Accounting Standard (AS) 9, Revenue Recognition
The statement covers the recognition of revenue arising in the course of ordinary activities of the enterprise from
(a) sale of goods
(b) rendering of service
(c) outsourcing of resources yielding interest, royalties and dividend
Specific exclusion from the standard pertains to:
(a) construction contracts
(b) lease/hire purchase agreement
(c) govt. grants/subsidies
(d) insurance contract of insurance companies
Essential criterion for recognition for revenue from ordinary activities as aforesaid is that the consideration is reasonably determinable even though the payments are made by installments. In the event of uncertainty, the recognition is postponed and considered as revenue of the period in which it is properly recognized.
The standard requires, in addition to the AS- 1, that an enterprise should also disclose the circumstances in which revenue recognition has been postponed pending resolution of significant uncertainties.
Revenue include the gross inflow of economic benefits only accrued to an enterprise on its own e.g. sales tax, service tax, VAT etc. do not accrue to the enterprise and thus not considered as revenue under IAS-18 and US GAAP. Practices vary in India and tend to show larger gross turnover for the enterprise (incidentally section 145A of the Income Tax Act ’61 require purchase, inventory and turnover inclusive of Tax, duty and cess).
ICAI recommends disclosure in the manner :
Turnover (gross) xxx
Less Excise duty xxx
Net Turnover xxx