AS -9

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Nutan (Querist)
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08 June 2009 We have an agreement which speaks that they have commitment for x no's irrespective of whether X will be executed or not. We recognise Income when we get the booking of X and then x is delivered at a later date. Now the query is X should be recognised on booking or on the basis of delivery. AS-9 speaks that Income should be recognised on Delivery but it is very silent when we have commitment from the customer for monies received.

CA Devin

CA Devin (Expert)
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08 June 2009 As Per AS-9 Revenue should be recognised when all significant risks & rewards of ownership have been transferred to the buyer & seller retains effectively no control on the goods & there is reasonable certainty that amount will be received.

However, for recognising the revenue the item must be on hand, identified & ready for delivery to the buyer at the time the sale is recognised.. Further buyer takes title and accepts billing and the seller holds the goods in his premises on behalf of the buyer...

Now in your case buyer has committed money but revenue recognisition will depend whether you have produced X or not & it should be identifiable, Further, billing might also be pending..

Thus revenue can not be recognised simply on the basis of commitment of money from the buyer...

Nutan

Nutan (Querist)
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08 June 2009 If suppose the product is ready to deliver on the date of booking but since the buyer has asked to deliver it on a later month. Here the comittment is if the buyer denies to take the test,we are ligible to get the monies. Then whether our recognition is correct.

CA Devin

CA Devin (Expert)
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08 June 2009 I doubt b'coz here the question of "all significant risks & rewards of ownership transferred to the buyer" Arises.. You will have to check the sale agreement for this... e.g. if it specify that all the significant risk & reward are transferred to the buyer as soon as the goods are produced than you can recognise the revenue...
Further, as u said if in sale agreement there is any condition that buyer will accept the goods only after testing.. That means all the risks are not transferred..
Who will bear the loss if goods are lost during transportation??? If seller that means all the risks are not transferred..

Nutan

Nutan (Querist)
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08 June 2009 We are in to educational business. So have written test, it doesn't means testing. We have got a project wherein the customer has commited for 2000 test every year. In this the student books on our site on behalf of the customer & we deliver the test to the student. So here our buyer is the Student. Student books the test for eg: in Dec for the test he is likely to take on March. Once he registers on our site to take the exam in March,our customer would give us money for the exam booked by the student whether the student takes the exam in march or not. In this case the student is our buyer & it is the student who has opted for delivery on a later date. We have our classes ready & proctor ready & question ready to deliver. If the student had to take the exam in Dec we were ready to deliver,since the student has opted on a later date, we have delivered it in march. So I think Income should be recognised in Dec & not in March.

CA Devin

CA Devin (Expert)
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08 June 2009 I was thinking from Manufacturing Industry Perspective... Yes, you can recognise the income at the time of booking..

I guess you already knew the anwser anyway...

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