Ind AS : 115 Revenue from

Contracts with Customers

Applicability & Nature

 Applicability : 1.4.2018 onwards
 Nature : Mandatory for all companies which are applying Ind AS
(Note : After issuance of Ind AS 115, ICAI & MCA have withdrawn the
application of Ind AS 18, Ind AS 11 & Guidance Note on Real Estate
Business)
Objective of Ind AS 115

As per the Provisions of Ind AS 115, The following Aspects will be covered under
the Statement :-

 Nature of Revenue

 Timing of Revenue

 Amount of Revenue

 Uncertainties attached to Revenues

 Accounting for revenues

Important Definitions
 Contract :- As per the Provisions, contract is an agreement that creates
Enforceable Rights & Obligation to the Parties. It can be written, oral or
Implied as per Customers business Activities. It is a matter of Law.
 Customer :- As per the Provisions, customer is a Party that has contracted
with Entity to obtain Goods/Services for consideration.
Note 1 : Ind AS 115 shall be applied on contract only if Good/ Service is a
outcome of Ordinary business Activities.
Note 2 : If any Revenue is Received but It is not Received from customer then It
will be dealt by other Ind AS for e.g. Revenue from sale of PPE : Ind AS 16,
Revenue from sale of property : Ind AS 40 and Revenue from Dividend Income or
Interest Income : Ind AS 109 etc.
 Revenues :- Revenue means Income which arises in ordinary course of
Business. “Income means increase in Equity”
Contracts which are out of scope of Ind
AS 115
 Insurance Contracts (Ind AS 104)

 Lease contracts (Ind AS 17)

 Financial Assets (Ind AS 109) Instruments

 Contracts with subsidiary, Associates & joint ventures (Ind AS 110, 28, 111)

 Non monetary Exchanges between the Entities in similar nature of business to

Facilitates sale to the customers (These transactions are not barter
transactions because barter Transactions are always done at fair value.
Modification in contract
As per the Provisions of Ind AS 115, modification in contract can be made in the
original contract . It can be made in the following ways :-
 Type -1 If Additional Goods or Services are added in the original contract at
stand Alone selling Price “SSP” then It will be assumed as a Separate contract
and It will not be treated as modification.
“SSP”= It is the Price at which Goods can be sold in the Open market and It will be
charged from new customer.
 Type -2 If Additional Goods or Services are added to the Original contract, but
at a Price other than Stand alone Price then It will be assumed that Transaction
has Negotiated as a Package. In the Given Case, we will consider the accounting
on Prospectively basis.
Prospectively : “Allocate remaining Revenue over the remaining Performance
obligation”
 Type -3 If Additional Goods/ Services are not added in Original Contract, but
price is Revised for Original Contract then “Cumulative catch up adjustment” will
be Considered.
Cumulative catch up Adjustment : Revenue will be adjusted with retrospectively
Effect
 Step -2 Identifying the Performance
Obligation
As per the Provisions of Ind AS 115, Performance Obligation has been defined as a
Promise in the contract with customer to deliver :-
A Good or A Service which is “Distinct”
OR
A Service of Goods or services which are same in nature
Distinct Good/Service :- As per the Provisions of Distinct Good/ Service is a Good/
Service which is separable from other Goods or Services.
The Following conditions should be satisfied to identify distinct Goods or Services-
 If Integration is not required then all Goods or Services are distinct. +
 If Goods/Services are not highly inter related then All Goods or Services are
Distinct. +
 If Goods/Services are not Customized/ modified then all Goods or Services Are
distinct.
Step-4 Allocation of Transaction Price over
the Performance Obligation
As per the Provisions of Ind AS 115, Transaction Price shall be allocated over all
the performance obligations in the ratio of their stand alone Selling Price “SSP
In Case SSP of any Performance obligation is not available then It will be find out
by any Of the following methods :-
 Method I : Market Assessment Approach (We consider market Prices which
are offered by other Entities for similar Goods/Services)
 Method II : Cost Plus Reasonable margin (We consider Cost Plus Margin as
SSP)
 Method III : Residual Method SSP = Total Transaction Price – Observable SSP
for other Goods.
 Important Points to be considered :-
If Discounts/ Variable consideration is related with a Particular range of Goods or services
then allocation of such discount/ variable consideration will be made on the related
Products/ Services. It means that full SSP will be allocated to those Goods/Services which
are not related with discounts/Variable consideration.
 Step 5 : Revenue Recognition
As per the Provisions of Ind AS 115, An Entity can recognize revenue when It delivers/
transfers the Promised Goods/ Services to customer.
Under the Provisions of Ind AS 115, the following indicators May be noted to identify
transfer of control :-
 The customer has accepted Goods/Services

 The Goods/Services are under Physical Possession of customer.

 The Legal title has been transferred to customer.

 The customer will Enjoy the remaining Benefits from the Goods/Services and
Customer can restrict others from taking benefits from Goods/Services.
Additional points to be considered :

Point 1 : Methods of Transferring the control As per the Provisions, Control can
be transferred by 2 methods as follows:-

Method I : Over the period of contract

Method II : At a Point of time of contract

Point 2 : Revenue Recognition Methods

Input Method Output Method

 If Performance Obligation is  If Control is transferred at a Point
satisfied Over the Period then It
of time then It is applied.
will be applied.

 Under this method, Revenue is

booked on the basis of Proportion  Under this method full Revenue is
of Actual Cost to Total Estimated Recognised for delivered Items
Cost
 Various Situations
Case I : Repurchase Agreement
If an Entity sells its Goods under Repurchase Agreement then the following Points should be considered:-
Types of Re- Purchase Agreement
 Future Contract
 Call Option
 Put Option
As per the Provisions of Accounting Treatment will not change whether it is a future contract, call option or
Put option contract. The Accounting Treatment will be different in following situation :-
 If Re-Purchase Price is higher than Original selling Price then Difference will be considered as a
financing component as follows :-
Bank a/c Dr. xxxx (Original Selling Price)
Finance cost a/c Dr. xxxx (Diff.)
To Financial Liab. xxxx (Re-Purchase Price)
(Being Re-Purchase Agreement Entered into with customer)
 If re-Purchase price is Less than Original Selling Price in the contract then this Agreement will be
considered as a Lease Agreement under Ind AS 17 and Difference in Prices will be taken as Lease
Income.
Case II : Bill & Hold
If Delivery of Goods is Pending at Buyer Request then Seller can recognize Revenue
assuming that Seller has delivered the Promised Goods or Services.
The Following conditions should be satisfied to identify the Bill & Hold
 The Goods should be identifiable Separately from other Goods in warehouse.
 The Goods cannot be transferred to any other Party.
 The Goods should be ready for delivery at any time at the Request of Customer.

Case III : Consignment Sales

If consignor Deliver Goods to Consignee then It will not e treated as Revenue because
consignee does not Enjoy control the Goods. As per the Provisions of Ind AS 115, Revenue
can be Recognized only if Goods are delivered by consignee to customer means 3rd Party.

Case IV : Upfront fees (Joining fees/ File charges/

Registration fees etc.)
If any Upfront fees (Non Refundable) is collected by an Entity from a Customer then It will
not be treated as a Separate Performance Obligation It will be Recognized as a Revenue
when Promised Goods or Services are delivered to Customer