Sir the question is about dividend on mutual funds and ICAI has given about other treatments is it because just writing “realise dividend on mutual funds on cash basis” would be short?
Below is answer given by ICAI, i just added headings so that it is is easy to understand remember, so in some questions where content is less we have to understand how to include more content and make answer worth 4-5 marks.
Income of Mutual Fund on Cash Basis
It is not a prudent practice to treat dividend on shares of corporate bodies and units of mutual funds as income unless these are actually received. Accordingly, income from dividend on shares of corporate bodies and units of mutual funds should be booked on cash basis.
Income from Government Bonds & Debentures
In respect of income from government securities and bonds and debentures of corporate bodies, where interest rates on these instruments are pre-determined, income could be booked on accrual basis, provided interest is serviced regularly and as such is not in arrears.
Income from Corporate Bonds & Debentures Guaranteed by CG & SG
It was further, however, clarified that banks may book income on accrual basis on securities of corporate bodies/public sector undertakings in respect of which the payment of interest and repayment of principal have been guaranteed by the central government or a State government.
Income in the form of dividend on shares of corporate bodies
Banks may book income from dividend on shares of corporate bodies on accrual basis, provided dividend on the shares has been declared by the corporate body in its annual general meeting and the owner’s right to receive payment is established.
Reference from AS-9
This is also in accordance with AS 9 as well. In the instant case, therefore, the recognition of income by the bank on accrual basis is not in order.