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”.
Revenue has to be measured by the amount charged to the clients for the sale of goods and services. However, in the case of the agency relationship, the revenue has to be measured by the amount charged for commission and not on the gross inflow of the cash, receivables or other consideration. There are few exceptions to the above-mentioned statement where the special consideration applies: –
This standard was issued by ICAI in the year 1985 and in the initial years, it was re-commendatory for only Level I enterprises and but was made mandatory for all other enterprises from April 01, 1993.
As per ICAI, “Enterprise means a company as defined in section 3 of the Companies Act, 1956”.
Level I enterprises are those enterprises whose turnover for the immediately preceding accounting year exceeds 50 crores. The turnover here does not include other income and is applicable for holding as well as subsidiary companies.
One key element for determining the recognition of revenue of a transaction involving the sale of goods is that the seller has transferred the property in the goods to the buyer for a consideration. In most cases, the transfer of property in the goods results in the transfer of the significant risks and rewards in ownership of the goods.
However, there are situations where the transfer of significant risks doesn’t coincide with the transfer of goods to the buyer, in such cases revenue has to be recognized at the time of transfer of significant risks and rewards to the buyer.
Example: Goods sent to the consignee on approval basis. There are certain cases in the specific industry where the performance may be substantially complete prior to the execution of the transaction generating revenue. In such cases, when the sale is assured under government guarantee or a forward contract or where the market exists and there is a negligible risk of failure to sell, the goods involved are often valued at the net realizable value (NRV).
Such amounts are not defined in the definition of the revenue but are still sometimes recognized in the statement of profit and loss. Example: Harvesting of Agricultural Crops or extraction of mineral ores.
Revenue recognition of services depends as the service is performed. This is further divided into two ways:
The use by others of such enterprise resources gives rise to:
|AS 9 Revenue Recognition||IND AS 18|
|It is recognized at nominal value||It is recognized at fair value|
|This aspect is not covered in AS-9||IND AS – 18 also includes the exchange of goods and services with goods and services of similar and dissimilar nature (BarterTransactions are included in Ind AS-18)|
|Interest Income is recognized on time proportion basis||Interest Income is recognized using effective interest rate method|
|It recognizes revenue as per completed service method or percentage completion method||It only recognizes revenue as per percentage of completion method|