AS9 - Revenue Recognition doubt

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Vikram

75 Points Joined July 2008

I have a doubt reg AS9. Suppose you have a software company XYZ Ltd. It earns revenue from 3 modes -Time and Material, Fixed Billing and Project Mile stones. For T&M (Time and Material) contracts, revenue recognition is relatively easy wherein the manhours and the agreed rates are applied to record monthly revenues.For fixed Contracts, revenue is recorded on completion of the project. For milestone project, it is a settled position that you have to estimate revenue and based on accrual concept record income.

I am slightly confused on revenue recogn for milestone projects . I can argue that the right to receive revenue (which is the basis upon which AS9 is built) is not established bcos unless the client gives a sign off , I dont know whether I have earned the revenue. Also as per principle of conservatism, I am understating the Income.Can someone throw some light on this?

Replies (2)

Nilesh Choudhary

Service

27 Points Joined August 2007

Dear Vikram,

As per As -9, we understand that revenue can be recognised only when they are reasonably certain whereas it is enough for expenses to be reasonably probable for their recognation. If u can justified that your service is certain & client will confirm your in writting than u can chose PROPORATIONATE COMPLETION METHOD.

Nilesh

nilesh.choudhary @ ril.com

Mahesh Paryani

Chartered Accountant

365 Points Joined June 2007

Originally posted by :Vikram
"	I have a doubt reg AS9. Suppose you have a software company XYZ Ltd. It earns revenue from 3 modes -Time and Material, Fixed Billing and Project Mile stones. For T&M (Time and Material) contracts, revenue recognition is relatively easy wherein the manhours and the agreed rates are applied to record monthly revenues.For fixed Contracts, revenue is recorded on completion of the project. For milestone project, it is a settled position that you have to estimate revenue and based on accrual concept record income. I am slightly confused on revenue recogn for milestone projects . I can argue that the right to receive revenue (which is the basis upon which AS9 is built) is not established bcos unless the client gives a sign off , I dont know whether I have earned the revenue. Also as per principle of conservatism, I am understating the Income.Can someone throw some light on this?	"

i totally agree with nilesh

if you are certain you can realise your income then you can reco your income on proportionate basis