PROCOM PLUS+ (8076997525) AS 9 Revenue Recognition

AS 9 “Revenue Recognition”

Objective of AS “Revenue recognition”

• This standard deals with the recognition (recording) of revenue in the profit and loss
statement of an entity.
• Revenue means Gross Inflow of ash, Receivables or other consideration arising in the
course of ordinary activities of an enterprise.
• This standard focuses on the timing of recognition i.e. when to record in the books.
• Also States the circumstances in which revenue recognition can be postpone
• Generally the amount of revenue is determined by agreement between the parties involved
in the transaction.

Scope
This Standard discusses ONLY the following revenues arising in the ordinary course of business:

Revenue means gross inflow of cash and receivable from

1. Sale of goods,
2. Rendering of services,
3. Interest, dividend & royalty.

This AS does not deal with

1. Revenue From Construct contract (It is Dealt in AS – 7)
2. Revenue From Government Grants (It is Dealt in AS – 12)
3. Revenue From Lease (H.P.) (It is Dealt in AS – 19)
4. Revenue From insurance contracts of insurance companies; (As per regulatory
requirements)

The following revenues are also EXCLUDED from this standard

5. Profit on sale of fixed assets (Realised gains); (It is dealt in AS 10)
6. Unrealised gains of non-current assets (revaluation of fixed assets); (It is dealt in AS 10)
7. The natural increases in herds and agricultural and forest products; (accounted as per
industry Standards)
8. Realised/unrealised gains arising from fluctuation of foreign currency and gain on
translation of financial statements of foreign operation; (It is dealt in AS 11)
9. Gains on settlement of a liability by paying less than its carrying amount; (general
principles of accounting)
10. Unrealised gains on restatement of the carrying amount of a liability. (general principles of
accounting)

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 PROCOM PLUS+ (8076997525) AS 9 Revenue Recognition

Meaning & Definition of Revenue

Revenue

Revenue

Gross Inflow
of

Cash Receivables Other Consideration

(Interest, Royalty, Divi dend)

Sale OF Goods
Condition must be fulfilled
1. Ownership of goods have been transferred
2. Risk and rewards has been transferred
3. There is no uncertainty regarding consideration (i.e. Cash or Receivables) at the time of
recognition

The following table explains the situations and guidance on recognition of revenue under
different situations.

Delivery of goods is delayed at Recognise the revenue when it is expected that delivery will be I
buyer's request and buyer made & it should satisfy the following conditions
takes title and accepts billing.
(i.e. Goods are with seller) 1. Goods must be in hand;
2. The buyer's goods should be identified; &
3. Goods must be ready for delivery at the time recognition.
(i.e. in packed condition)
Delivered subject to Recognise the revenue only when customer accepts the delivery
conditions: Subject to & installation and inspection is complete. If installation is a
installation and" inspection simple process, recognise the revenue when goods are delivered.

▪ Subject to approval of Recognise only when

customer (Sale on 1. Goods are formally accepted by the buyer; OR
approval) 2. Time period allowed is elapsed; OR
3. Reasonable time period is elapsed - in case NO specific
period is mentioned;
▪ Consignment sales Recognise revenue only when goods are sold to a third party by
the consignee.
▪ Cash on delivery sales Recognise revenue only when cash is received either by the
seller or his agent.

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PROCOM PLUS+ (8076997525) AS 9 Revenue Recognition

▪ Guaranteed sales i.e. goods Depends on the substance of the agreement

are delivered by giving an In case of retail sales, if the entity offers a guarantee of "money
unlimited right to return to back if not completely satisfied" - It may be appropriate to
buyer. recognise revenue for full invoice amount at the time of sale of
goods & the entity can create an appropriate provision for
expected goods returns based on the previous experience.

▪ Installment sales 1. Recognise revenue on the date of sale to the extent

attributable to sale price excluding interest amount.
2. Interest should be recognised on time basis in proportion to
receivable balance. (Interest recognition is discussed below)
▪ Sale/ purchase agreements Observe the transaction carefully before you come to a decision.
i.e. as per the agreement Why do someone buy and sell the same goods at different dates.
seller agrees to repurchase These transactions are in substance financing (a kind of loan)
the sold goods from buyer agreements; the resulting cash inflow is NOT revenue as defined
at a later date. and should NOT be recognised as revenue.
1. Advance Received should be recognised as liability ( and
revenue should be recognised on a straight line basis over
time;
▪ Subscriptions for
2. If the value of the items differs from period to period,
publications
revenue should be recognised in proportion to the value of
the items delivered to the total sale value of all items covered
by the subscription.

Revenue from Rendering Services

Revenue from services is generally recognised as service is performed. The performance of service
measured by two methods as under

1. Service should be PERFORMED.

2. NO significant uncertainty in ultimate collection at the time of recognition.

Methods to determine the performance of services

Proportionate Completed
completion meth od service method

This How to Basis for This method When to

recognise revenue
method is recognise calculation of is applicable
applicable revenue under percentage of under this method
this method completion
When performance Revenue is
When Revenue is consists of execu tion recognised
performa nc It can be assessed of single act. O R
recognised Performance when the
e consists of based on the based on
1. Contract value; consists of mo re
sole or final
execution of act takes
percentage 2. Associated costs;
more than of than one single act place and
one act. completion 3. Number of acts and the services yet the service
(works); or to be performed are becomes
of work. 4. Any other significant to the chargeable
reasonable and whole performance. to customer.
rational basis.

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PROCOM PLUS+ (8076997525) AS 9 Revenue Recognition

Situations and guidance on recognition of revenue under each situation.

Situation Guidance on recognition
Recognise only when installation is completed and accepted by the
customer;
Installation fees.
(Above guidance is applicable when an entity is providing installation
services only and it is NOT a service along with sale of goods)
Advertisement Recognise the revenue when the related advertisement appears before
income the public.
Insurance agency Insurance Commission Recognise on the effective commencement or
commission renewal dates of the related insurance policies.

Admission fees on ▪ Recognise revenue when event takes place.

artistic
performances, ▪ When a subscription received is for number of events, the fee
banquets or any received should be allocated to each event on a systematic and
special programs. rational basis.
Tuition fees Recognise over the period of instruction on SLM basis.
▪ Revenue recognition depends on the nature of the services being
provided.
Entrance fees ▪ Entrance fee received is generally capitalised. (It is not related to any
particular year hence it is appropriate to capitalise)

▪ If the membership fee permits only membership to the member,

recognise when it is received.
▪ If the membership fee entitles the membership and other services or
Membership fees publications during the year, it should be I recognised on a systematic
and rational basis by considering the timing and nature of all services
provided.

▪ Recognition of Revenue depends upon:

1. Whether the service has been provided "once for all" or on a

"continuing" basis;
2. The incidence of costs relating to service;
Financial service 3. When the payment for the service will be received.
commissions
▪ If commission is related to 'granting/arranging loan or other facilities'
recognise the revenue - when loan is granted or the other facilities are
provided.
▪ If such commitment or facilities fees relates to continuing obligations
or services- then revenue should be recognised I over the life of such
loan or facility in a systematic and rational basis to match with the

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PROCOM PLUS+ (8076997525) AS 9 Revenue Recognition

related costs incurred. (Matching concept)

Other Consideration

1. Interest

Meaning

• Interest is income received by the entity as its cash resources are

used by other entities.

Recognition

• Interest is recognised on time proportion basis based on the

outstanding amount and rate applicable; &
• There should NOT be any significant uncertainty in ultimate
collection at the time of recognition. If any uncertainty exists,
recognition should be postponed till the time there is NO uncertainty.

2. Royalty Income

Meaning

• Royalty income is received as the intangible assets like know-how,

patents, trade-marks and copy rights of the entity are used by the
other entity.

Recognition

• Royalty is recognised on accrual basis in accordance with the terms

of agreement.
• There should NOT be any significant uncertainty in ultimate
collection at the time of recognition.
• If any uncertainty exists, recognition should be postponed.

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PROCOM PLUS+ (8076997525) AS 9 Revenue Recognition

3. Dividend Income

Meaning

• Dividend is a reward from holding of investments in shares.

Recognition

• Dividend income is recognised only when a right to receive dividend

is established irrespective of the year it is relating to.
• The investor gets the right to receive dividend only when the
dividend is declared by the members in the General Meeting. Hence it
should be recognised only on the date of declaration by General
Meeting.
• There should NOT be any significant uncertainty in ultimate
collection at the time of recognition. If any uncertainty exists,
recognition should be postponed.

Effect of Uncertainties on Revenue Recognition

The uncertainties in revenue recognition will be considered depending on the time it arises.

Effect of Uncertainties on
Revenue Recognition

At the time of Subsequent to

recognition of revenue
revenue recognition

1. Postpone the recognition to the extent of 1. Make a provision for doubtful

uncertainty involved; debts to the ex tent of uncertain
2. Recognise only when there is NO uncertainty revenue;
in ultimate collection; 2. Revenue recognised should
3. Postponing due to uncertainties is considered NOT be REVERSED;
as appropriate accounting;

Disclosure Requirements

1. Revenue reorganisation policy should be disclosed.

2. Revenue should be disclosed

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