Revenue for Contracts IND AS 115

Are you prepared for Ind AS 115?

For many organisations, Ind AS 115 will have a broad impact – not just changing the amounts and timing of revenue, but requiring wider business implications to meet the expectations of stakeholders and regulators.

Key Points:

• A five-step model is applied to determine when to recognise revenue, and at what amount.
• Revenue is recognised when (or as) a company transfers control of goods or services to a customer at the amount to which the company expects to be entitled.
• Depending on whether certain criteria are met, revenue is recognised either over time, in a manner that best reflects the company’s performance, or at a point in time, when control of the goods or services is transferred to the customer.

Who Will Feel the Biggest Impact of Ind AS 115?

The experts say that the most impacted industries are telecom, software development, real estate and other industries with long-term contracts.
If you work in an industry where bundled contracts of "product + service" are quite common, then you should understand the concepts of Ind AS 115.
Example: software development or telecommunications, where customers usually buy a prepayment plans with a handset or software development comes with implementation and post-delivery service in 1 package, or any similar arrangements. Under the new Ind AS, companies in telecom and software will probably recognize revenue earlier than under older rules.

Reason:

Because under Ind AS 115, the transaction price must be allocated to the individual performance obligations in the contract and recognized when these obligations are delivered or fulfilled.
It means that under telecom operator must allocate a part of the revenue from prepayment plan with free handset to the sale of handset, too.
Under Ind AS 18, the revenue is defined as a gross inflow of economic benefits arising from ordinary operating activities of an entity.
It means that if the operator gives a handset for free with the prepayment plan, then the revenue from handset is 0.

Why does it matter?

Because some contracts surpass one accounting period, they are long-term and reporting revenues in incorrect accounting periods might cause wrong taxation, different reporting to stock exchange etc.

About the Training Instructor:

Chartered Accountant by Profession, CA. Sumit Sarda has been teaching CA Final since 2011. He was a Faculty member also at ICAI Nagpur Chapter for IPCC Cost Accounting and CPT Statistics and also a faculty member for CA CPT Statistics at G.S. College, Nagpur. In the Span of 7yrs. he has taught more than 3000 students.

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