Objective
A.S 9 deals with the basis for recognition of revenue in the statement of profit and loss of an enterprise.
A.S 9 deals with the basis for recognition of revenue in the statement of profit and loss of an enterprise.
The Accounting Standard is concerned with the recognition of revenue arising in the course of the ordinary activities of the enterprise from
- The sale of goods,
- The rendering of services, and
- The use by others of enterprise resources yielding interest, royalties and dividends.
Applicability
This Accounting Standard does not deal with the following aspects of revenue recognition to which special considerations(i.e, separate standard has been issued to govern the same) apply:
- Revenue arising from construction contracts;
- Revenue arising from hire-purchase, lease agreements;
- Revenue arising from government grants and other similar subsidies;
- Revenue of insurance companies arising from insurance contracts.
Examples of items not included within the definition of “revenue” for the purpose of this Standard are:
- Realised or unrealised gains resulting from non-current assets like appreciation in the value of fixed assets;
- Unrealised holding gains resulting from the change in value of current assets, and the natural increases in agricultural and forest products;
- Realised or unrealised gains from changes in foreign exchange rates and adjustments arising on the translation of foreign currency financial statements;
- Realised gains resulting from the discharge of an obligation at less than its carrying amount;
- Unrealized gains resulting from the restatement of the carrying amount of an obligation.
Revenue
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,
- the rendering of services, and
- the use by others of enterprise resources yielding interest, royalties and dividends.
Recognition of Revenue
In general revenue from sale or service is to be recognized at the time of sale or rendering of service.
However, if at the time of rendering of service or at the time of sale there is significant
uncertainty in ultimate collection of the revenue, then the revenue recognition should be postponed to the date of collection.
uncertainty in ultimate collection of the revenue, then the revenue recognition should be postponed to the date of collection.
And if the uncertainty arises subsequent to recognizing the revenue then separate provision is to be created to reflect the uncertainty rather than to adjust the amount of revenue originally recorded.
Recognition on sale of goods
Revenue is recognized on the fulfillment of following conditions:
Revenue is recognized on the fulfillment of following conditions:
- The seller of goods has transferred to the buyer
- The property in the goods for a price or
- All significant risks and rewards of ownership and the seller retains no effective control of the goods.
- No significant uncertainty exists regarding the amount of the consideration that will be derived from the sale of the goods.
Recognition on rendering of services
Revenue recognition on rendering of services is measured by either of the two methods:
- Completed service contract method
- Proportionate completion method
Whichever relates the revenue to the work accomplished. Such performance should be regarded as being achieved when no significant uncertainty exists regarding the amount of the consideration that will be derived from rendering the service.
Revenue arising from the use by others of enterprise resources yielding interest, royalties and dividends.
It should only be recognized when no significant uncertainty as to measurability or collectability exists. These revenues are recognized on the following basis:
It should only be recognized when no significant uncertainty as to measurability or collectability exists. These revenues are recognized on the following basis:
- Interest - on a time proportion basis taking into account the amount outstanding and the rate applicable.
- Royalties - on an accrual basis in accordance with the terms of the relevant agreement.
- Dividends - when the owner’s right to receive is established
Disclosures
In addition to the disclosures required by AS 1 on ‘Disclosure of AccountingPolicies’, an enterprise should also disclose the circumstances in which revenue recognition has been postponed because of significant uncertainties.
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