query about Expense recognition


1 Answer(s)


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.