Ind AS Revenue recognition Financial Reporting

Introduction of AS 9 Revenue Recognition

Revenue has to be measured by the amount charged to the clients for the sale of goods and services.
However, in the case of the agency relationship, the revenue has to be measured by the amount charged for commission and not on the gross inflow of the cash, receivables or other consideration.
There are few exceptions to the above-mentioned statement where the special consideration applies: –
  1. Revenue arising from Construction Contracts
  2. Revenue arising from hire-purchase, lease agreements
  3. Revenue arising from government grants and other similar subsidies
  4. Revenue of Insurance companies arising from insurance contracts

Explanation

  1. Revenue recognition emphasizes on the timing of recognition of revenue in the statement of profit and loss of an enterprise
  2. The amount of revenue arising from a transaction is usually determined by an agreement between the parties involved in the transaction
  3. When uncertainties arise regarding the determination of the amount or its associated costs, these uncertainties may influence the timing of the revenue

Applicability of AS 9 Revenue Recognition

This standard was issued by ICAI in the year 1985 and in the initial years, it was re-commendatory for only Level I enterprises and but was made mandatory for all other enterprises from April 01, 1993.
As per ICAI, “Enterprise means a company as defined in section 3 of the Companies Act, 1956”.
Level I enterprises are those enterprises whose turnover for the immediately preceding accounting year exceeds 50 crores. The turnover here does not include other income and is applicable for holding as well as subsidiary companies.

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