Ind AS 115

REVENUE FROM CONTRACTS WITH

CUSTOMERS
B. 5 Step Model recognizing & measuring revenue A OVER VIEW C. Contract Cost

Step I
trial
Step II
exam op Step III Step IV Step V
Applicability
and Scope
Identify the Identify the Determine the Allocate tr. price Recognise (See next page)
contract
with
performance
obligation (PO) in
transaction price
↓
to respective PO
where contracts
C Revenue
when entity
Cost Inclusion &
Exclusion
Amortisation Impairment

customer contract have multiple performs Contract

A. Definition
↓ P.O. respective Cost
B. Principle P.O.
A
A. Definition &
types of PO
C. Factors
↓
↓
A. Principle B Special Topics (Appendix to Ind AS)
Definition B. Identification ↓ 5 Step Model of
1. Variable
of individual B. Allocation recognizing &
consideration
B P.O. in the based on measuring Revenue Appendix B Appendix C Appendix D
↓
Criteria to
qualify to be
contract
C. Satisfaction
2. Constraints to
variable
stand alone price
of each P.O. ←
D 1. Sale with right to return Transition SCA
a contract & of P.O. Methods to Special Topics to Ind AS
consideration 2. Warranties
definition determine (Appendix to 115

C
C1 ↓
3. Financing
standalone price E Ind AS) 3. Principal
→ Gross Rev. Vs Agent → Commision
Principle ↓ Presentation and
component
Ind AS C. Allocation of Disclosure 4. Option with customer to acquire
Scope ↓ additional goods/services
C2 discount
D
4. Non-
monetary
consideration
↓
D. Allocation of
F 5. Customer’s unexercised rights
6. Non-refundable upfront fees
Types Over a At a Transition to
↓ variable We have given 7. Licensing & Royalty
→

period point Ind AS 115

consideration our Heart and
Duration of time of time 5. Consideration
↓ Soul to this Book! 8. Sale & Repurchase
payable to
Hope you loved 9. Consignment Sales
C3 customers E. Changes in tr.
E it…
price & its 10. Bill & hold arrangements
Combination Measuring allocation
of 2 or more the 11. Customer acceptance
contracts modifications
progress 12. Disclosure (Discussed with
towards Legend for Ind AS 115 Presentation & Disclosure)
F P.O.
PO : Performance Rev. Revenue CF : Cash Flows
Modifications Obligation
in Contract Vr. Cons. : Variable Tr.Pr. : Transaction Price
T/F : Transfer Consideration CWC : Contracts with
G/S : Goods or service W/O : Without customers

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1. Ind AS applies only to
contracts with customers
Ind AS 115
REVENUE FROM CONTRACTS WITH
CUSTOMERS
A. Applicability & Scope B. 5 Step Model
Step I . Contract with customer
5. Ind AS N.A. to:
A. Definition of Contract B. Criteria for contract
a) Insurance Contracts
b) Financial Instruments • Agreement between B. Criteria for contract with customer to meet the definition of

I
2. Customers : Party c) Leases 2 or more parties that contract and to be covered in scope of this Ind AS
contracted to obtain g/s (goods/ creates enforceable
(unless such stand-
services) that are output of ard provides to
rights (consideration) 1 2 3 4 5
entity’s ordinary activities against for one's promise) and
refer to Ind AS obligation (promise 1. Parties Entity can Entity can Contract to Entity is
consideration. 115) approved identify identify have probable to
under the contract)

EE
and each payment commercial collect the
3. Ind AS N.A. on contracts which Eg. Revenue recognition • None of the parties party’s R & terms for
committed substance consideration
involve sharing of entity’s of commission on financial have right to
to perform O regarding g/s to be i.e. CFs of to which it is
output between collaborators. unilaterally cancel the G/S to be transferred asset entitled.
guarantee givenInd AS 109 the contract
wholly unperformed transferred transferred
Eg. A Ltd., has land, B. Ltd., refers to Ind AS 115. contract without ↓
(t/f) to Checked:
contracts to construct bldg. on paying compensation. Writing / When
6. Ind AS N.A. to non- Oral / customer
such land and divide the flats monetary exchange for the consid. will be
between them in equal Customary due →
between 2 or more or Practices customer

Et
proportion for future sales. Analysis are
entity to facilitate sales (Implied) → If entity
→Wholly unper- different
4. Ind N.A. on sale of assets that are to customer or potential later
formed contract; from CFs to
not entity’s output in customer. expects to
the entity
ordinary course of business like & We have given our bear further
Eg. One oil co. gives discounts/
PPE held for sale, Sale of Invst. Entity has Entity has Heart and Soul to ↓
oil to other oil concessions
Property, Financial assets etc. co. at one
not not yet this Book! Hope Exchange when the
transferred received you loved it…
location in of similar consideration
→ However, in certain cases other g/s or entitled
exchange for oil G/S will be
Ind AS refers to Ind AS 115 for to receive
at other location. between payable, it
purpose of derecognition ac- price in the
2 parties shall not be
counting or accounting for contract
* Barter transactions with cus- + is not a treated as
recognition of revenue/sale of tomers are covered in this Can be unilaterally contract for violation of
assets. In such case Ind AS 115 Ind AS. i.e. at choice of either sale of G/S. this condition.
will become relevant. (Eg) Ind party without consent of
other; →If no
AS 16 → Entities into business of 7. Scope: Revenue and to cer-
certainty exist,

I
leasing out assets on operating tain extent +
Cancelled W/O no revenue
lease, to recognize revenue on accounting for recognized in
sale of such assets as per Ind AS Contract Costs, is prescribed compensation payable
8. Contract partially covered under this Ind AS and this Ind AS.
115. (Eg.) When to Derecognise a partially not, then first check if other Ind AS
PPE? Ind AS 16 refers to princi- prescribes how to recognize/split & if so follow
ples of Ind AS 115. Incremental Costs to fulfill that Ind AS, else apply Ind AS 115.
costs the contract

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met
contract oookm 1000km
384m
Bice
estimate soot
cost
1000 10005
7soE 78 F.BE s
artworkcostsincurredboot Ind AS 115
REVENUE FROM CONTRACTS WITH
17pmProfit 400
Butif
65 2000 CUSTOMERS
batty Reg 38884289
B. Step I : Contract with Customers : Scope, Duration & Combination & Modifications F. Contract Modifications
C Ind AS Scope : Covers contract for sale of G/S to customer that are not unilaterally
cancellable.
1. Modification 3. Accounting for modifications
D. Duration : Ind AS applies on duration of contract i.e. till the contract is in force.
: Duration may be fixed or undefined. Change in terms of the B. Treat it is an adjustment/modification to existing contract
A. Treat it as a
: Renewal option may also exist. contract scope / P.O. separate contract
E. Combination of contracts: Seprately accounting & combining a contract will or price
affect financials. To understand let us take an Q. Whether ↑ in Increase in scope and/or price; and G/S distinct from G/S in Else
Eg. Contract to build road uncertainty of original contract
* Contract 1 P to M (400 KM) Contract 2 M to J (400 KM) recoverability Retrospective
Revenue 500 1100 of amt. from
Cost Estimate 400 800 customers is a
Goods/
& Price ↑ Consider it as application required
soooosn
100
Services corresponds to
it
t
modification? are STAND-ALONE PRICE
Hence it is important to assess whether 2 contracts are separate contracts or to be Ans. No, it is just a distinct chargeable for the Termination Creation of Recognise Cumula-
accounted as single combined contract change in esti- modification subject of Old New tive Revenue “on
* Co. has constructed 200 KM of road from P to M, cost incurred 400/- mate Contract Contract
to reasonable catch-up basis” as
Revenue : Revenue
adjustments per modified terms

I
a) Separate contract → Contract 1 Rev. = 1000 x 200km/400km = 500
2. Modification (Eg. Loyalty on the date of
Cost = 400 (Transaction Price)
accounting applicablity discount, Discount modification after
Profit 100 Revenue of this
against savings of reestimating:
→ Contract 2 : Rev. = NIL contract
selling cost etc.) a) Measure of pro-
b) If combined contract → Rev. = 2100 x 200/800 525 = Unrecognised
> Only when the parties gress of P.O.
Cost 400 revenue in old con-
have approved in (% of work
Reverse
Profit = 125
writing/oral or
tract
+/-
000 completed)
E. Combination of contracts impliedly to the modifi-
cation and are commit-
↑
↑/ in
Revenue on
Transaction price
b) Difference of Extra
2 or more contract + with same customer or its related parties + at or near same time Revenue
ted to perform it.
modification
> Not necessary that the recognised and

TO
change in scope/price a) above,
entered into

a) Single commercial
objective/single OR
ggg
under modification adjusted to P
b) Consideration dependent c) G/s under both or L
should be without any
on price / performance of OR contracts form a
uncertainty

O
negotiation other contract

Biggie
single P.O.
> Facts to be seen to
determine whether
Then Combine the contracts, else account separately modification on exists

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 Ind AS 115
REVENUE FROM CONTRACTS WITH
CUSTOMERS
Illustration B. 5 Step Model
1-4-21 CA Ltd., was appointed to conduct stock audit & submit monthly reports with stock Step II: Performance Obligations under Contract with Customers
counts and difference between actual & book stock. Contract price was 12 L p.a. 1. Each promise of entity to transfer g/s under the contract to the customer is a P.O.
Definition:
1-7-21 There is following change in terms of contract, how will it be dealt. 2. Entity to identify each promise to transfer to customer g/s or series of g/s under a contract
(Company has already recognized 3L revenue) 3. Contract may have PO; explicit in contract or implied; one or more than one.
4. Set up activities for making contract is not PO as no g/s transferred

Case Modification Separate Accounting

É
Contract? A. Definition & B. Identification of P.O. under the contract A1. Same pattern of transfer
Types of PO
I CA Ltd., now to also to Yes 1.Identification made on date of inception of contract.
As a fresh contact. No modification ac-
verify PPE quarterly @ 2.Identify each DISTINCT g/s as separate PO Treat the series of G/S to have same
counting in existing contact. Definition As above → G/S will be treated as “distinct” g/s if: pattern of transfer if
1L per quarter (for 3
Types: PO to transfer
quarters standalone
a) G/S that are Independent benefit Promise to transfer g/s can
price also 1L p.q.) And
distinct in nature; for customers be identified separately

É
under the contract Same & The series
II What if, if price charged No Since Price ↑ < standalone price it is or
method is used of G/S meet
was just 50,000 per a modification to existing contract and b) Series of distinct Customer can
to measure the criteria of
quarter as a bundled hence prospective a/cing needed. G/S that are benefit from g/s Check CONTEXT of the the progress of satisfaction of
price. substantially the same on its own or with contract as to whether satisfaction of single PO given
and have same pat- other resources contract is to T/F G/S performance in Para 35
tern of transfer. available with individually or as a obligation
customer i.e. bundled item
III What if the contract No Termination – Creation accounting applies
G/S generates Para 35
was changed to contract Hence, ↑ in Revenue + Unrecog Rev i.e. 3 L +
Refer point A1 distinct / in itself Contracts

E
of PV of FA from PV of 9L = 12 L to be recognized as income over 3
stock with revised total
price of 15 L
quarters
FEB that can be
used/sold/con- O
Following factors indicate
that G/S are not to be
served over a
period of time
sumed etc. by transferred individually
customer distinctly i.e. are not distinct

É
IV What if contract was No Cu. Rev. → 3m/6m x 7.5L = 3.75 L
reduced to 6m from Rev. Recog. = 3L CO NT RACT
1 year and total to Addln revenue 0.75 L a) Entity b) One or more c) G/S are highly
contract price for recognize thru emphasises on G/S modifies interrelated/
12L to be 7.5L profit or loss significance of significantly interdependent
integration other G/S between themselves

We know you are loving Ind AS SIGN UP CO

Drone Charts Share your feedback If g/s are not distinct then it is part of one PO bundled with other g/s
at 9584510000

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 Ind AS 115
REVENUE FROM CONTRACTS WITH
CUSTOMERS
O
Step II: PO Under CWC
C3 Measuring Progress of Satisfaction of P.O. (that are satisfied "over a period")

D
C. Satisfaction of P.O.
Measurement to be
Methods of Measurement Revenue = Cost
P.O. wise
(No Profit – No Loss
C1-Principle Method)

É
C2-P.O. Satisfied *Additional

OI
(Para 31 to 34)
Indicators of “T/F Types Common
Decided on Inception & At a time if of control” principle When
Revenue to be recognized as and Over a time not later unless
when the PO is satisfied, by T/F of incase of modification not over time
G/S to customer under the Para 35: Prescribes criteria when Input Based Output based
a) Entity has right Consistent
contract revenue is recognized over a period Entity Entity
to demand usage of
Point of time is the expects
of time. payment Based on entity’s Based on outcome of method cannot
point when control
T/F means the b) Customer has efforts or inputs. P.O. performed + reliably (probable)
over asset is
customers obtains got legal title Eg. Based on cost Remeasure- measure to cover
transferred
When ment of P.O. the costs
Performance or entity has incurred, time Based on the
Eg. Physical satisfied is
customer enhances the only protective spent, resources directly the required progress of
Control over Asset simultaneously asset that Performance does not survey, work
rights over used etc. value of g/s t/f every year satisfaction
receives & customer creates asset for entity certified,
asset to customer, end. of P.O.
consumes controls (seller) but generates milestone
Similar to as G/S under the c) T/F of Ind AS permits SLM proportion of
discussed in Ind contract will ÉÉE benefit as “right to receive pament” possession if efforts are evenly total g/s to be
achieved,
etc. Change in
create an asset performed Seen in context of: → Not conclusive
AS 16 distributed t/f. estimate

E
for the customer a) T&C of contract; and indicator Recognise revenue
a) Substance
i.e. generate b) L&R Eg. Consignment, only to the extent
over form Ind AS 8
economic sale & repur- Excluding inputs on which Point to Remember of cost.
b) Legal
benefits for chase, bill & no progress is made by the
ownership is Simple basis of
customer. hold etc. entity:
indicator of identification of whether
Types: d) Entity has T/F Eg. *Goods supplied
control right to receive payment Value of g/s Output based
→ Immediately significant R&R under the contract
c) Ability to is created is by on which no method is
consumed (At without any significant
of ownership
I direct/use the
benefits of the
consumed 1 evaluating, whether
e) Customer has modifications (Goods
performance
made is
recommended
when
time) entity can demand purchased & supplied
asset or right Or accepted the ignored revenue
payment if customer 3rd are not distinct)
to prevent → Consumed asset directly related
party cancels the * Goods where
others from over a period of co tract without the to performance
customer obtains
using it. time fault of entity. completed.
control before any
performance of entity
Eg. control over potential cash flows a rising by using the asset, selling or exchanging, pledging or holding the
asset subject to repurchase options, if any. is made.

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 Ind AS 115
REVENUE FROM CONTRACTS WITH
CUSTOMERS
B. 5 Step Model
Step III : Measurement : Determination of Transaction Price

A. Definition C. Factors affecting Nature, Timing and Amount of Consideration

 Consideration :
Payable by 1. Variable Consideration 2. Constraining Estimates to 3. Financing Element 5. Consideration Payable to Customer
4. Non-Monetary (Cash)

IF ED
customer to entity (Eg. Escalations, Contigent Variable Consideration (Eg. Cash back Coupons etc.)
Consideration
(against promise) consideration, Incentives,
under the contract, Penalties, Volume disc. etc.) 1. Entity charges a price other than the
1. VC will be considered in
 That the entity ‘Cash Price’ due to deferred credit 1. Measured at fair value of
transaction price only when it
expects to receive, given (↑Price) consideration received
Variable Consideration (VC) : is HIGHLY PROBABLE (both in Whether it relates to payments for
and excludes any 2. In such cases cash price to be the tr. 2. If it is not reliably No
1. Consideration is contingent terms of likelihood & G/S under a separate contract

EE
amt. received on price Difference of price charged & measureable, standalone price
upon future event magnitude) that no significant (if G/S T/Fby customer to entity)
behalf of 3rd transaction price (cash price), treated of such g/s in an all CASH deal
2. It can be ↑ or ↓ in reversal will occur.
parties (eg. GST) as interest income (expense) to be considered. In such case FV of Yes
transaction price 2. Factors that ↑ likelihood of VC
3. ↑: Eg. Incentives, Bonus, recognized as interest on unwinding Cons. Recd. = Tr. Price – Cash /
reversals Whether amt. paid to customer under separate
Escalations etc. through Profit or Loss. Monetary Consideration
a) Condition based on which VC contract = FV of g/s supplied by customer
B. Principle ↓: Eg. Penalties 3. D.F. would be computed for 3. Goods/Services Supplied by
is receivable is highly
1. Price defined/ 4. Expressed or Implied in unwinding of interest. Customer No Yes
suspectible to external factors
determined as per contract D.F. is rate at which entity could have
not in entity's control. Diff. of cons. No adj. to
taken finance or simply rate that

É
contracts terms and 5. Method to measure VC b) Uncertainity may not be Whether paid & FV existing tr. price,
customary practices corresponds to diff. between price of G/S adj. to treat it as separate
Multiple → Expected value resolved for long time. the entity
2. Only price the entity charged and cash price. (seller) obtains control tr. price purchase contract
Outcomes of VC included c) Past history or practice of
expects to receive is giving discounts. 4. D.F. determined on inception of con- over such g/s supplied
Possible in TP
included in Tr. Price tract & should not be revised. by customer
→ Probability d) Contract has many possible
3. Hence, Tr. Price 5. All the above is N.A. i.e. no financing # Amt. “Payable” to customer under contract treated as
weighted value, outcomes
(estimates) may component considered when: REDUCTION OF TRANSACTION PRICE, unless

E
like Ind AS 37. 3. VC should be reestimated Yes No
change a) Difference is < 1 year Consideration payable is non-substantive like discount
every year end & if changes

O
4. It may be fixed or Mostly → Most likely (Practical Expedient) coupon given for next purchase however similar
only 2 outcome occur, a/c it as “Change in Fair value of FV of g/s need
variable or both b) Deferred Credit / Advance is due to discounts are also offered to new customers.
outcome Transaction Price” g/s supplied not be added to
5. While determin- (and not modification) other business conditions and to be added transaction price
6. Penalties : Also treated

É
ing Tr. Price, difference of tr. price & cash price is to Tr. Price * What if FV of G/S supplied by customer is not
as – ve VC. Eg. of Constraining Factors
entity to estimate Contractor charges 50L for justificable determinable?
the amount of price * Refund Liabilities → Refund *FV of non-monetary → Consider it as adj. to tr. price and not separate purchase/
building construction, 10% c) No significant financing component,
recoverable, liabilities are consideration consideration to be contract.
payable after 1st monsoon usually assumed when:
assuming that received + determined on date of inception * If consideration payable to customer is in other than cash, its
subject to no seepages. i) Customer has given advance & has
contract is not Entity is not entitled to & subsequent changes in FV to be fair value to be determined,
Tr. Price 50L provided 10% is kept delivery on hold at his option
receive + ignored unless changes relates to
cancelled by highly probable to be received, ii) Major portion of tr. price is variable * Consideration payable to customer will be adjusted from
customer & is expected to return such entity's own revenue, later of when:
in which 5L is VC in nature like sales based royalty
fulfilled by entity. liabilities are recognised and i.e. variable consid. a) Revenue is recognised; or
iii) Difference in price is due to other
remeasured every period end. b) Amt. becomes payable or is paid to the customer
reasons.

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 Ind AS 115
REVENUE FROM CONTRACTS WITH
CUSTOMERS

A. Principle
Ste
B. Allocation Based on Standalone Price of P.O.
OO
B. 5 Step Model
Step IV : Allocation of TP to POs. under a Contract

C. Allocation of Discounts D. Allocation of Variable Considerations E. Change in Tr. Price and Modifications
1. Allocation of TP (N.A. in Contracts with single P.O.)
Eg. Resolution
to
1. Standalone price at the date of inception of contract to 1. Applicable : When contract has: Change in TP in uncertainities,
respective P.O. to Discount = Standalone price of each circumtances have
be used a) Multiple POs to which Vr.
be such that the PO -Transaction price changed, etc
[Exception → Refer Modification]

E
allocation Consideration relates or
represents the 2. Standalone Price : Price at which entity will perform the b) Single PO but Vr. Consid. relates to Whether
part performance of that Yes No
amount that the P.O. independently / separately Allocated discount to each P.O. in it is a
entity ratio of standalone price unless single P.O. modification
expects to earn 3. Guidelines in determining standalone price : discount can be specially allocated
2. Allocation:
from a) Price to be based on observable market inputs.List price to a PO.
a) If relates specifically to a PO or part
respective P.O to may be used, but it may not always be the fair price
of PO → Allocate to TP of that PO Not a separate contract but
transfer G/S b) When no observable market input to determine the price b) Else → In ratio of stand-alone Change in Tr.
modification to existing contract
then “ESTIMATE” the standalone price using any of the prices Price allocate
2. Ind AS suggest
following methods: to respective
that standalone 3. Remember! Vr. Cons. is only
price of each P.O. [Preference to method → Based most on P.O. in ratio
observable mkt inputs] considered when it is Highly Prob- of standalone
should be the able & subject to constraints to Vr. Else
basis of “Relates” to price of DoI.
Cons. as discussed earlier. change in Vr. (and not date
allocation
(Combination of methods may be used) Cons. change in TP)
of TP Allocation to

EI
Relating to pre be based on
3. However, if any Adjusted Cost + Residual Value approach modification, it Tr prices post
part of TP relates Market Price Margin
B : 5 Step Model will be allocated modification.
TP of PO Whose standalone
specifically to Approach Step V : Revenue recognized on satisfaction of P.O. in ratio of
any individual → Price not available to Tr. price

800
PO it should be Price of allocated on DoI
be computed as
allocated competitor/ P.O.
= Total TP – Standalone
to that PO. similar
Price of other PO Over a period At a point of time
product

At
4. Allocation of Vr. subject to
Cons. and adjustment Revenue in Revenue when CONTRACT
Used only when :
Discount to be proportion of performance
based on a) Such G/S sold at highly satisfied
performance satisfied
specific guidance variable price or Pride of FAST

of
of Ind AS 115 b) Such G/S not sold Ind AS Drone
earlier and its price is Apoaint Charts and
not yet decided Brahmastra
As per rules & principles of Step II, III & IV

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 Ind AS 115
REVENUE FROM CONTRACTS WITH
CUSTOMERS
C. CONTRACT COSTS

O
Cost Amortisation Impairment

→ On systematic basis, (1) IL (When Indication exists) => CA of Asset

Cost otherwise Incremental cost to Cost to fulfill the contract consistent with Less : Amt. expected to be

F
incurred secure the contract transfer of G/S to recovered; subject to allowance for

EE É
whether or not eg. Agreement customer, to which credit loss, if any; net of cost of
contract is charges, Agent Nature of Costs
the asset relates (i.e. fulfill the contract
secured/ commission payable in proportion of
obtained on successful award (2) Contract asset may be a part of CGU, then if IL
Accounting satisfaction of P.O.)
Eg. Non-refundable of contract is to be tested for CGU, then first apply Step (1)
→ Re-estimate every
upfront tender fees above
year end, accounting
Included Excluded Whether as in Ind AS 8/36 (3) Reversal of IL → When indication exist; and
Such costs which contract costs ac- →Max. reversal as per provisions of
would have been counting covered Yes
Expense to Eg. DM, Eg. Wastages/ Ind AS 36.
avoided had contract under any other
Profit or Loss DL, Abnormal Costs/ Apply
not been secured Ind AS Eg. Ind AS

I
whether or other

É
Directly Penalty 2, 23, etc.
not contract attributable costs, General Admin OH Ind AS D. SPECIAL TOPICS
is secured Reasonable S&DOH
allocatable costs, * Costs of
Cost to be satisfied PO Appendix - B
Cost that can be Appendix - B
recognized as asset
specifically charged cannot be Recognise it as an ‘Asset’
provided it is
to customers reocgnised as Provided it is:
probable to be recov-
ered an asset a) Probable that it will be 1) Sale with right to
Eg. Research on 5) Customer’s
* Cost that return
behalf of recovered unexercised rights
cannot be 2) Warranties
customer & is 3) Principal Vs Agent 6) Non-refundable
allocated be- And
recoverable →Gross Rev. → Com- upfront fees
tween satisfied b) it relates to mission 7) Licensing
Logic: PO & pending the – contract 4) Option with cus- 8) Sale & Repurchase
Cost that would PO will also not And tomer to acquire 9) Consignment Sales
not have been be added to additional goods / 10) Bill & hold
c) enhances an asset or arrangements
incurred had con- asset and to be services
resource used in 11) Customer acceptance
tract not expensed satisfying the perfor-
been executed mance of contract’s P.O.

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 Ind AS 115
REVENUE FROM CONTRACTS WITH
CUSTOMERS
SPECIAL ISSUES
1. Sale with Right to Return
2. Warranties 4. Option with Customer To Acquire Additional G/S
Accounted like Else i) Eg. Reward points, discount on subsequent purchase, renewal options, sales incentives etc.
consignment ii) Accounting: Applicable only when the option given to customer is substantive i.e. it would not have been
sales if available if customer did

E
expected to be 1. Recognise Revenue Separate when PO Else
not enter into the present contract for supply of G/S.
returned (more &
likely) : Accounting : Revenue associated with such option will be treated as ‘Contract liability
2. Provide for refund liabil- Recognise full and recognized as revenue when P.O. is satisfied
ity at estimated amt. of a) Usually separate PO, if sold Revenue + [Meaning → Option given is treated as a separate PO]

E
refunds separately Prov. for
b) Depends on iii) Allocation a) Allocation to be in ratio of stand-alone prices
Do not recognize (every year end estimated of TP: b) However, if standalone price is not clearly identifiable then the standalone price should
revenue reestimation) warranty
obligation as be computed after keeping in mind:
& Legal Length of Nature of services
needs per Ind 37 a) Disc. other wise given
Warranty to be provided
Inventory with 3. Recognise Asset at: Initial during warranty b) Likelihood & option being exercised
customers will be CA of goods on return (-) period Eg. Jet airways sells 10 open tickets @ 3000 per ticket for a sector and provides 2 tickets for free
shown as an asset cost to obtain (-) Loss as a promotion offer. Show how revenue to be recognized.
in value of goods if any Ans. Since in the contract customer has option to get 2 additional flights it represents a separate
(every yr end Allocate TP to T/F of G/S and warranty
reestimate) (Asset obligation using standalone prices PO for the entity.
adjusted to cost of sales) ↓ In fact, considering nature of contract, each flight represents an individual PO.
Then as per Ind AS 115 principles rev- Hence, revenue of 30,000 to be recognized over 12 flights as and when the services are
(No off - setting)
enue recognized pre formed i.e. 2500 per flight.
Eg. In above eg. If it is estimated that customer may only take 1 of free flights due to time
limitation associated with offer, however customer has right to take 2 free flights. How is
revenue to be recognised ?
3.Principal Vs Agent Soln Revenue per flight = 30,000/11 = 2,727per flight as likelihood of option being exercised is
also to be considered.
→ Principal: Eg. What if first eg. Customer can take 2 free flights which are no-bag gage flights & such flights
a) When the → Evidenced by → Agent: are usually 20% cheaper. How Revenue recognised?
agreement is to 1) Entity primarily a) Agreement to Soln Transaction Price 30,000/- 10 flight → 30,000
provide G/S itself. responsible to perform arrange for G/S 2 free → 3000 x 2 x 80% 4800
b) Recognise promise then entity is an Revenue → 10 flights = 30000 x 30000
Revenue of price 2) Entity bears the risk of agent.
of G/S 34800
Ind AS Drone
inventory → Price Risk, b) Recognise
c) In an agreement Obsolescence Risk, etc. = 25862 or 2586 per flight Charts hai saath
commission/
entity may be 3) Discretion over the price 2 free flight = 4800 x 30,000 To phir FR mei
fees as income
kya darne ki baat

E
principal for at which G/S to be 34800
c) Entity may
certain PO & agent supplied = 4138 or 2069 per flight
momentarily
for others. This indicates entity's obtain control
d) Control over G/S is conrol over G/S before T/F over G/S
with the
principal
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 Ind AS 115
REVENUE FROM CONTRACTS WITH
CUSTOMERS
SPECIAL ISSUES
5) Customer’s Unexercised Rights 7) Licensing : (IPR)
Eg. Up front fees paid by customer/prepayment 2. When considered that license to use IPR of entity is a
1. License
that is non-refundable but gives

O
customer right to future benefits like Zomato ‘Promise’ to be satisfied OVER A PERIOD.
to/Gold/Prime membership fees, upfront Distinct
Part of G/S

I E
reg. charges of a club, etc.
transferred
Accounting: Entity to recognize as LIABILITY. (like Caraavan Transistors) Licensing in itself is a distinct G/S Customer directly Activity of entity result
Entity promises exposed to entity’s in t/f of G/S to the

I
: Revenue recognized in proportion of to undertake OR future activities over OR customer as and when
satisfaction of POs under contract. activities over IPR

Es
Identify whether license to use I PR of entity’s a PO satisfied such/IPR the activity is
“Breakage”→ Refers to revenue recovered from Then recognize period undertaken by entity
customer against which customer has revenue for T/F
of G/S At a point of time Over a period of time
unexercised rights that are anticipated to be
not exercised i.e. entity anticipates remote
chances of customer exercising the rights. Recognise revenue Recognise revenue over the
7.A * Sales Based Royalty:
when license is period of license. When a license or other IPR is provided against which consideration is contingent /
→Till then shown as liability
granted dependent on sale/usage of customer then:
→If any breakage earned, that was
a) Do not treat it as variable consideration, and
expected earlier will be recognizes as reve
b) Recognise revenue, later of:
nue provided refund chances are REMOTE
and it is not refundable by law.
O and i) Satisfaction of PO, if any, to be satisfied
ii) Sales / Usageo

6) Non-refundable upfront fees

→No further PO relating to such

upfront fees : Recognise revenue
→Else: Recognise over the period PO
is satisfied, may also include renewal periods.

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 Ind AS 115
REVENUE FROM CONTRACTS WITH
CUSTOMERS
SPECIAL ISSUES
8) Sale & Repurchase 9) Consignment Sales
i) In such contracts goods sold, may be repurchased or will be repurchased by the entity and hence control over goods, in substance, may not have been transferred. Consequently
revenue from sale of goods cannot be recognized.
a) There is no transfer of control over asset hence no revenue to
be recognised even if consideration is received in advance as a
ii) Repurchase agreements security deposit
b) Conditions to satisfy, to classify a contract as

FEI
Forward (entity to Call option * with entity consignment sales:
repurchase) (entity has option/right to Put option with Buyer (Buyer has right to sell back to entity)
repurchase) (i) (ii) (iii)
Resell Price < Original SP Entity has Entity can Other party, consignee
Resell Price > Original SP or or
legal right call back the has no obligation to
In substance, no transfer of control over goods goods pay for the goods.
Customer has
substantive right Resell Price > Market Price Resell Price < Market Price c) No revenue recognized till control over asset is transferred.
Repurchase price Repurchase price (Likely to be
exercised on DoI)

I
> SP↓ Ind AS < SP↓ Financing Unlikely that 10) Bill and hold arrangements *Imp.*
(109) customer
Ind AS Treat as Op. Lease (Ind AS 17)
Treat as Financial will resell
(116) Operating Lease Ind AS 109
Liability Entity should Customer Criteria to Revenue can

EE
loose control can direct the establish be recognized

É
If Right Unexercised Entity a/c for as
When Right Lapses sales with return over G/S goods as he T/F of subject to any
Recognise Interest Sales cons. → Liability
to be adjusted against option wishes i.e. control to PO still to be
& holding costs over Revenue recognized customer has customer fulfilled like PO
the term LR income in future
control over to hold goods.
* Option to be in the money i.e. favorable to exercise for entity. the goods
Option unexercised then recognize Revenue & DR Liability →Proof: Repurchase Price < Expected value of goods sold under repurchase contract
(Assume this in Q, if Q. is silent & give a note)
1) On t/f of goods for 1mn x (assuming option to repurchase at 1.1 mn is
substantive, no t/f of control and entity has right to repurchase) Substantive Goods Entity has no right to
11) Customer Acceptance

E
reason to hold

E
to be use/sell to others goods

E
1 1 Jan Bank A/c Dr. 10,00,000 goods on behalf & identified & that have been billed
To FL 10,00,000 of customer but not delivered
2) 31 Dec If any PO pending like
Goods/ Revenue to be
A) If repurchased: FL Dr. 10,00,000 Service recognized on installation etc. which is Eg. Eicher sells a truck for 20 Lakhs which is still lying in yard as
have been acceptance material then T.P. to that customer is building its body in the yard. Eicher has no more
Int. Dr. 1,00,000 → P or L
t/f and are unless extent not recognized as PO pending except delivery of truck to buyer
To Bank 11,00,000 subject to acceptance is revenue till PO satisfied. for delivery charges 50,000 included in price above.
B) If unexercised: Int. Dr. 100,000 customer only a legal Entity to OBJECTIVELY Revenue when & how?

E
acceptance formality determine t/f of control Ans. Eicher has t/f control over asset hence revenue can be
To FL 1,00,000
/ approval (based on past (based on fact, recognized for 19.50L excluding 0.50 L to be recognized when
FL Dr. 11,00,000 exp. of entity) circumstances & delivered.
To Sales 11,00,000 post exp.)

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 Ind AS 115
REVENUE FROM CONTRACTS WITH
CUSTOMERS
SPECIAL ISSUES

APPENDIX ‘D’: Service Concession Arrangements Appendix D : Service Concession Arrangement

Eg. 1  Operator to construct & operate toll motor  D.F. 10%
1. Parties: way.  FV of construction service is “120 crores”
Grantor (public authority)→Public authority that grants Step IV: When revenue recognised debit to:  He is entitled to 50 Crores from grantor and Toll motorway operating service is “
contract to build/upgrade an infrastructure along with right to Contract Asset : Till asset under construction after const. and can collect toll revenues 30 crores”
operate it to the operator then credit ‘Contract Asset’ & debit for 3 years from date of completion of con-  Total est. cost of construction is 90 crores.

e
struction.  Estimated Toll collections on completion
Operator (Service Provider) → Entity that provides G/S under (i) FA if nature of consideration is a
 Construction completed in 2 years and cost of road are 50 crores p.a.
the contract receivable from the grantor (A/c name incurred was 30 crores and 60 crores in 1st
2. Scope → Receivables) & 2nd year respectively
→ Contracts where operator is only, contracting/upgrading (ii) IA if nature of consideration is recovery Soln: Step I : TP → Financial Asset 50 Crores
infra are not covered from public using the constructed Intangible Asset 150 Crores

É
→ Contracts like B-O-T/B-O-L-T are covered infrastructure as it is in nature of rights (Toll Collection)
→ Contract like Turn key Project where entity constructs & t/f to collect toll for the entity.
the project to government are not covered in this Appendix *Do not recognize PPE in books of entity as entity has no
PV → 50 x PV(10%, 2yrs) + 50 x AF (10%, 3 to 5 years)
3. Eg. : control over infrastructure. = 144.08 (41.32 + 102.68) or 144 crores
NHAI (Grantor) has given contract to L&T infra (Operator) to *Finance Income may also be recognized
construct a Tollmotorway and operate it for 5 years from date Step II : Allocation of TP to :
when it is RTU against a payment of 80 lacs and right to collect Step V Construction P.O. = 144 x 120/150 = 115
toll for 5 years Operating TMR P.O. = 144 x 30/150 = 29

4. Steps to solve questions of SCA Step III: Cu. Revenue: Year 1 => 30/90 x 115 = 38.33 (for year 38.33)
IA FA
Year 2 => 90/90 x 115 = 115 (for year 76.67)
Step I : Determine TP

EE É
Amortisation as per A/c under Ind AS 109 Service Concession Arrangement : Appendix D to Ind AS 115
Step II: Allocate (a) TP to P.O. of Construction/Upgrade of Ind AS 38
infra and 1. Revenue to be allocated to : "Grantor" One who grants the right to collect
(b) to P.O. of operating infrastructure FVTPL PO-1 : Construction of asset for customer charges against provision of service
ACM FVOCI
PO-2: Collectio nfo reveneu rom uses Public usually
Step III: Recognise Revenue on 2. Relevant to contracts involving provision of construction
(a) In proportion of construction E.I.R. Interest Inc.
also recognised service & operator service BOTH
completed
3. Revenue can be : (Time valeu of money may be relevant)
(b) In proportion of period of right
to operate
We have given our (a) Cash : If any part of consideration is payable is cash of grantor (A Financial Asset)
Heart and Soul to (b) Non-monetary consideration: In front of Toll/charge collection rights (An Intangible Asset)
this Book! Hope 4. Revenue Recognision
you loved it… PO1: As & when contruction progresses
PO2: Over the period of providing operator services

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 Ind AS 115
REVENUE FROM CONTRACTS WITH
CUSTOMERS
SPECIAL ISSUES
* Service Concession Arrangements E. Presentation & Disclosures
1. Separate Disclosure of SCA relating to PO,
allocation of PO & Revenue recognized
2. Cost during construction : Ind AS 23 applies Presentation Disclosures
3. Goods supplied by Grantor : Ind AS 115 provision → SPL: Revenue (Excise duty
apply included, if any to be presented Basic Rule : Sufficient to enable user to obtain understanding of N.A.T.U. (Nature, Amount, Timing and Uncertainty) associated
separately with Revenue or CFs from CWC (Contract with customers)
: Disclosure can be in Quantitative / Qualitative terms
→ BS
↓(nomenclature may change)
(A) CWC (B) Significant Judgements (C) Contract Costs
(A) Receivable :
1. Right to consideration that is 1. CWC : Revenue from CWC & other Revenue & Change to obtain/fulfill a
UNCONDITIONAL except for disclosed separately
passage of time contract
2. Accounted for under Ind AS 109 2. Disaggregation: Segregating based on NATU
3. Diff. to PorL if any, of • Goods/services Timing of satisfaction
Recognition value as per Ind AS Tr. Price & Op, Cl.,
• Over / At a point of PO Allocation
115 and 109. • Fixed / Cost + Amortisation
4. Tested for impairment under → Judgement, Vr.
• Class of customer Cons., Refund as- and
Ind AS 109 • Sales Channel & reconcile with segment
↓ Over a period At a point → sets liabilities, Impairment
5. Subsequent measurement also information When t/f of uncertainties etc.
→ Method &
as per Ind AS 109 Reasons control over
↓ 3. Contract Balances →CA, CL, Receivables : OP.
& CL.
F. Special Issue Appendix C
(B) Contract Asset → Revenue
Right to consideration that Off → P.Y. pending PO
Transition to Ind AS 115 (from Ind AS 11 and 18)
is conditional setting? First accounting period when Ind AS 115 will be adopted, Appendix ‘C’
→ C.Y. PO Satisfied allows 2 options
upon something other than No
passage of time → Effect of Business Combination, Cu-catch up adj.
etc. on balances.
(C) Contract Liability Option 1 Option 2
Payment received or due but When recog. (Policy)
PO pending 4. PO
Eg. 50% work completed, rev. due 50 Return Obligation, if any Retrospectively apply to all contracts as Retrospectively from beg.
Lacs payable after 3 month, how per principles of Ind AS 8 i.e. P.Y. Op. BS of year from which Ind
presented? presented & PY Comparative restated AS 115 adopted i.e 1.4.18
Ans. Receivable 50 L 5. TP→ Remaining unrealised ↓ (no p.y. comparatives
Eg. What if amt. is payable subject to Eg. Upfront fees even before satisfaction of Option not to apply retorspective restated)
completion of project? associated PO, is payable but not yet accounting on completed contracts Adj. done thru Op.
Ans. If revenue recognized then received by entity. JE? + reserves.Respective
record contract asset Vr. Consideration of completed contracts accounting then not
Ans. Receivable Dr.
Eg. Advance received against can be based on actual consideration to apply on completed
contract To Contract Liability
(known as contract is now completed) contracts
Ans. Contract liability

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