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. Revenue recognition approach: Separate requirements exist for recognition of revenue from sale of goods, rendering of services and construction contracts. 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.). 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. ClearTax can also help you in getting your business registered for Goods & Services Tax Law. Ind AS 115 provides following guidance in respect of recognition of contract costs: � Incremental cost of obtaining contract with a customer: Entity should recognize as an asset if it expects to recover those costs. Ind AS 18 Revenue: 20. 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. Therefore, revenue recognition is considered as one of the crucial aspects examined by the investors, analysts and regulators. Control is considered to be transferred over time if one of the following conditions exists: � Customer controls the asset as it is created or enhanced by entity's performance under the contract, � A customer receives a benefit from the entity's performance as the entity performs. ClearTax is a product by Defmacro Software Pvt. The timing of revenue recognition might change under Ind AS 115’s control-based model. Variable consideration may be attributable to the entire contract or only to a specific part. III. An entity should recognize the reduction of revenue when (or as) either of the following events occurs: � Recognizes revenue for the transfer of related goods or service to the customer, � Pays or promises to pay the consideration, 6. 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. Ind AS-115 superseded the Ind AS-11 (Construction Contracts) & Ind AS-18 (Revenue).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. 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 . 2,00,000 in March 2004. In accounting parlance, revenue is considered as a subset of income. A donates certain perishable food products to Homeless people, which have reached their best before date but are still fit for human consumption. Thus, revenue recognition emphasizes on the timing of recognition of revenue in the statement of profit and loss of an enterprise. � 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. A Performance Obligation is a promise in a contract with customer to transfer either, i) A good or service, or a bundle of goods or services, that is distinct OR, ii) A series of distinct goods or services that are substantially the same and have pattern of transfer to the customer. - 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. 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. 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. This is variable consideration, a wide term and includes all types of negative and positive adjustments to the revenue. As accounting transitions to IFRS/ Ind AS, the specific accounting principles for financial instruments are contained in IFRS 9/ Ind AS 109. 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. Ind AS 12 Income Taxes: 17. A customer obtains control when it has the ability to direct the … 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. Entities may agree to provide goods or services for consideration that varies upon certain future events which may or may not occur. iii) Customer has significant risk and rewards The entity would update the refund liability each reporting period based on current facts and circumstances. Accounts 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. 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. 5. Some of the key differences between IND AS 18 and AS 9 are given below: 1. 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. When the inflow of cash (or cash equivalents) is deferred, FV can be less than the nominal amount of cash. Ind AS 16 Property, Plant and Equipment: 18. 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. Revenue is measured at FV of the consideration received or receivable after deducting trade discounts and rebates. Our GST Software helps CAs, tax experts & business to manage returns & invoices in an easy manner. 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