You are on page 1of 22


Prepared by: Togadiya Jignesh

Accounting Standard - 9

Revenue Recognition

Definition of Revenue Recognition:

Revenue Recognition means determining when
the revenue should be recognised as income in the

Profit and Loss Account of an Organisation.

Revenue includes

1) 2)


Revenue arising from--Sale of Goods; Rendering of services; Use of resources of the organisation by other. yielding interest, royalties and dividends.

Scope of AS - 9
This Standard does not deal with the following aspects of revenue recognition.. Revenue arising from construction contracts; Revenue arising from hire-purchase, lease agreements; Revenue arising from government grants; Revenue of insurance companies arising from insurance contracts Profit on sale of Assets Profit from exchange rate fluctuations

Revenue from Sale of Goods.

Revenue from Sales should be recognised at the time.

1) when risks and rewards of ownership are transferred to the buyer. 2) When Seller Lost effective Control 3) When No uncertainty exists regarding the amount of consideration.

Revenue from Rendering of Services

Revenue must be recognised as the service is performed, either on completed service method or proportionate completion method. Completed service method: Recognises revenue in the statement of profit and loss only when the rendering of services under a contract is completed. Proportionate completion method: Recognises revenue in the statement of profit and loss proportionately with the degree of completion of services under a contract.

Revenue from Use of resources of the Org. by others

Interest - (charges for the use of cash resources) Royalties - (charges for the use of such assets.. patents, trade marks and copyrights) Dividends - (rewards from the holding of investments in shares.) Interest is recognised on Time Basis, Royalties on the basis of Agreement Dividend recognised when owner's right to receive payment

Application of AS - 9
Circumstances When revenue should be recognised
At the time of delivery Revenue to be recognised when buyer confirms delivery and installation and inspection is complete.

[A sale of Goods]
Delivery is delayed at buyers request Delivered subject to installation and inspection

Delivered subject On approval Revenue to be recognised only after goods have been formally accepted. Guaranteed sales Recognition will depend on the substance of the agreement

Consignment sales

Revenue is recognised when goods are sold to a third party.

Application of AS - 9
Circumstances Cash on Delivery sales When revenue should be recognised When cash is received

Installment sales: where goods After Delivery of goods. are delivered only after receipts of final payment
repurchase agreement It is financing agreement, should not be recognised as revenue.

Application of AS - 9
Circumstances When revenue should be recognised When Product is Installed.

[B Rendering of Services]
Installation fees

Advertisement fees
Tuition Fees Membership fees

When advertisement appears in media.

Over period of tuition Over period of membership

Application of AS - 9
Circumstances [C Revenue from Use of resources of the Org. by others] Interest Royalties Dividend is recognised on Time Basis, on the basis of Agreement recognised when owner's right to receive payment When revenue should be recognised

Accounting Standard - 10

Accounting For Fixed Assets

Definition of Fixed asset

Fixed asset is an asset held for producing or providing

goods or services and is not held for sale in the normal course of the business.


Fair Market Value: is the price at which Buyer and seller

agree to transact.

Gross Book Value: it is the Historical Cost of Fixed assets.

Scope of AS - 10
It Excludes the following items: Forest, plantations and similar regenerative natural resources Wasting assets (Mines of Minerals, Oil wells etc) Expenditure on research and development Live stock Assets under government grants Lease Assets

Value of fixed assets

Purchase Price
ADD: (Sales Tax, Excise Duty, Transportation charges,

Installation charges etc)

LESS: (Trade Discount, CENVAT credit Available, and Rebates Get)

Example: (Find cost of Machine)

Purchase price Trade discount Sales tax CENVAT credit available Transportation Charges Installation charges 75,00,000 1,50,000 9,00,000 6,00,000 50,000 50,000


Identification of Fixed Assets

For determining whether items are to be classified as fixed assets. Judgement is required in applying the criteria to specific circumstances or specific types of enterprises. An enterprise may decide whether items include as Fixed assets or not.

Self-constructed Fixed Assets

Gross book value are costs of construction that relate

directly to the specific asset.

Any internal profits are eliminated in arriving at such costs.

Non-monetary Consideration

When a fixed asset is acquired in exchange for another

asset, its cost is usually determined by reference to the fair market value (FMV) of the consideration given.

Improvements and Repairs

Only expenditure that increases the future benefits from

the existing asset beyond its previously assessed standard of performance is included in the Gross book value.

e.g., an increase in capacity.