12.28.2001

Indian Accounting Standard - Ind AS 18: Revenue

Revenue is defined as the gross inflow of economic benefits (cash, receivables, other assets) arising from the ordinary operating activities of an enterprise (such as sales of goods, sales of services, interest, royalties, and dividends). Revenue excludes:

 Lease agreements (Indian Accounting Standard 17 Leases);

 Dividends arising from investments which are accounted for under the Equity method (Ind AS 28 Investments in Associates);

 Insurance contracts within the scope of Ind AS 104 Insurance Contracts;

 Changes in the fair value of financial assets and financial liabilities or their Disposal (Indian Accounting Standard109 Financial Instruments: Recognition and Measurement);

 Changes in the value of other current assets;
 Initial recognition and from changes in the fair value of biological assets Related to agricultural activity (Ind AS 41 Agriculture);

Initial recognition of agricultural produce (Ind AS 41); and

The extraction of mineral ores.

Measurement of revenue


Revenue should be measured at the fair value of the  consideration receivable.

Trade discounts and volume rebates allowed by the entity are deducted to determine fair value.

Then the inflow of cash or cash equivalents is deferred, the fair value of the consideration may be less than the nominal amount of cash received or receivable.

When the arrangement effectively constitutes a financing transaction, the fair value of the consideration is determined by discounting all future receipts using an imputed rate of interest In exchange for goods or services of a similar nature and value is not regarded as a transaction that generates revenue.

Exchanges for dissimilar items are regarded as generating revenue.

Recognition of Revenue

Recognition  means  incorporating  an  item  that  meets the  definition  of  revenue  in  the Statement of Profit and Loss when it meets the following criteria:

It is probable that any future economic benefit associated with the item of revenue will flow to the entity, and The amount of revenue can be measured with reliability.

Ind AS 18 provides guidance for recognizing the following specific categories of revenue:

The sale of goods;
The rendering of services; and
The use by others of entity assets yielding interest, royalties and dividends.

Sale of Goods

Revenue arising from the sale of goods should be recognized when all of the following criteria have been satisfied:

The seller has transferred to the buyer the significant risks and rewards of ownership;

The seller retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

The amount of revenue can be measured reliably;

It is probable that the economic benefits associated with the transaction will flow to the seller; and

The costs incurred or to be incurred in respect of the transaction can be measured reliably.


Rendering of Services



For revenue arising from the rendering of services, provided that all of the following criteria are met, revenue  should be recognized by reference to the stage of completion of the transaction at the reporting date (the percentage-of-completion method):

The amount of revenue can be measured reliably;

It is probable that the economic benefits will flow to the seller;

The stage of completion at the reporting date can be measured reliably; and

The costs incurred, or to be incurred, in respect of the transaction can be measured reliably.

When the above criteria are not met, revenue arising  from the rendering of services should be recognized only to the extent of the expenses recognised that are  recoverable (a "cost-recovery approach").


Interest, Royalties, and Dividends

For interest, royalties and dividends, provided that it is probable that the economic benefits will flow to the enterprise and the amount of revenue can be measured reliably, revenue should be recognized as follows:

Interest: on a time proportion basis that takes into account the effective yield;

Royalties: on an accruals basis in accordance with the substance of the relevant agreement; and

Dividends: when the shareholder's right to receive payment is established.