query about Expense recognition



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In this topic net income = revenue(-)expense right? Then according to question in Quiz there is no information given about revenue. So the answer should be final choice right? How come it is 2nd choice. Sorry if my understanding is wrong. Please throw some light on this.

1 Answer(s)


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I am assuming you are referring to this question -
"Assume that in July, Tata Motors paid Rs.5 Crores to an external IT consultant for a software project that took 6 months to complete. In July how much would Tata Motors' cash and net income decrease by due to this transaction?"

You are right Net income = Rev - expenses.

In this case however you dont need the revenue number to find out the correct answer (option 3). The 5 crores should be divided by 6 months and the resulting expense number is Rs.83.3 lakhs. Since expense increases by 83.3 lakhs, proportionally net income will decrease by 83.3 lakhs.

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