In this article, we shall take up the ICDS IV and its comparison with the corresponding AS.
ICDS IV Revenue recognition
ICDS IV deals with the basis for recognition of revenue which is earned by performing business activities like sale of goods, rendering of services, use of entity’s resources by other persons yielding interest, the royalty or any other such form of income.
1. In case of sale of goods, the revenue will be recognized when the seller of goods has transferred the property/title in the goods for a price to the buyer, along with the significant risks and rewards attached to the goods, and the seller retains no effective control of the goods transferred. Recognition will be based on the reasonable certainty of the collection of revenue.
2. Revenue from service transactions shall be recognized by the percentage completion method. Under this method, revenue from service transactions is matched with the service transaction costs incurred in reaching the stage of completion, resulting in the determination of revenue, expenses and profit which can be attributed to the proportion of work completed. If the services are being provided on a concurrent basis then the revenue will be recognized on a straight-line basis, like, monthly or quarterly.
3. Revenue from service contracts with duration of not more than 90 days may be recognized when the rendering of services under that contract is completed or substantially completed.
4. In case of use of entity’s resources:
i. Interest or any other income arising will be accrued and recognized on the time basis determined by the amount outstanding and the rate applicable
ii. Interest on refund of any tax, duty or cess shall be deemed as the income of the previous year in which such interest was received
iii. Discount or premium on debt securities held is treated as if it has been accruing over the period till maturity
For the purpose of this ICDS, following disclosures need to be made:
1. The transaction involved in sale of goods, amount not recognized as revenue done in lieu to lack of a reasonable certainty
2. Amount of revenue from rendering of service, recognized as revenue in the reporting period
3. The method used to determine the stage of completion of service
4. For service transactions in progress at the end of the year:
i) Amount of costs incurred and recognized profits at the end of the year
ii) The amount of advances received
iii) The amount of retentions (amount billed for work done but still not received to the satisfaction of the conditions specified in contract)
Comparison of ICDS IV and AS 9
|Sl. No.||Basis||ICDS IV||AS 9|
|1.||Method of recognition||Three methods: percentage completion, straight line and recognition when service contract is completed or substantially completed in case of service contract not more than 90 days.||Two methods: completed service contract method and proportionate completion method|
|2.||Recognition of interest or refund of any tax||Interest on refund of any tax, duty or cess shall be deemed as the income of the previous year in which such interest is received.||Interest or any other income arising will be accrued and recognized on the time basis.|
|3.||Exclusion||ICDS IV does not deal with the revenue recognition which is dealt by the any other ICDS. It does not specifically provide revenue of insurance companies.||One of the exclusion of AS 9 is it does not deal with recognition of revenue of insurance companies arising from insurance contracts|
For further reading on these series, check out our next article on ICDS V