No. It applies to individual contract with customer. Revenue recognition – Differences between GST law and GAAP. Recognize Revenue when or as an Entity satisfies Performance Obligations. © 2020 ‐ Defmacro Software Pvt. However, this does not imply that entities can ignore past revenue contracts. This standard is expected to impact all companies, though the impact could be more pronounced for some depending on their industry sector, existing customer contracting practices and more importantly the accounting policies already adopted. Indian Accounting Standard - Ind AS 18: Revenue Revenue is defined as the gross inflow of economic benefits (cash, receivables, other assets) arising from the ordinary operating activities of an enterprise (such as sales of goods, sales of services, interest, royalties, and dividends). View Revenue Recognition Ind AS - 18.pptx from AC MISC at Indian Institute of Management Raipur. � Cost to fulfill a Contract: An entity should recognize an asset for cost incurred to fulfill a contract if those costs: � Relate directly to an existing contract or specific anticipated contract, � Generate or enhance resources that will be used in satisfying Performance Obligation in future. damanoberoi@hotmail.com, Category Can A recognize the entrance fee as revenue upon receipt? Accounts Under Indian Accounting Standards (Ind AS), revenue is measured at the fair value of the consideration received/receivable, taking into account any trade discounts and volume rebate. Even when real estate entities meet the over-time revenue recognition criterion under Ind AS 115, the POCM as per the GN (withdrawn) and Ind AS 115 are dissimilar in many respects, such as: The GN requires revenue recognition under POCM to commence when atleast 25% of the construction work is completed. Ind AS-115 provides single comprehensive framework to be used by entities to recognize revenue from their customers and report useful information about nature, amount, timing and uncertainty of cash flows arising from a customer. Revenue is income that arises in the course of ordinary activities of an entity and if referred to by the variety of different names including sales, fees, interest, dividends, and royalties. An additional annual fee of 20,000 is charged for using the club facilities. Entities that elect themodified retrospective' method will not restate financial information for the comparative period. Ltd. is the increase in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases in the liabilities that result in an increase in equity, other than contributions from equity participants. If remaining goods and services are combination of both scenarios, entity shall account for effect of modification on unsatisfied or partially satisfied performance obligations consistently. Indian GAAP, IFRS and Ind AS A Comparison | 5 The table on the following pages sets out some of the key differences between Indian GAAP (including the provisions of Schedule III to the Companies Act, 2013, where considered necessary), IFRSs in issue as at 31 December 2014 and Ind ASs. When the inflow of cash (or cash equivalents) is deferred, FV can be less than the nominal amount of cash. I. Revenue recognition for a rendering of Services – Ind AS 18 requires recognition of revenue using a percentage of completion method only. Under Ind AS 18, a contract for the sale of goods normally gives rise to revenue recognition at the time of delivery. As per the AS 9 Revenue Recognition issued by ICAI “Revenue is the gross inflow of cash, receivables or other consideration arising in the course of the ordinary activities of an enterprise from the sale of goods, rendering of services & from various other sources like interest, royalties & dividends”. The Standard is concerned with the recognition of revenue arising in the course of the ordinary activities of the enterprise from the sale of goods the rendering of services In assessing the uncertainty related to variable consideration, an entity should consider both the likelihood and the magnitude of revenue reversal. The Indian Accounting Standards (Ind AS), as notified under section 133 of the Companies Act 2013, have been formulated keeping the Indian economic & legal environment in view and with a view to converge with IFRS Standards, as issued by and copyright of which is held by the IFRS Foundation. Professional Course, India's largest network for finance professionals, Ind AS-115: The New Standard for Revenue Recognition, All You Need to Know About UDIN (Unique Document Identification Number) by Chartered Accountants in Practice, Cancellation of registration under Rule 22 of the CGST Rules aligned with newly inserted sub-rule (2A) of Rule 21A, Equalisation Levy - Most Vital Concept in International Taxation, GST - Due Date Compliance Calendar for January 2021 and Recent Updates on The Portal, Role of Dividend Tax in Achieving the Essence of the Budget, In a manner that depicts the transfer of goods or services to customers, At an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services, Expected Value - Sum of probability weighted amounts in range of possible consideration. Two or more contracts may be combined as single contract if they are entered into at or near same time and meet any of following criteria: i) Contracts were negotiated as a package with one commercial objective, ii) Amount paid under one contract is dependent on price or performance under other contract, iii) Goods or services to be transferred under the contracts constitute a single performance obligation. The entity would update the refund liability each reporting period based on current facts and circumstances. Under Ind AS 115, revenue is recognised when a customer obtains control of a good or service, while under existing principles of Ind AS, revenue is recognised when there is a transfer of risk and rewards. A Ltd sells equipment to B Ltd for Rs. In accounting parlance, revenue is considered as a subset of income. Income is the increase in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases in the liabilities that result in an increase in equity, other than contributions from equity participants. Rather, they will be required to calculate cumulative catch-up impact on all open contracts and make adjustment to the retained earnings as on April 1, 2018. For example, when the product price includes a substantial amount for subsequent servicing, that amount is deferred and recognized as revenue when that service is performed. In assessing if a contract contains a significant financing component; an entity should consider the relevant facts including both of the following: � Difference between the amount of promised consideration and the cash selling price of the goods or services. It prescribes only one underlying principle for revenue recognition, which is the transfer of control over goods or services. From the financial year 2018-19, the other two standards IND AS 18 and 11, which are related to revenue … If a customer promises consideration in a form other than cash, an entity measures the non- cash consideration at fair value in determining the transaction price. Our Goods & Services Tax course includes tutorial videos, guides and expert assistance to help you in mastering Goods and Services Tax. Just upload your form 16, claim your deductions and get your acknowledgment number online. materials, equipment, labour) to facilitate the entity's fulfillment of the contract. 3. IND AS 115 is in sync with RERA that mandates sales proceeds of under construction projects to be kept in a separate escrow account and not treat it as revenue recognition . Accounting treatment of this transaction would require A Ltd to apply the test of “transfer of significant risks and reward” and recognize the revenue during the point of sale provided future returns can be reliably measured based on past experience. Thus, income comprises both revenue and gains. Ind AS 115 is applicable from 1 April 2018, i.e., FY 2018–19. Damandeep Singh  Allocating discounts & Variable Considerations. A Performance Obligation is a promise in a contract with customer to transfer either, i) A good or service, or a bundle of goods or services, that is distinct OR, ii) A series of distinct goods or services that are substantially the same and have pattern of transfer to the customer. Our GST Software helps CAs, tax experts & business to manage returns & invoices in an easy manner. An entity might also consider price information from its competitors and adjust that information for the entity's particular costs and margins. A Ltd provides a commitment to service the equipment for next 3 years with no additional charges. AS-9 includes revenue as per completed service method or percentage completion method but IND AS-18 recognizes revenue as per percentage of completion method. the entity's performance and the customer's payment. These are expenses that would not have incurred if contract had not been obtained, i.e., costs incurred are direct incremental costs associated with obtaining contract. The core principle of Ind AS 115 is that revenue needs to be An entity shall allocate transaction price to each separate performance obligation within that contract on a relative stand-alone selling price basis. The seller does not have control over the goods sold. Judgment would be required to assess which costs should be capitalized and for determination of appropriate period and pattern of amortization. � The entity's performance creates or enhances an asset that has no alternative use to the entity, and the entity has the right to receive payment for work performed to date. III. 1,50,000 was settled for payment against the claim of Rs. Contract is defined as agreement between two or more parties that creates enforceable rights and obligations. 3. This corroborates Ind AS-18 as it says: “revenue recognition is postponed if there is any uncertainty regarding its ultimate’s collection“. � The combined effect of the prevailing interest rate in the market and expected length of time between when the transfer of goods or services and the time when the customer makes the payment. Transfer of significant risks and rewards of ownership, Neither continuing managerial involvement nor effective control, Recognise revenue by reference to stage of completion (percentage of completion method) at end of reporting period, Recognise revenue only to extent of expenses recognized that are recoverable (no profit recognized), Reliable measurement of stage of completion, Effective interest method (as per Ind AS 109), Accrual basis in accordance with substance of the agreement, Shareholder’s right to receive payment is established, Revenue covers all economic benefits that arise in the ordinary course of activities of an entity which result in increases in equity, other than increases relating to contributions from equity participants, Revenue is gross inflow of cash, receivables or other consideration arising in the course of the ordinary activities of an enterprise from the sale of goods, from the rendering of services, and from the use by others of enterprise resources yielding interest, royalties and dividends, Real estate revenue is specifically not covered, Revenue has to be measured at fair value of the consideration receivable, Revenue is recognized at the nominal amount of consideration receivable, Specific guidance regarding barter transactions involving advertising services is given, Uses, only percentage of completion method for revenue recognition for rendering of service, Permits the use of completed service contract method, Requires interest to be recognized using effective interest rate method, Uses time proportion basis for interest recognition, IND AS 18 does not specifically deal with the same, Existing AS 9 specifically deals with disclosure of excise duty as a deduction from revenue from sales transactions, Disclosure requirements are more detailed, n recognize only when A sells the goods to the third parties, Indian Accounting Standard 11 – Construction Contracts, Indian AS 101 – First time adoption of Indian Accounting standards, This page is best viewed in Chrome, Firefox or IE 11. An entity determines at contract inception whether each performance obligation will be satisfied (that is, control will be transferred) over time or at a specific point in time. In addition, they must disclose the amount by which each financial statement line is impacted due to Ind AS 115 application in the current period for the year ended March 2018. In this post, we will see in detail the specific differences between the Revenue recognition as per Accounting Standards and Revenue / Turnover as per GST Law. I. Income is the increase in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases in the liabilities that result in an increase in equity, other than contributions from equity participants. Ind AS 20 Accounting for Government Grants and Disclosure of Government Assistance: 22. The entity must update this measurement over time as circumstances change and accounts for these changes as a change in accounting estimate under Ind AS 8Accounting Policies, Changes in Accounting Estimates and Errors'. These promises may be may be explicit, implicit or based on past customary business practices. iv) Customer's acceptance Ind AS 17 Leases: 19. It permits either, � Full Retrospective' adoption in which the standard is applied to all of the periods presented; OR. An entity shall recognise revenue when (or as) the entity satisfies a performance Obligation by transferring a promised good or service (ie an asset) to a customer. On 28 March 2018, the MCA notified Ind AS 115, a new revenue recognition standard that replaces existing Ind AS 11 and Ind AS 18. For purpose of Ind AS 115, a contract does not exist if each party has unilateral enforceable right to terminate a wholly unperformed contract without compensating the other party. 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