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(AS-9) REVENUE RECOGNITION

Submitted To: Ms. Priyanka Mohile

Prepared By: Helley Joshi Nehal Shah Heta Shah Kruti Shah Bansuri Patel Hetal Detroja

DEFINITION

Accounting rule that revenue should be recorded only when the 1) Revenue generation process has been substantially completed, and 2) An exchange has taken place. It is a restatement of the old maxim: "Don't count your chickens until they are hatched."

INTRODUCTION
Revenue recognition in course of ordinary activities: SALE OF GOODS RENDERING OF SERVICES USE BY OTHERS OF ENTERPRISE RESOURCES YIELDING INTEREST,ROYALTIES,DIVIDENDS.

1. SALE OF GOODS
o

The seller has transferred the property in the goods to the buyer for a consideration.
Revenue is recognized at the time of transfer of significant risks and rewards of ownership to the buyer.

In specific industries such as agriculture crops or mineral ores that are extracted, are not included in the definition of revenue.

2. RENDERING OF SERVICES

Recognized at the time of service performed partially or completely. METHODS: Proportionate completion method Revenue recognized under this method would be determined on the basis of contract value, associated costs, number of acts or other suitable basis.

a)

b)

Completed Service contract method Revenue recognized under this method would be determined when there is execution of single act.

In case of;
Installation charges Advertising & insurance agency commission Financial service commission Admission fee Tuition fee Entrance & membership fee

OTHER ENTERPRISE RESOURCES

INTREST
ROYALTIES DIVIDENDS

Sr.No.

Items

Point of recognition

Interest

On a time proportion basis taking into a/c the amount o/s and the rate applicable On an accrual basis in accordance with the terms of relevant agreement When the owners right to receive payment is established.

Royalties

Dividend

Effect Of Uncertainties on Revenue Recognition


1.
2. 3. 4.

Revenue must be measurable. Recorded at the time of receipt Provision should be made Recognition of revenue postponed considered as revenue of the period in which it is properly recognized

EXCEPTIONS

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.

Items not included in definition of Revenue


1.
2. 3. 4. 5.

Disposal of assets or holding non current assets Change in value of current assets and natural increase in agriculture and forest products Realized or unrealized gains resulting from changes in foreign exchange rates Discharge of an obligation at less than its carrying amount Restatement of carrying amount of an obligation

DISCLOSURE
If at the time of raising of any claim it is unreasonable to expect ultimate collection, revenue recognition should be postponed. CONDITIONS 1. Transaction involving the Sale Of Goods : Transfer of the property in the goods for a price or all significant risks and rewards of ownership.

no significant uncertainty exists regarding the amount of the consideration that will be derived from the sale of the goods.

2.

Transaction involving Rendering Of Services.:

Consideration calculation : On the basis of proportionate completion method or contract method. When no significant uncertainty exists regarding the amount of the consideration