognition Basis: Time Proportion Basis

$$\text{Interest} = \text{Deposit Amount} \times \text{Applicable Rate} \times \frac{\text{No. of Days}}{365}$$

#### Audit Procedures

Step	Procedure
1	Obtain listing of all FDs — opened during the period, with applicable rate and number of days the deposit was held
2	Recalculate interest independently using the formula above
3	For FDs outstanding at period end — obtain external bank confirmation
4	Obtain bank's confirmation of interest credited and cross-check with entity's calculation
5	Obtain Form 26AS — reconcile interest income reported vs. TDS deducted at source

> Form 26AS / AIS (Annual Information Statement) is the authoritative third-party source for interest income verification.

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### 2. Dividend Income — Recognition Criteria

Dividend is recognised only when all three conditions are met:

Condition	Meaning
(a) Right established	Entity's right to receive payment is established (dividend is declared)
(b) Measurable	Amount can be measured reliably
(c) Probable inflow	It is probable that economic benefits will flow to the entity

> Exam tip (MCQ): All three conditions must be simultaneously satisfied. Mere declaration without certainty of receipt is insufficient.

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### 3. Gain / Loss on Sale of Mutual Fund Investments

Formula:

> Gain / (Loss) = Sale Proceeds − Book Value (Cost) of Investment

Audit Procedures:

Verify against redemption statements from the fund house / AMC.
Confirm cost of acquisition from the investment register.
Ensure correct accounting: Gain/Loss → P&L (for trading/FVTPL) or OCI (for FVTOCI under Ind AS).
Check that NAV on redemption date matches the proceeds recorded.

Worked example

### Example 1

FD Interest Recalculation:

FD Amount = ₹10,00,000 | Rate = 7.5% p.a. | FD opened: 01-Oct-2023 | Year-end: 31-Mar-2024 (182 days)

Interest for period = ₹10,00,000 × 7.5% × 182/365 = ₹37,397

Auditor compares this to ₹37,000 booked by entity → difference of ₹397 flagged for explanation (rounding or day-count method).

Also cross-checks with Form 26AS to confirm TDS deducted @ 10% = ₹3,740.

### Example 2

Dividend Recognition Timing:

ABC Ltd holds shares in XYZ Ltd. XYZ's Board recommends a dividend on 25-Feb-2024 (subject to shareholder approval). Shareholders approve it in AGM on 15-Jun-2024.

Correct recognition: Dividend income should be recognised on 15-Jun-2024 (right established) — NOT in FY 2023-24 based on Board recommendation alone.

⚠️ Common exam mistakes

Recognising dividend income when the Board recommends the dividend instead of when shareholders declare/approve it — recognition is premature.
Using 360 days instead of 365 days for FD interest calculation — leads to a small but systematic overstatement.
Not reconciling interest income with Form 26AS — TDS deducted may not match income booked, which is a red flag.
Failing to obtain external bank confirmation for FDs outstanding at year-end — self-declaration by management is insufficient.
Recording the full redemption proceeds of a mutual fund as 'income' instead of splitting into return of cost and gain/loss.

Bare-Act text Paragraph 12.1 · AS 9 — Revenue Recognition (ICAI) · click to expand

12. Dividends 12.1 Dividends from investments in shares should not be recognised in the statement of profit and loss until a right to receive payment is established.

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Audit of Other Income — Interest, Dividend, and Investment Gains

Worked example

⚠️ Common exam mistakes