Revenue Recognition

AS – 9
Scope
Deals with the bases for recognition of revenue in the
statement of profit and loss

revenue arising in the course of the ordinary activities

Sale of Goods
the rendering of services
interest, royalties and dividends.
Scope
Does not cover
• Revenue arising from construction contracts
• Revenue arising from hire-purchase, lease
agreements
• Revenue arising from government grants and other
similar subsidies
• Revenue of insurance companies arising from
insurance contracts
You have a land at book value of Rs 5,00,000.

The current market value is Rs 7,00,000 – Should this

appreciation treated as Revenue?

You have sold the land for Rs 6,50,000. You have realised a gain
of Rs 1,50,000. Should it be treated as revenue?

Realised gains resulting from the disposal of, and

unrealised gains resulting from the holding of,
non-current assets – NOT to be treated as Revenue
You hold raw material of Rs 25,000. during
the current FY its valued is increased to Rs
40,000. Should it be treated as Revenue?

Unrealised holding gains resulting from the change in

value of current assets, and the natural increases in
herds and agricultural and forest products; - NOT to be
treated as Revenue
• Gains arising due to changes in foreign
exchange rates?

• Gains arising out of discharge of an

obligation at less than its carrying amount
Definition
Revenue is the gross inflow of cash, receivables or
other consideration arising in the course of the
ordinary activities of an enterprise

• Revenue is measured by the charges made to

customers or clients for goods supplied and services
rendered to them
• You are an agent who sells the goods on an commission
basis. You have made a sales of Rs 7,00,000 during the
period. The normal net profit margin is 10%. You are
eligible a commission of 5% on sales.

• What would be the amount you would recognize as

revenue?

• ₹ 7,00,000
• ₹ 70,000
• ₹ 35,000
Definition
Completed service contract method is a method of
accounting which recognises revenue in the statement
of profit and loss only when the rendering of services
under a contract is completed or substantially
completed

Proportionate completion method is a method of

accounting which recognises revenue in the
statement of profit and loss proportionately with
the degree of completion of services under a
contract
Revenue Recognition
• concerned with the timing of recognition of revenue

• The amount of revenue is determined by agreement

between the parties
Sale of Goods
• transferred the property in the goods to the buyer
for a consideration
• transfer of significant risks and rewards of
ownership to the buyer
• parties may agree that the risk will pass at a time
different from the time when ownership passes

• sale is assured under a forward contract

• government guarantee sale
Use by others of enterprise resources
INTEREST—charges for the use of cash resources or
amounts due to the enterprise

• Interest accrues on the time basis determined by the

amount outstanding and the rate applicable

• discount or premium on debt securities ?

Use by others of enterprise resources
• ROYALTIES—charges for the use of such assets as know-
how, patents, trade marks and copyrights

• Royalties accrue in accordance with the terms of the

relevant agreement
Use by others of enterprise resources
DIVIDENDS—rewards from the holding of investments in
shares

• right to receive payment is established - recognised in

the statement of profit and loss

• When interest, royalties and dividends from foreign

countries require exchange permission and uncertainty
in remittance ?
Effect of uncertainties on revenue
recognition
• revenue should be measurable
• Unable to assess the collection with reasonable certainty
• escalation of price
• export incentives
• Interest

• uncertainty relating to collectability arises - make a

separate provision

• consideration receivable is to be reasonably determined

Illustration – Sale of Goods
1.Delivery is delayed at buyer’s request and buyer takes
title and accepts billing

2. Delivered subject to conditions

• installation and inspection
• on approval basis
• guaranteed sales (unlimited right of return)
• consignment sales
• cash on delivery sales
3. purchaser makes a series of instalment payments and
the seller delivers the goods only when the final payment
is received
Illustration
Special order - where payment is received for goods not
presently held in stock
should not be recognised until goods are manufactured,
identified and ready for delivery

Sale/repurchase agreements
Finance agreement not revenue
Instalment sales
sales price exclusive of interest should be recognised at the date
of sale. Interest on time basis.
Trade discounts and volume rebates
not encompassed within the definition of revenue, since they
represent a reduction of cost – to be deducted
Sales to intermediate
Dealers, Distributors, agents, Retailers

Subscriptions for publications

Newspaper
Journal / Magazines
Illustration – Rendering service
Installation fees – (along with sale or others)
installation completed
Advertising agency
advt appearing before public
advt production commission – when completed
insurance agency commissions
Insurance commission – commencement of policy
Financial service commissions
“once and for all” or continuing service

Admission fees for events

when event takes place
Illustration – Rendering service
Tuition fees –
over period of instruction

Entrance and membership fees

nature of service – capitalised / systematic and rational
basis
Illustration – Revenue from
interest
Revenue from interest –
Time Proportionate basis
Revenues from dividends –
when declared
Uncertainty of collections –
make provision
Disclosure
• If uncertainty in revenue and postponed –
stated in disclosure

• AS1 – Accounting Policy

SMT Enterprise entered into a contract with ST Ltd to
despatch goods valuing Rs. 4 lakh every month for six
months upon receipt of entire payment. ST Ltd.,
accordingly made the payments. In third month due to
pandemic, ST Ltd., requested SMT Enterprise not to
despatch until further notice. SMT Enterprise accounted Rs
12 lakhs as sales and transferred the balance to Advance
Receipt against sales.
Is treatment of SMT Enterprise correct?
• LMW has placed an order for a special machine
with XYZ ltd. on Jan 2020.
• Advance of Rs. 3,00,000 was paid in Feb 2020
and the balance to be paid is Rs. 200,000.
• As per the terms of sale agreement, it is an FOB
Cochin contract. The goods was boarded on 15th
April 2020
• When should the revenue be recognized by XYZ
ltd.?
Royaloak Furnitures accepted an order for
customized furniture of Rs 5,00,000 in Jan 2019. It
received the full payment for the same. Upon
receiving the payment it started manufacturing it.
The furniture was delivered in May 2019.

Can it be recognized as revenue in Jan 2019.

• A sale contract was made between Maruti and
Pricol industries in the year 2001.
• As per the sale contract both companies can decide
upon the price of the product on a retrospective
basis.
• On 31st March 2005, it was agreed to increase the
price by 10% on retrospective basis from 1st Feb
2005. The sale as per the old price was Rs 10 Lakhs
for this period.
• How much amount should be recognised as
revenue for this period?
• L & T Constructions entered an agreement with
Tata steel for construction of a factory. The total
project cost was Rs 250 crores.
• In the year 2015-16 50% of the work was
completed and an amount of Rs 150 Crores was
received from Tata Motors.
• How much amount should be recognised as
revenue as per AS 9?
• Bharti Airtel Limited hold shares of Indus Towers
Ltd with a face vale of Rs 50 lakhs (Rs 10 each)
• The Board of Directors proposed an interim
dividend of Rs 2 per share on 20 Feb 2019. This
was declared by passing a resolution of board of
directors on 15 April 2019.

• The accountant of Bharti Airtel treated as

revenue in the financial statement of 2018-19. Is
this treatment correct?
ABC Ltd sold goods worth Rs 10 Lakhs on credit to
XYZ Ltd on 25 Jan 2019. It was purchased by XYZ
Ltd for export. The export order got cancelled due
to pandemic. So XYZ Ltd decided to sell it in the
local market for Rs 8,75,000. XYZ Ltd requested a
discount of 10% form ABC Ltd.

Is the sales figure in the books of ABC Ltd to be

adjusted or retained at Rs 10 Lakhs.?
Asian Paints sells its products through dealers. As
a part of their sales promotion, it announced a
scheme of returning back the unsold items by the
dealer to the company with in one month of sales.
By this the sales of the company increased by
50%. Sales return of the year was 25% od the
sales.

What should be the policy of revenure recognition

as per AS9?
A2B a chain of restaurants when disclosing sales
accounted cost of goods consumed by the
employees.

Comment on the following as per AS9?

ABC Investments hold mutual funds with a face value of Rs
50 Lakhs on 31st March 2021. It accounted Rs 5 Lakhs as
divided on accrual basis during the year.

The AMC proposed a dividend on 25th Feb 2021 and it was

declared on 20th April 2021.

Is the treatment of ABC Investments correct.

Beetel Tech Ltd despatched electronics products through air
cargo. Goods worth Rs 5,00,000 was damaged and a claim was
lodged with the insurance company for the same on 10th Oct
2020. The company was uncertain in receiving the claim from
the insurance company. So it ignored the transaction. Later in
the year 2022 the amount was received.

Is the approach (ignoring the transaction ) of Beetel Tech Ltd

correct
AS9
Based on Nominal Value
Not covered
Interest Income is recognized on Interest Income is recognized
time proportion basis
It recognizes revenue as per
completed service method or
percentage completion method
Disclosure not detail
Ind AS 18
Based on fair value
Barter Transactions are included
in Ind AS-18
using effective interest rate
method
It only recognizes revenue as per
percentage of completion
method
Disclosure requirements given in
the Ind AS 18 are more detailed
as compared to existing AS 9.