Ind AS 18, Revenue: The primary issue in accounting for revenue is determining when to recognise revenue. Revenue is recognised when it is probable that future economic benefits will flow to the entity and these benefits can be measured reliably. This Standard identifies the circumstances in which these criteria will be met and, therefore, revenue will be recognised. It also provides practical guidance on the application of these criteria.
Revenue is the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity, other than increases relating to contributions from equity participants.
The Standard shall be applied in accounting for revenue arising from the following transactions and events: (a) the sale of goods; (b) the rendering of services; and (c) the use by others of entity assets yielding interest and royalties
The Standard deals with recognition of interest. However, measurement of interest and recognition and measurement of dividend are dealt in accordance with Ind AS 109, Financial Instruments.
The impairment of any contractual right to receive cash or another financial asset arising from this Standard shall be dealt in accordance with Ind AS 109, Financial Instruments.
Identification of the transaction
The recognition criteria in this Standard are usually applied separately to each transaction. However, in certain circumstances, it is necessary to apply the recognition criteria to the separately identifiable components of a single transaction in order to reflect the substance of the transaction. For example, when the selling price of a product includes an identifiable amount for subsequent servicing, that amount is deferred and recognised as revenue over the period during which the service is performed. Conversely, the recognition criteria are applied to two or more transactions together when they are linked in such a way that the commercial effect cannot be understood without reference to the series of transactions as a whole. For example, an entity may sell goods and, at the same time, enter into a separate agreement to repurchase the goods at a later date, thus negating the substantive effect of the transaction; in such a case, the two transactions are dealt with together.
Measurement of revenue
Revenue shall be measured at the fair value of the consideration received or receivable. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The amount of revenue arising on a transaction is usually determined by agreement between the entity and the.
buyer or user of the asset. It is measured at the fair value of the consideration received or receivable taking into account the amount of any trade discounts and volume rebates allowed by the entity.
Sale of goods
Revenue from the sale of goods shall be recognised when all the follo wing conditions have been satisfied:
- (a) the entity has transferred to the buyer the significant risks and rewards of ownership of the goods;
- (b) the entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
- (c) the amount of revenue can be measured reliably;
- (d) it is probable that the economic benefits associated with the transaction will flow to the entity; and
- (e) the costs incurred or to be incurred in respect of the transaction can be measured reliably.
Rendering of services
When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the transaction shall be recognised by reference to the stage of completion of the transaction at the end of the reporting period. The outcome of a transaction can be estimated reliably when all the following conditions are satisfied: (a) the amount of revenue can be measured reliably; (b) it is probable that the economic benefits associated with the transaction will flow to the entity; (c) the stage of completion of the transaction at the end of the reporting period can be measured reliably; and (d) the costs incurred for the transaction and the costs to complete the transaction can be measured reliably.
The recognition of revenue by reference to the stage of completion of a transaction is often referred to as the percentage of completion method. Under this method, revenue is recognised in the accounting periods in which the services are rendered. The recognition of revenue on this basis provides useful information on the extent of service activity and performance during a period.
When the outcome of the transaction involving the rendering of services cannot be estimated reliably, revenue shall be recognised only to the extent of the expenses recognised that
Interest and Royalties
Revenue arising from the use by others of entity assets yielding interest and royalties shall be recognised when: (a) it is probable that the economic benefits associated with the transaction will flow to the entity; and (b) the amount of the revenue can be measured reliably.
Revenue shall be recognised on the following bases: (a) interest shall be recognised using the effective interest method as set out in Ind AS 109; (b) royalties shall be recognised on an accrual basis in accordance with the substance of the relevant agreement.
Difference Between AS 9 and Ind AS 18
|AS 9||Ind AS 18|
|AS 9 does not excludes the same from its scope.||Revenue arising from agreements of real estate development are not covered by IndAS 18, as this aspect is dealt with under Ind AS 11.|
|AS 9 requires the revenue to be recognised at nominal value of consideration received or receivable.||Ind AS 18 requires the revenue to be recognised at fair value of the consideration received or receivable|
|This aspect is not dealt with by AS 9.||Ind AS 18 specifically deals with the exchange of goods and services with goods and services of similar and dissimilar nature (i.e. revenue recognition in case of barter transactions)|
|For recognition of revenue in case of rendering of services, AS 9 gives an option to follow either:
||For recognition of revenue in case of rendering of services, Ind AS 18 permits percentage of completion method only.|
|Requires the recognition of interest income on time proportion basis.||Requires interest income to be recognised using effective interest rate method.|
|AS 9 (ASI 14) states that the amount of excise duty (other than the excise duty on opening and closing stock) to be disclosed as a deduction from Gross Revenue from Sales, and the net balance of Revenue from Sales to be shown on the face of P&L Statement.||Does not specifically deal with the same.|
|AS 9 does not deal with this aspect.||Ind AS 18 provides guidance regarding recognition of revenue, in case the entity is under an obligation:
|Disclosure requirements given in the Ind AS 18 are more detailed as compared to existing AS 9.|
|AS 9 defines Revenue as:
Gross inflow of cash, receivables or other consideration arising in the course of the ordinary activities of an enterprise from:
|Definition of ‘revenue’ given in the Ind AS 18 is broad compared to the definition of ‘revenue’ given in existing AS 9.
As per Ind AS 18, Revenue means:
economic benefits that arise in the ordinary course of activities of an entity which result in increases in equity, other than increases relating to contributions from equity participants.