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Quick Reference on Accounting Standard (AS) 9

Download Quick Reference on Accounting Standard (AS) 9 Revenue Recognition

This Standard deals with the bases for recognition of revenue in the Statement of Profit and Loss of an enterprise. The Standard is concerned with the recognition of revenue arising in the course of the ordinary activities of the enterprise from:

  • Sale of goods
  • Rendering of services
  • Interest, royalties and dividends

Revenue is the gross inflow of cash, receivables or other consideration arising in the course of the ordinary activities of an enterprise from the sale of goods, from the rendering of services, and from the use by others of enterprise resources yielding interest, royalties and dividends.

Measurement

  • Revenue is measured by the charges made to customers or clients for goods supplied and services rendered to them and by the charges and rewards arising from the use of resources by them.
  • In an agency relationship, the revenue is the amount of commission and not the gross inflow of cash, receivables or other consideration.

Recognition criteria of Sale of goods

  • Property in goods or significant risks and rewards of ownership have been transferred
  • No effective control is retained in the goods transferred by the seller to a degree usually associated with ownership
  • No significant uncertainty exists regarding the amount of the consideration
  • At the time of performance, it should not be unreasonable to expect ultimate collection.

Rendering of services

  • Performance should be measured either under the completed service contract method or under the proportionate completion method, whichever relates the revenue to the work accomplished.
  • No significant uncertainty exists regarding the amount of the consideration
  • At the time of performance, it should not be unreasonable to expect ultimate collection.

Revenue arising from the use by others of enterprise resources yielding Interest, Royalty and Dividend – Recognise revenue when no significant uncertainty as to measurability or collectability exists. Revenue should be recognised on the following basis:

  • Interest – Time proportionate basis
  • Royalty – Accrual basis (consider terms of agreement)
  • Dividend – When right to receive dividend is established

Completed service contract method is a method of accounting which recognises revenue in the Statement of Profit and Loss only when the rendering of services under a contract is completed or substantially completed.

Proportionate completion method is a method of accounting which recognises revenue in the Statement of Profit and Loss proportionately with the degree of completion of services under a contract.

Uncertainties w.r.t collection

  • At the time of raising claim
    • Postpone revenue recognition to the extent of uncertainty
    • Recognise revenue when ultimate collection is reasonably certain
  • Subsequent to sale of goods/rendering of services
    • Revenue already recognised should not be adjusted
    • Make separate provision to reflect uncertainty

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