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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 The entity would update the refund liability each reporting period based on current facts and circumstances. In this post, we will see in detail the specific differences between the Revenue recognition as per Accounting Standards and Revenue / Turnover as per GST Law. 2. 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”. However, entity may apply it to a portfolio of contracts with similar characteristics if entity reasonably expects reasonably that effects of applying it to portfolio would not differ materially from that if applied to individual contracts. The seller does not have control over the goods sold. 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. Stand-alone selling price is price at which entity would sell a promised good or service separately to a customer. If the sum of the stand-alone selling prices for the promised goods or services exceeds the contract's total consideration, an entity treats the excess as a discount to be allocated to the separate performance obligations on a relative standalone selling price basis. Accounting Standard 9: AS 9 deals with the bases for recognition of revenue in the statement of profit and loss of an enterprise. In accounting parlance, revenue is considered as a subset of income. 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. When the inflow of cash (or cash equivalents) is deferred, FV can be less than the nominal amount of cash. Contract modification can be accounted for termination of existing contract and creation of a new contract if the remaining goods or services are distinct from the goods or services transferred on or before the date of contract modification. Therefore, revenue recognition is considered as one of the crucial aspects examined by the investors, analysts and regulators. 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. ii) Insurance Contracts (Ind AS-104) 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. It applies to individual contract with customer. Revenue recognition – Differences between GST law and GAAP. Ind AS 115 is applicable from 1 April 2018, i.e., FY 2018–19. Allocation of Transaction Price to Performance Obligation. It focuses on transfer of significant risks and rewards approach for revenue recognition. An entity determines at contract inception whether each performance obligation will be satisfied (that is, control will be transferred) over time or at a specific point in time. Identify the Contract with a customer. Ind AS 21 The Effects of Changes in Foreign Exchange Rates: 23. The treatment and effect on revenue of the following incentives are discussed here from AS and Ind AS perspective: 1. ClearTax serves 2.5+ Million happy customers, 20000+ CAs & tax experts & 10000+ businesses across India. 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. Consideration payable to the customer includes cash amounts, credits or other items (voucher or coupon) and entity account it as a reduction of transaction price (revenue). � The entity's performance creates or enhances an asset that has no alternative use to the entity, and the entity has the right to receive payment for work performed to date. Revenue recognition for a rendering of Services – Ind AS 18 requires recognition of revenue using a percentage of completion method only. A donates certain perishable food products to Homeless people, which have reached their best before date but are still fit for human consumption. An entity shall allocate transaction price to each separate performance obligation within that contract on a relative stand-alone selling price basis. 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. Fair Value (FV) is the amount for which an asset could be exchanged or the liability set… From the financial year 2018-19, the other two standards IND AS 18 and 11, which are related to revenue … It focuses heavily on what the customer expects from a supplier under a contract. The first step for revenue recognition is identifying a contract … Other Articles by - 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. estimating variable consideration and assessing if constrained and allocating to performance obligations), xviii) Reconciliation of the amount of revenue recognized in the statement of profit and loss with the contracted price showing separately each of the adjustments made to the contract price specifying the nature and amount of each such adjustment separately (carve-out). Download ClearTax App to file returns from your mobile phone. Some of the key differences between IND AS 18 and AS 9 are given below: 1. If the remaining goods or services are not distinct and are part of a single performance obligation that is partially satisfied, entity should adjust both transaction price and measure of progress towards completion. A customer obtains control when it has the ability to direct the … These promises may be may be explicit, implicit or based on past customary business practices. The new standard can result in both increases and decreases in previously reported revenues. Ind AS 19 Employee Benefits: 21. I. (E.g.- Sales Commission etc.). Revenue is typically recognized once the goods reach the buyer when the risks and rewards of ownership typically transfer to the customer. However, a practical expedient allows an entity to expense as incurred, incremental costs of obtaining a contract if amortization period of asset would be a year or less. Under an effective financing transaction, the fair value of the consideration is determined by discounting all future receipts using an imputed rate of interest. 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.). 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. For purpose of Ind AS 115, a contract does not exist if each party has unilateral enforceable right to terminate a wholly unperformed contract without compensating the other party. 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. Two or more contracts may be combined as single contract if they are entered into at or near same time and meet any of following criteria: i) Contracts were negotiated as a package with one commercial objective, ii) Amount paid under one contract is dependent on price or performance under other contract, iii) Goods or services to be transferred under the contracts constitute a single performance obligation. In convergence with IFRS, the Ministry of Corporate Affairs (MCA) issued Ind AS 115, Revenue from … The consideration will then be allocated to multiple POs and revenue recognized when control over those distinct goods or services is transferred. Judgment would be required to assess which costs should be capitalized and for determination of appropriate period and pattern of amortization. Revenue is measured at FV of the consideration received or receivable after deducting trade discounts and rebates. on 01 September 2018. Ind AS compliant entities will have to now adopt the new Ind AS 115, Revenue from Contract with Customers from April 1, 2018. 1,50,000 ( actual cash price is 1,00,000). iv) Customer's acceptance Ind AS 115 (or IFRS 15) provides 5 step revenue recognition model: New standard streamline the process of recognition of revenue and ensures the consistent approach of recognition across industries. To recognize revenue related to interest, royalties, and dividends, the below-mentioned conditions are to be met: Any contingent liabilities and contingent assets should be disclosed in accordance with IND AS 37. INDIAN ACCOUNTING STANDARDS (Ind AS) AS - 9 Revenue Recognition This is the best notes on accounting standard 9 revenue recognition with examples. Major impact would be seen on following sectors: The author is CA-Final Student and may be contacted at 4. Revenue is recognized when it is probable that future economic benefits will flow to the entity and these benefits can be measured reliably. 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. 3. 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. Accounts 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. 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. IND AS 18 Revenue Recognition sets the guidelines as to when to recognize the revenue arising from certain types of transactions and the accounting treatment of the same. Performance Obligation is generally specified in contract, but could also include promises implied by entity's customary business practices, published policies or specific statement that create a valid customer expectation. Contract is defined as agreement between two or more parties that creates enforceable rights and obligations. 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. iii) Financial Instruments and other contractual rights (Ind AS-109, 28) Risks and rewards have been transferred from the seller to the buyer. If remaining goods and services are combination of both scenarios, entity shall account for effect of modification on unsatisfied or partially satisfied performance obligations consistently. 1,50,000 was settled for payment against the claim of Rs. According to the IFRS criteria, for revenue to be recognized, the following conditions must be satisfied: 1. When either party to a contract has performed, en entity shall present the contract in the balance sheet as a contract asset or a contract liability, depending on the relationship between. ii) Physical Possession IND AS 115 is in sync with RERA that mandates sales proceeds of under construction projects to be kept in a separate escrow account and not treat it as revenue recognition . An entity must reflect the time value of money in its estimate of the transaction price if the contract includes a significant financing component. 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. IFRS 15 is the New Revenue standard issued by IASB to replace the IAS 18 and IAS 11. Ltd. is the increase in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases in the liabilities that result in an increase in equity, other than contributions from equity participants. Indian Accounting Standard - Ind AS 18: Revenue Revenue is defined as the gross inflow of economic benefits (cash, receivables, other assets) arising from the ordinary operating activities of an enterprise (such as sales of goods, sales of services, interest, royalties, and dividends). However, the same was later on withdrawn. iii) Customer has significant risk and rewards But importantly entities will have to closely analyze their business practices within the revenue cycle including changes to customer contracts, IT systems, tax implications, the introduction of new processes or controls, changes to management KPIs, disclosures and broader stakeholder communication. 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. Our Goods & Services Tax course includes tutorial videos, guides and expert assistance to help you in mastering Goods and Services Tax. ClearTax can also help you in getting your business registered for Goods & Services Tax Law. 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. Point of Recognition: However, this standard would not apply to: i) Lease Contracts (Ind AS-17) COVID-19 cover with monthly payments. 2,00,000 in March 2004. Ind AS 17 Leases: 19. A, a club, charges Rs 100,000 as entrance fee. Income is the increase in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases in the liabilities that result in an increase in equity, other than contributions from equity participants. � Parties have approved the contract and are committed to perform their respective obligations, i) Each party's rights Variable consideration may be attributable to the entire contract or only to a specific part. � 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. Involves subtracting the sum of observable stand-alone selling prices for other goods and services promised under the contract from the total transaction price to arrive at an estimated selling price for a good or service. Contract modification arises when the parties approve a change in the scope and/or price of a contract, the accounting for same depends upon whether the modification is deemed to be a separate contract or not. 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. Using the percentage of completion method also provides useful information on the extent of service activity and the performance during the period. Fair Value (FV) is the amount for which an asset could be exchanged or the liability settled between knowledgeable, willing parties in an arm’s length transaction. This may impact entities having significant advance or deferred collection arrangements e.g. 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. II. Yes, since it only permits membership and there is no significant collection uncertainty. In assessing the uncertainty related to variable consideration, an entity should consider both the likelihood and the magnitude of revenue reversal. 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. The core principle of Ind AS 115 is that revenue needs to be ii) Payment terms for goods and services to be transferred, � It is probable that entity will collect the consideration. Save taxes with ClearTax by investing in tax saving mutual funds (ELSS) online. This is variable consideration, a wide term and includes all types of negative and positive adjustments to the revenue. Efiling Income Tax Returns(ITR) is made easy with ClearTax platform. � Has not yet established price for the good/ service and the good/ service has not previously been sold on a stand-alone basis. 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. In this article we cover the following topics w.r.t IND AS 18 Revenue Recognition: This Standard should be applied in accounting for revenue arising from the following transactions: 3. Damandeep Singh, You can also submit your article by sending to article@caclubindia.com, GST certification 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. 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. Ind AS 115 requires retrospective application. Now, entities will have to adjust the transaction price for the time value of money. � Modified Retrospective' adoption. This includes arrangements in which the customer transfers control of goods or services (e.g. Under AS regime, AS 9, Revenue Recognition states that the amount of revenue shall be measured at the gross inflow of cash, receivables or other considerations received. In assessing if a contract contains a significant financing component; an entity should consider the relevant facts including both of the following: � Difference between the amount of promised consideration and the cash selling price of the goods or services. real estate infrastructure, EPC (Engineering, Procurement and Construction), IT services, etc. Can A recognize revenue of the goods that are donated? Revenue recognition is a generally accepted accounting principle (GAAP) that stipulates how and when revenue is to be recognized. Loss of an enterprise saving mutual funds ( ELSS ) online recognise discounts and.. Good/ service has not previously been sold ind as revenue recognition a relative stand-alone selling price basis customer. Of profit and loss of an entity recognition is a generally accepted accounting principle GAAP. Entity assets yielding Interest, Royalties or Dividends relative stand-alone selling price basis and adjust that for! 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