IND AS 115 VS IND AS 18/11 VS AS

9/7

IND AS 115 VS IND AS 18/11 VS AS 9/7

Background
The Ministry of Corporate Affairs (MCA), Government of India vide notification
GSR 111 (E) dated 16th February, 2015 notified the Companies (India
Accounting Standards) Rules,2015. The applicability of these standards to
various listed / unlisted companies (including their holding, subsidiary, joint
venture or associate companies) was laid down in this notification.The
notification also laid down the various standards commonly known as Ind AS.
Ind AS standards are in broadly line with International Financial Reporting
Standards
IFRS 15
Revenue from Contracts with Customers was issued in May 2014 and was
made effective for an entity's IFRS financial statements for the periods beginn
ing on or after 1st January, 2017 .Subsequently, in September, 2015
International Accounting Standard Board (IASB) deferred the effective date to
1st January, 2018.
Ind AS 115
The MCA notification dated 16th February, 2015 had notified Ind AS 115.
However, subsequent to the decision of IASB to defer the implementation of
IFRS 15, the MCA vide Companies (Indian Accounting Standards)
(Amendment) Rules, 2016 dated 30th March, 2016 omitted Ind AS 115 and
inserted Ind AS 11 Construction Contracts and Ind AS 18 Revenue. Ind AS
115 is then notified on 1st April 2018 withdrawing Ind AS 18 and Ind AS 11.

Objective of Ind AS 115

The objective of this Standard is to establish the principles that an entity shall
apply to report useful information to users of financial statements about the
nature, amount, timing and uncertainty of revenue and cash flows arising from
a contract with a customer.

Standards Superseded by Ind AS 115

Ind AS 115 provides a single comprehensive framework to be used by
businesses to recognize revenue from customers. The following current
revenue recognition standards & guidance will be superseded by Ind AS 115

 Ind AS 11-Construction Contracts

 Ind AS 18 Revenue

1 Prashasti Dhanotiya
 IND AS 115 VS IND AS 18/11 VS AS
9/7
 Appendix A & B – Service Concession Arrangements (shall become
Appendix C & D of Ind AS 115)
 Appendix A – Barter transactions involving advertising services
 Appendix B – Customer Loyalty Programmes
 Appendix C – Transfer of Assets from Customers

Brief Comparison
IND AS 18/11 or AS 9/7
Separate models for :
 Construction contracts
 Goods
 Services
Focus on risks and rewards
Limited guidance on
IND AS 115
Single model for performance
Obligations
 Satisfied over time
 Satisfied at a point in time
Focus on control
More guidance on:

 Multiple element  Separating elements

arrangements  Allocating the transaction
 Variable considerations price
 Licenses  Variable consideration
 Licenses
 Options
 Repurchase arrangements…

 Further to understand the difference between the framework of Ind AS

115 and Ind AS 18/11 or AS 9/7,first we need to understand the 5 step
model framework given by Ind AS 115

5 Step Model Framework of Ind AS 115

2 Prashasti Dhanotiya
 IND AS 115 VS IND AS 18/11 VS AS
9/7

Step 1 : Identify contracts with customers

Contract: An agreement between two or more parties that creates

enforceable rights and obligations. Contracts can be written, verbal or implied
based on an entity’s customary business practices.
Customer: A Party that has contracted with an entity to obtain goods or
services that are an output of the entity’s ordinary activities in exchange for
consideration. The revenue recognition principles of Ind AS-115 apply only
when a contract meets all of the following criteria:

 The parties to the contract have approved the contract;

3 Prashasti Dhanotiya
 IND AS 115 VS IND AS 18/11 VS AS
9/7
 Each party’ regarding the goods or services in the contract can be
identified;
 The payment terms can be identified
 The contract has commercial substance (i.e., the risk, timing or amount
of future cash flows is expected to change as a result of the contract);
and
 It is probable that the entity will collect the consideration due under the
contract.

Consideration may not be the same as the transaction price due to discounts
and bonuses.
The criteria are assessed at the beginning of the contract and, if the contract
meets them, they are not reassessed unless there is a significant change in
circumstances that make the contract rights and obligations unenforceable. A
contract that does not initially meet the criteria can be reassessed at a later
date.
Combination of Contracts: When two or more contracts are entered into
with the same customer or with related parties of the customer at or near the
same time, the contracts should be combined and accounted for as a single
contract if:

 either the contracts are negotiated as a package with a single

commercial objective;
 consideration for one contract is tied to the performance or price of
another contract, or
 the goods/services promised represent a single performance
obligation.

Contract Modification: A contract modification represents a change in the

price or scope (or both) of a contract approved by both parties. When a
modification occurs, it is either treated as a new contract or as a modification
of the existing contract. The modification is treated as a new if both the scope
increases due to the addition of distinct goods or services and the price
increase appropriately reflect the stand-alone selling prices of the additional
goods/services. If not accounted for as a new contract, the modification is
treated as part of the existing contract (not non-distinct goods and services)
with an adjustment to revenue to reflect the change in the transaction price.

Step 2: Identify separate performance obligations

Performance obligation- a promise to transfer to a customer:

 A goods or services (or bundle of goods or services) that is distinct; or

 A series of goods or services that are substantially the same and are
transferred in the same way.

4 Prashasti Dhanotiya
 IND AS 115 VS IND AS 18/11 VS AS
9/7
 If a promise to transfer a goods or services not distinct from other
goods and services in a contract, then the goods or services are
combined into a single performance obligation.

A goods or services is distinct if both the following criteria are met:

1. The customer can benefit from the goods or services on its own or
when combined with the customer’s available resources; and
2. The promise to transfer the goods or services is separately identifiable
from other goods or services in the contract.

A transfer of a goods or services is separately identifiable if the goods or

services :

 is not integrated with other goods or services in the contract;

 does not modify or customize another goods or services in the
contract; or
 does not depend on or relate to other goods or services promised in
the contract.

Example: Hyderabad Conical is building a multi-unit residential complex. It

enters into a contract with a customer for a specific unit that is under
construction. The goods and services to be provided in the contract include
procurement, construction, piping, wiring, installation of equipment and
finishing. Although the goods and services provided by the contractor are
distinguishable, they are not distinct in this contract because the goods and
services cannot be separately identified from the promise to construct the unit.
Hyderabad conical will integrate the goods and services into the unit, so all
the goods and services are accounted for as a single performance obligation.

Step 3 : Determine the transaction price

 The transaction price is the amount of consideration to which the entity

expects to be entitled in exchange for transferring promised goods and
services to a customer, excluding amount collected on behalf of third
parties for example-GST
 The consideration promised to customer in a contract may include fixed
consideration or variable consideration or both.
 For the purpose of determining the transaction price ,an entity shall
assume that the goods or services will be transferred to the customer
as promised in accordance with the existing contract and the contract
will not be cancelled, renewed or modified.

Step 4: Allocate the transaction price to the performance obligations

The objective when allocating the transaction price is for an entity to allocate
the transaction price to each performance a. obligation (or distinct goods or
service) in an amount that depicts the amount of consideration to which the
entity expects to be entitled in exchange for transferring the promised goods

5 Prashasti Dhanotiya
 IND AS 115 VS IND AS 18/11 VS AS
9/7
or services to the customer.
 Allocation of transaction price can be done proportionately based on
stand-alone selling prices.
 The stand-alone selling price is the price at which an entity would sell a
promised good or service separately to a customer

Step 5: Revenue Recognition when performance obligations are

satisfied

Performance obligation is satisfied over time or at a point in time.

Performance obligation is satisfied over time if one of the criteria is met out of
three:
 The customer simultaneously receives and consumes the benefits
provided by the entity’s performance as the entity performs
 The entity's performance creates or enhances an asset (for example work
in progress) that the customer controls as the asset is created or
enhanced or
 The entity’s performance does not create an asset with an alternative use
to the entity and the entity has an enforceable right to payment for
performance completed to date. e Based on above the Revenue
Recognition for a performance obligation is done over time if one of the
criteria is met out of three else Revenue Recognition for a performance
obligation is done at a point in time.
Ind AS 115 focuses on “control approach” for revenue recognition as against
the “risk and rewards” approach under Ind AS 18

Key Difference between current

Ind AS /AS and Ind AS 115

6 Prashasti Dhanotiya
 Ind AS 18/11 or AS 9/7 Ind AS 115
Scope:
IND AS 115 VS IND AS 18/11 VS AS
9/7AS 18/AS 9 deals with revenue
Ind Ind AS 115 is applicable to contracts
arising from sale of goods, rendering with customers to provide goods or
of services and interest, dividend and services in the ordinary course of
royalties. business. However, it does not apply
Ind AS 11/AS 7 deals with revenue to:
arising from construction contracts.
 Lease contracts
 Insurance contracts
 Financial Instrument contracts
and certain other contractual
rights
 Certain non-monetary
exchanges
Definition of customer:
Not defined The ‘customer’ is defined as ‘a party
that has contracted with an entity to
obtain goods or services that are an
output of the entity’s ordinary
activities in exchange for
consideration.’
Revenue recognition approach:
Separate requirements exist for Ind AS 115 prescribes five steps
recognition of revenue from sale of model to account for revenue:
goods, rendering of services and Identify the contract(s) with a
construction contracts. customer
It focuses on transfer of significant Identify the separate
risks and rewards approach for performance obligations in the
revenue recognition. contract
Determine the transaction
price
Allocate the transaction price
to the separate performance
obligations
Recognize revenue when (or
as) the entity satisfies a performance
obligation
It focuses on transfer of control
approach for revenue recognition.

Disclosures:
Ind AS 11/ Ind AS 18 contains very Ind AS 115 require extensive
limited disclosure requirements. qualitative and quantitate disclosures
pertaining to contract with customer.
For example, Ind AS 115 requires
companies to provide disaggregated
revenue information in the financial
statements that depict how the
7 nature, amount, timing
Prashasti Dhanotiyaand
uncertainty of revenue and cash
flows are affected by economic
factors.