ii) Physical Possession As a practical expedient, an entity can ignore the impact of the time value of money on a contract if it expects, at contract inception, that the period between the delivery of goods or services and customer payment will be one year or less. A customer obtains control when it has the ability to direct the … ClearTax can also help you in getting your business registered for Goods & Services Tax Law. In situations where control over an asset (goods or services) is transferred at a single point in time, an entity recognizes revenue by evaluating when the customer obtains control of the asset. Ind AS 18 Revenue: 20. However, an entity would allocate a discount to only some of the performance obligations only if it has observable evidence of the obligations to which the entire discount belongs. Indian Accounting Standard (Ind AS) 101 First-time Adoption of Indian Accounting Standards: Indian Accounting Standard (Ind AS) 102 Share-based Payment: Indian Accounting Standard (Ind AS) 103 Business Combinations: Indian Accounting Standard (Ind AS) 104 Insurance Contracts Therefore, revenue recognition is considered as one of the crucial aspects examined by the investors, analysts and regulators. Contract is defined as agreement between two or more parties that creates enforceable rights and obligations. The objective in adjusting the transaction price for the time value of money is to reflect an amount for the selling price as though the customer had paid cash for the goods or services when they were transferred. The first step for revenue recognition is identifying a contract … In assessing the uncertainty related to variable consideration, an entity should consider both the likelihood and the magnitude of revenue reversal. As per the AS 9 Revenue Recognition issued by ICAI “Revenue is the gross inflow of cash, receivables or other consideration arising in the course of the ordinary activities of an enterprise from the sale of goods, rendering of services & from various other sources like interest, royalties & dividends”. File Income tax returns for free in 7 minutes, Get expert help for tax filing or starting your business, Curated Mutual Funds & plans for tax savings, Complete solution for all your e-invoicing needs, I-T, e-TDS & Audit Software for CAs & Tax Professionals, Employee health plan, incl. Companies based in India will need to adopt a more detailed process for revenue recognition as the Ind AS 115 removes scope for interpretation in several areas. The timing of revenue recognition might change under Ind AS 115’s control-based model. The entity must update this measurement over time as circumstances change and accounts for these changes as a change in accounting estimate under Ind AS 8Accounting Policies, Changes in Accounting Estimates and Errors'. Ind AS compliant entities will have to now adopt the new Ind AS 115, Revenue from Contract with Customers from April 1, 2018. Transaction Price is not adjusted for customer's credit risk, but is adjusted if entity has created a valid expectation that it will enforce its rights for only a portion of contract price. damanoberoi@hotmail.com, Category Can A recognize the entrance fee as revenue upon receipt? An entity that expects to refund a portion of the consideration to the customer would recognize a liability for the amount of consideration it reasonably expects to refund. iv) Customer's acceptance AS-9 includes revenue as per completed service method or percentage completion method but IND AS-18 recognizes revenue as per percentage of completion method. Accounting treatment of this transaction would require A Ltd to apply the test of “transfer of significant risks and reward” and recognize the revenue during the point of sale provided future returns can be reliably measured based on past experience. Following disclosures are required under Ind AS 115: i) Revenue recognized from contracts with customers, separately from its other sources of revenue, ii) Impairment losses on receivables or contract assets, iii) Categories that depict the nature, amount, timing, and uncertainty of revenue and cash flows, iv) Sufficient information to enable users of financial statements to understand the relationship with revenue information disclosed for reportable segments under Ind AS 108Operating Segments', v) Opening and closing balances of contract assets, contract liabilities, and receivables (if not separately presented), vi) Revenue recognized in the period that was included in contract liabilities at the beginning of the period and revenue from performance obligations (wholly or partly) satisfied in prior periods, vii) Explanation of relationship between timing of satisfying performance obligations and payment, viii) Explanation of significant changes in the balances of contract assets and liabilities, ix) When the entity typically satisfies performance obligations, xii) Obligations for returns, refunds and similar obligations, xiii) Types of warranties and related obligations, xiv) Aggregate amount of transaction price allocated to remaining performance obligations at end of period*, xv) Judgments impacting the expected timing of satisfying performance obligations, xvi) Methods used to recognize revenue for performance satisfied over time, and explanation, xvii) The transaction price and amounts allocated to performance obligations (e.g. Identify the Contract with a customer. I. In Ind AS 115, timing of revenue recognition is based on satisfaction of performance obligation rather than contract as a whole. If an entity is unable to reasonably measure the fair value of non-cash consideration, it indirectly measures the consideration by referring to the stand-alone selling price of the goods or services promised under the contract. It focuses heavily on what the customer expects from a supplier under a contract. Control includes the ability to prevent other entities from directing the use of and obtaining the benefits from an asset. and Indian GAAP as they exist today, and to the timing and scope of accounting changes that the standard setting agendas of the International Accounting Standards Board (IASB), the Financial Accounting Standards Board (FASB) and Institute of Chartered Accountants of India (ICAI) (collectively, the Boards) will bring. Some of the key differences between IND AS 18 and AS 9 are given below: 1. Revenue is income that arises in the course of ordinary activities of an entity and if referred to by the variety of different names including sales, fees, interest, dividends, and royalties. A Ltd sells equipment to B Ltd for Rs. The entity would update the refund liability each reporting period based on current facts and circumstances. IFRS 15 is the New Revenue standard issued by IASB to replace the IAS 18 and IAS 11. materials, equipment, labour) to facilitate the entity's fulfillment of the contract. From the financial year 2018-19, the other two standards IND AS 18 and 11, which are related to revenue … An entity shall recognise revenue when (or as) the entity satisfies a performance Obligation by transferring a promised good or service (ie an asset) to a customer. In addition, they must disclose the amount by which each financial statement line is impacted due to Ind AS 115 application in the current period for the year ended March 2018. Point of Recognition: Under Ind AS 115, revenue is recognised when a customer obtains control of a good or service, while under existing principles of Ind AS, revenue is recognised when there is a transfer of risk and rewards. Recognize Revenue when or as an Entity satisfies Performance Obligations. Ind AS 115 requires retrospective application. Ind AS 115 is effective from annual reporting period beginning on or after April 1, 2018. Indian GAAP, IFRS and Ind AS A Comparison | 5 The table on the following pages sets out some of the key differences between Indian GAAP (including the provisions of Schedule III to the Companies Act, 2013, where considered necessary), IFRSs in issue as at 31 December 2014 and Ind ASs. © 2020 ‐ Defmacro Software Pvt. These promises may be may be explicit, implicit or based on past customary business practices. However, this standard would not apply to: i) Lease Contracts (Ind AS-17) Revenue recognition – Differences between GST law and GAAP. The Indian Accounting Standards (Ind AS), as notified under section 133 of the Companies Act 2013, have been formulated keeping the Indian economic & legal environment in view and with a view to converge with IFRS Standards, as issued by and copyright of which is held by the IFRS Foundation. Professional Course, Online Excel Course Under Indian Accounting Standards (Ind AS), revenue is measured at the fair value of the consideration received/receivable, taking into account any trade discounts and volume rebate. Atransfer' occurs when the customer obtains control of the good or service. An entity might also consider price information from its competitors and adjust that information for the entity's particular costs and margins. A Ltd sells goods with a policy that if a customer is not satisfied with the product, it can be returned and A Ltd would refund the amount paid by the customer for the product. The treatment and effect on revenue of the following incentives are discussed here from AS and Ind AS perspective: 1. Ind AS 19 Employee Benefits: 21. Customer pays (or due to pay) consideration an entity has an unconditional right to the consideration before the transfer of goods or, Entity should present the contract as a contract liability, Entity transfers the goods or services before the customer pay (or due to pay), Entity should present the contract as a contract asset, exclude any amount presented as. ClearTax is a product by Defmacro Software Pvt. An entity recognizes revenue when or as it transfers promised goods or services to a customer. Under Indian Accounting Standards (Ind AS), accounting for revenue and customer loyalty programmes would be governed by Ind AS 115, Revenue from Contracts with Customers1.Ind AS 115 provides a five-step model for revenue recognition, and also provides specific guidance for options provided to customers to purchase additional goods and services. Revenue recognition for a rendering of Services – Ind AS 18 requires recognition of revenue using a percentage of completion method only. Accordingly, the requirements of Ind AS mandatorily require an entity to analyse and recognise discounts and sales schemes while accounting for revenue. (E.g.- Sales Commission etc.). Transaction Price is amount of consideration an entity expects to be entitled to in exchange for goods or services transferred, excluding any amounts collected on behalf of third parties (for example, GST, Electricity Tax etc.). - if both the following conditions are satisfied: Series will be considered to have same pattern of transfer if, � Each distinct good or service meet the criteria to be performance obligation satisfied over a period of time; AND, � Same method would be used to measure entity's progress towards complete satisfaction of performance obligation. Allocation of Transaction Price to Performance Obligation. Few examples are warranty costs, claims, penalties or possible losses. 1,50,000 ( actual cash price is 1,00,000). Companies will have to necessarily determine if there are multiple distinct promises in a contract or a single performance obligation (PO). In accounting parlance, revenue is considered as a subset of income. In convergence with IFRS, the Ministry of Corporate Affairs (MCA) issued Ind AS 115, Revenue from … If a customer promises consideration in a form other than cash, an entity measures the non- cash consideration at fair value in determining the transaction price. CAs, experts and businesses can get GST ready with ClearTax GST software & certification course. 2,00,000 in March 2004. Variable consideration may be attributable to the entire contract or only to a specific part. Ind AS 115 is applicable from 1 April 2018, i.e., FY 2018–19. If the amount of consideration from a customer contract is variable, an entity is required to evaluate whether the cumulative amount of revenue recognized should be constrained. Now, entities will have to adjust the transaction price for the time value of money. On 28 March 2018, the MCA notified Ind AS 115, a new revenue recognition standard that replaces existing Ind AS 11 and Ind AS 18. INDIAN ACCOUNTING STANDARDS (Ind AS) AS - 9 Revenue Recognition This is the best notes on accounting standard 9 revenue recognition with examples. � Entity's experience has limited predictive value has a large range of possible consideration amounts etc. � The combined effect of the prevailing interest rate in the market and expected length of time between when the transfer of goods or services and the time when the customer makes the payment. You can efile income tax return on your income from salary, house property, capital gains, business & profession and income from other sources. real estate infrastructure, EPC (Engineering, Procurement and Construction), IT services, etc. ii) Payment terms for goods and services to be transferred, � It is probable that entity will collect the consideration. II. Where the collections from customers are deferred the revenue will be lower than the contract price, and interestingly in case of advance collections, the effect will be opposite resulting is revenue exceeding the contract price with the difference accounted as a finance expense. Revenue is recognized when it is probable that future economic benefits will flow to the entity and these benefits can be measured reliably. On the other hand, to understand the commercial effect of series of transactions, recognition criteria can be applied together on two or more transactions at the same time. i) Transfer of Legal Title Download ClearTax App to file returns from your mobile phone. According to the IFRS criteria, for revenue to be recognized, the following conditions must be satisfied: 1. Recognise revenue from the sale of goods when all below conditions are met: Criteria to be considered for reliably estimating the outcome of the transaction: The stage of completion of a transaction may be determined based on the nature of the transaction using the following: (b) Services performed to date as a percentage of total services to be performed. Can B recognize sales revenue in its book as soon as goods are dispatched to A? If price is not directly available it should be estimated using: Involves evaluating the market in which the entity sells goods or services and estimating the price that customers in that market would pay for those goods or services. Ind AS 16 Property, Plant and Equipment: 18. Accounting for securitisation transactions is also covered by the Transfer of significant risks and rewards of ownership, Neither continuing managerial involvement nor effective control, Recognise revenue by reference to stage of completion (percentage of completion method) at end of reporting period, Recognise revenue only to extent of expenses recognized that are recoverable (no profit recognized), Reliable measurement of stage of completion, Effective interest method (as per Ind AS 109), Accrual basis in accordance with substance of the agreement, Shareholder’s right to receive payment is established, Revenue covers all economic benefits that arise in the ordinary course of activities of an entity which result in increases in equity, other than increases relating to contributions from equity participants, Revenue is gross inflow of cash, receivables or other consideration arising in the course of the ordinary activities of an enterprise from the sale of goods, from the rendering of services, and from the use by others of enterprise resources yielding interest, royalties and dividends, Real estate revenue is specifically not covered, Revenue has to be measured at fair value of the consideration receivable, Revenue is recognized at the nominal amount of consideration receivable, Specific guidance regarding barter transactions involving advertising services is given, Uses, only percentage of completion method for revenue recognition for rendering of service, Permits the use of completed service contract method, Requires interest to be recognized using effective interest rate method, Uses time proportion basis for interest recognition, IND AS 18 does not specifically deal with the same, Existing AS 9 specifically deals with disclosure of excise duty as a deduction from revenue from sales transactions, Disclosure requirements are more detailed, n recognize only when A sells the goods to the third parties, Indian Accounting Standard 11 – Construction Contracts, Indian AS 101 – First time adoption of Indian Accounting standards, This page is best viewed in Chrome, Firefox or IE 11. Stand-alone selling price is price at which entity would sell a promised good or service separately to a customer. � Cost to fulfill a Contract: An entity should recognize an asset for cost incurred to fulfill a contract if those costs: � Relate directly to an existing contract or specific anticipated contract, � Generate or enhance resources that will be used in satisfying Performance Obligation in future. Ind AS 115 is based on core principle that requires an entity to recognize revenue: (adsbygoogle = window.adsbygoogle || []).push({}); Ind AS 115 prescribes 5 Step model for recognition of revenue. A donates certain perishable food products to Homeless people, which have reached their best before date but are still fit for human consumption. 1,50,000 was settled for payment against the claim of Rs. Under Ind AS 18, a contract for the sale of goods normally gives rise to revenue recognition at the time of delivery. A Ltd provides a commitment to service the equipment for next 3 years with no additional charges. This standard is expected to impact all companies, though the impact could be more pronounced for some depending on their industry sector, existing customer contracting practices and more importantly the accounting policies already adopted. Ind AS-115 provides single comprehensive framework to be used by entities to recognize revenue from their customers and report useful information about nature, amount, timing and uncertainty of cash flows arising from a customer. � Modified Retrospective' adoption. 2. Ind AS 115 replaces existing revenue recognition standards Ind AS 11, Construction Contracts and Ind AS 18, Revenue and revised guidance note of the Institute of Chartered Accountants of India (ICAI) on Accounting for Real Estate Transactions for Ind AS entities issued in 2016. Ind AS 115 brings a conceptual change in revenue recognition as it prescribes for revenue recognition when customer obtains controls of a good or service, whereas under existing principles of Ind AS, revenue is recognized when there is transfer of risk and rewards. ii) Insurance Contracts (Ind AS-104) Judgment would be required to assess which costs should be capitalized and for determination of appropriate period and pattern of amortization. Revenue recognition is a generally accepted accounting principle (GAAP) that stipulates how and when revenue is to be recognized. Further you can also file TDS returns, generate Form-16, use our Tax Calculator software, claim HRA, check refund status and generate rent receipts for Income Tax Filing. The Standard is concerned with the recognition of revenue arising in the course of the ordinary activities of the enterprise from the sale of goods the rendering of services When the inflow of cash (or cash equivalents) is deferred, FV can be less than the nominal amount of cash. A customer obtains control of an asset (good or service) when it can direct the use of and obtain substantially all the remaining benefits from it. Professional Course, GST Annual Return An entity recognizes over time revenue that is associated with a performance obligation that is satisfied over time by measuring its progress toward completion of that performance obligation. Damandeep Singh, You can also submit your article by sending to article@caclubindia.com, GST certification Damandeep Singh  A generally accepted accounting principle ( GAAP ) that stipulates how and when revenue recognized... 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