11/29/2014

REVENUERECOGNITION(AS9)BYTWINKLEDIXIT

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REVENUERECOGNITION(AS9)BYTWINKLEDIXIT

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REVENUERECOGNITION(AS9)
Objective:
TheStandardexplainsastowhentherevenueshouldberecognizedinprofitandlossaccountandalso
statesthecircumstancesinwhichrevenuerecognitioncanbepostponed.Revenuemeansgrossinflow
ofcash,receivableofanenterprisesuchas:
TheSalesofGoods.
RenderingofServices.
Useoftheenterpriseresourcesbyothersyieldinginterest,dividendandroyalties.
In other words, revenue is a charge made to customers/ clients for goods supplied and services
rendered.

TimingofRevenueRecognition:
Revenue from sale of rendering services should be recognized at the time of the sale or rendering of
services. However, if at the time of rendering opf services or sale there is significant uncertainty in
ultimatecollectionoftherevenue,thentherevenuerecognitionispostponedandinsuchcasesrevenue
shouldberecognizedonlywhenitbecomesreasonablycertainthatultimatecollectionwillbemade.It
alsoappliestotherevenuearisingoutofescalationofprice,exportincentive,interest,etc.

Applicability:
ThisAccountingStandardisnotapplicabletofollowingrevenueorgain
Revenuearisingfromconstructioncontracts.
Revenuearisingfromhirepurchase,leaseagreements.

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RevenuearisingfromGovt.grantsandsubsidies.

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Revenueofinsurancecompaniesarisingfrominsurancecontracts.

Candidateslisting...

Gainrealizedorunrealizedgain.Example:Profitonsaleoffixedassets.

1.Revenuefromsaleofgoods:
I.Itisrecognizedwhenallthefollowingconditionsarefulfilled:
Sellerhastransferredtheownershipofgoodstobuyerforaprice.

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Or
Allsignificantrisksandrewardofownershiphavebeentransferredtobuyer.
There is no significant uncertainty in collection of the amount of consideration (i.e.
cash,receivable,etc.)

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II. Revenue Recognition when the delivery of goods is delayed at buyers request:Delivery is
delayed at buyers request and buyer takes title and accepts billing. Revenue shold be
recognized immediately bt goods must be in the hand of seller, identified and ready for
deliveryatthetimeofrecognitionofrevenue.

Trainee

III.RevenueRecognitionwhendeliveryofgoodssoldissubjecttoconditions:

TDSu/s194LACompulsory

Installationandinspection:Revenueshouldberecognizedwhen
Goodsareinstalledatthebuyersplacetohissatisfaction
Goodsareinspectedandacceptedbythebuyer.
SaleonApproval:Revenueshouldberecognizedwhenthebuyerconfirmshis
desiretobuysuchgoodsbycommunication.
GuaranteedSales:Revenueshould berecognizedasperthesubstanceofthe
agreementofsaleorafterthereasonableperiodhasexpired.
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REVENUERECOGNITION(AS9)BYTWINKLEDIXIT

Warranty Sales: Sales should be recognized immediately but the provision

shouldbemadetocoverunexpiredwarranty.
Consignment Sales: Revenue should be recognized only when the goods are
soldtoathirdparty.
Specialorderandshipments:Revenuefromsuchsalesshouldberecognized
whenthegoodsareidentifiedandarereadyfordelivery.
Itemsdeliveredvaryinthevaluefromperiodtoperiod.
Revenueshouldberecognizedonthebasisofsalesvalueofitemsdelivered.

Nashik
ChopraShah&Associates
Ahmedabad
NGhosh&Associates
Kolkata
AnkitRAgarwal&
Associates
Bhiwadi

Itemsdelivereddonotvaryinvaluefromperiodtoperiod
Revenueshouldberecognizedonstraightlinebasisovertime.
Installmentsales:Revenueofsalepriceexcludinginterestshouldberecognized
onthedateofsale.Interestshouldberecognizedproportionatelytotheunpaid
balance.

2.Revenuefromrenderingoftheservices:
Revenuefromserviceisgenerallyrecognizedastheserviceisperformed.Theperformanceofserviceis
measuredbytwomethodsasunder:
Completed service contract method Revenue is recognized when service is
abouttobecompletedandnosignificantuncertaintiesexistaboutthecollection
ofamountofservicecharges.
Proportionate Completion Method Revenue is recognized by reference to the
performance of each act. The revenue recognized under this method would be
determined on the basis of contract value, associated costs, number of acts or
othersuitablebasis.Further,nosignificantuncertaintyexistsaboutthecollection
ofamountofservicechargesofperformedacts.

Revenue Recognition Norms: Revenue Recognition norms for rendering of services

underspecialconditionsareasfollows:
InstallationFees
AdvertisingandInsuranceagencycommission
Advertisingcommissionisrecognizedwhentheadvertisementappearsbefore
public
Insurancecommissionisrecognizedontheeffectivecommencement/renewal
dateofthepolicies.
Financialservicecommission
Admissionfee
Tuitionfees
EntranceandMembershipFees

3.RevenuefromInterest:
Revenuefrominterestshouldberecognizedontimeproportionbasis.

4.RevenuefromRoyalties:
Onaccrualbasisasperthetermsoftheagreement.

5.RevenuefromDividend:
Whenthedeclaringcompanydeclaresdividend.

6.Subsequentuncertaintyincollection:
When uncertainty of revenue arises subsequently after the revenue recognition, it is better to make
provisionfortheuncertaintyincollectionratherthanadjustmentinalreadyrecognizedrevenue.

Disclosure:
When revenue recognition is postponed, the disclosure of the circumstances necessitating the
postponementshouldbemade.
DisclosureofRevenuefromSalesTransactions
Turnover(Gross)XXX
LessExciseDutyXXX

Turnover(Net)XXX

RevenueRecognitionofrealEstatesaleIssue:
ThetermRealEstatereferstolandaswellasbuilding.Theissueiswhenshouldtherevenuebe
recognizedincaseofRealEstatebytheenterprisesengagedinsuchactivities(commonlyreferredtoas
Realestatedevelopers,buildersorpropertydevelopers)
ConsensusRevenueincaseofRealestatesalesshouldberecognizedwhenallthefollowing
conditionsaresatisfied:
(i)Thesellerhastransferredtothebuyerallsignificantrisksandrewardsofownershipandthe
sellerretainstoeffectivecontroloftherealestatetransferredtoadegreeusually
associatedwithownership.
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REVENUERECOGNITION(AS9)BYTWINKLEDIXIT

(ii)Atthetimeoftransferofallsignificantrisksandrewardsofownershipisnotunreasonableto
expectultimatecollection.
(iii)Nosignificantuncertaintyexistsregardingtheamountoftheconsiderationthatwillbederived.
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