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Society, Management and Accounting

Revenue Recognition

GAAP, Accounting Concepts & Accounting Standards

Paper I · Unit 3 Section 7 of 14 0 PYQs 23 min
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Revenue Recognition

6.1 AS 9 — Revenue Recognition (Traditional Indian GAAP)

Revenue should be recognised when:

  • For sale of goods: Risks and rewards of ownership transferred to buyer; seller retains no effective control; amount can be reliably measured; probable that economic benefits will flow
  • For rendering of services: Percentage of completion method (for long-term service contracts) or completed contract method (for short-duration)
  • Interest, royalties, dividends: Time proportion basis; contractual entitlement; expected inflow

6.2 Ind AS 115 — Revenue from Contracts with Customers (IFRS 15 equivalent)

Five-step model replacing AS 9:

  1. Identify the contract(s) with the customer
  2. Identify the distinct performance obligations in the contract
  3. Determine the transaction price
  4. Allocate the transaction price to each performance obligation
  5. Recognise revenue when (or as) each performance obligation is satisfied

Impact of Ind AS 115 in India: Telecom companies (Airtel, Jio) changed revenue recognition for bundled mobile packages; real estate developers changed recognition from completion method to percentage of completion — significantly altering their reported revenues.