Summary of Ind AS-115 Revenue from contracts with customer

Ind AS-115 summary

Applicable from April, 2018)

Scope- Applicable to all the contracts with CUSTOMER, except the followings-

CONTRACT: – Agreement between 2 or more parties that creates enforceable rights and obligation.

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STEP-1 IDENTIFYING CONTRACT

Again 5 Key Steps- all should be satisfied

Key point- If step-1 not fulfilled and entity receive consideration from customer

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Recognize the REVENUE only if following 2 conditions are met

COMBINATION OF CONTRACT

CHECK WHETHER THESE 2 CONDITIONS ARE FULFILLED:-

STEP-2 PERFORMANCE OBLIGATION

PROMISE to transfer GOODS/SERVICES or SERIES of GOODS/SERVICES (same pattern of transfer to customer) that are DISTINCT

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Non-Refundable Upfront Fee

STEP-3 TRANSACTION PRICE

–Consideration which an entity expects to be entitled for discharging performance obligation (excluding amount collected on behalf of 3rd party).

CONSTRAINTS IN VARIABLE CONSIDERATION

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Significant reversal in already recognized revenue

SIGNIFICANT FINANCING COMPONENT

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If the time GAP between performance obligation & payment (advance or after delivery) is SIGNIFICANT (>12 months). It will be treated as hidden loan

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NON- CASH CONSIDERATION

CONSIDERTAION PAYABLE TO CUSTOMER

STEP-4 ALLOCATION OF TRANSACTION PRICE TO PERFORMANCE OBLIGATION

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(Para 73)- Fairly depict consideration from each performance obligation on a relative standalone selling price basis except for allocating

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USE Residual approach only if

Key Point: – Allocate discount before applying RESIDUAL APPROACH

STEP-5 RECOGNIZING REVENUE WHEN PERFORMANCE OBLIGATION FULFILLED

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As and when CONTROL is transferred.

TRANSFER OF CONTROL

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KEY NOTE- For OPTIONS, above treatment only if Option is likely to be exercised.

SERVICE CONCESSION ARRANGEMENTS

(Not a property plant and equipment)

(Ex- infra for public service such as Roads, Bridge, Tunnels etc.)

(also known as Build-operate-transfer, rehabilitate-operate-transfer, or public to private service concession agreement)

Key Point- If Operator performs >1 service such as Construction or upgradation and operation service) under a SINGLE contract, Consideration must be allocated to relative fair values of service delivered.