Quick Summary
In the marketplace of Accounting, where traders sold goods and offered services, there was a big question: "When should we recognize revenue?" Some merchants wanted to record revenue as soon as they received an order, while others waited until the customer paid in full. This caused confusion, and
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FAQ :
The main purpose of the IND AS 115 Five-Step Model is to provide a consistent framework for recognising revenue, ensuring that financial statements are more reliable and reflect the actual economic activity of a business.
Under IND AS 115, a contract exists when both parties have agreed on their rights and obligations, and it is probable that the business will receive payment.
Performance obligations are the distinct promises a business makes to a customer within a contract, representing the tasks or goods that must be completed or delivered to fulfil the agreement.
The transaction price is the amount a business expects to be entitled to in exchange for transferring promised goods or services to a customer. This includes considering any discounts or variable payments.
Revenue should be recognised when the performance obligations are satisfied, meaning when the promised goods or services have been transferred to the customer.
Advance payments received before the delivery of goods or services are not recognised as revenue immediately; instead, they are recorded as a liability (Unearned Revenue) until the performance obligation is met.
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