REVENUE RECOGNITION (AS – 9)
gross inflow of consideration arising in the course of ordinary activities, such as:
a. Sale of goods.
b. Rendering the services.
c. Use of the enterprises resources by others giving interest, dividend and royalties.
a. Revenue is recognised:
i. When sale is completed. (Refer to next point)
ii. When certainty exists regarding amount of consideration.
iii. When certainty exists regarding collection of consideration.
b. Sale is completed, if:
i. The ownership in goods is transferred for a price Or
ii. All significant risks & rewards have been transferred and no effective control is retained.
a. Completed service method (CSM):
i. To be recognised only when rendering of services is fully or substantially completed.
ii. More than one act is involved, revenue to be recognised on execution of all those acts.
b. Proportionate completion method (PCM): Recognise revenue proportionately with the degree of completion of services. (Similar to AS -7)
c. Revenue on rendering of services is recognised:
i. Either under CSM Or PCM.
ii. Only when certainty exists regarding amount of consideration.
iii. Only when certainty exists regarding collection of consideration.
a. Revenue from sale or rendering services should be recognised at the time of the sale or rendering services.
b. However, if at the time of sale or rendering services there is significant uncertainty in collection of the revenue, then the revenue recognition is to be postponed.
c. In such cases it will be recognised only when it becomes certain that collection will be made.
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Revenue should be
a. Installation: Revenue to be recognised when goods are installed and accepted by the buyer.
b. Sale on approval: When buyer confirms his desire to buy the goods.
c. Warranty Sales/Money back sales: Recognise revenue immediately but a provision for warranties/returns to be made.
d. Consignment sales: Revenue to be recognised only when the goods are sold by consignee.
e. Subscriptions for publication: If publications to be delivered vary in value from period to period revenue should be recognised on the basis of sales value of items to be delivered. If not, revenue should be recognised on straight-line basis over the time.