AS9 Revenue Recognition

AS9 Revenue Recognition
It deals with the bases for recognition of revenue in the statement of profit and loss of an
enterprise. It deals with recognition of revenue from sales of goods, rendering services, and
the use of by others enterprise resources yielding interest, dividends.
There are few exceptions to the above-mentioned statement where the special consideration
applies:
1. Revenue arising from Construction Contracts
2. Revenue arising from hire-purchase, lease agreements
3. Revenue arising from government grants and other similar subsidies
4. Revenue of Insurance companies arising from insurance contracts
ICAI issued Revenue as 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, rendering of
services & from various other sources like interest, royalties & dividends.
Revenue recognition is divided into two types:
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 recognizes revenue in the

statement of profit & loss proportionately with the degree of completion of each service.
Effect of uncertainty on revenue recognition
1. Recognition of revenue requires that revenue is measurable and that at the time of
sale or the rendering of the service it would not be unreasonable to expect ultimate
collection.
2. When recognition of revenue is postponed due to the effect of uncertainties, it is
considered as revenue of the period in which it is properly recognised.
Main Principles
1. In a transaction involving the sale of goods, performance should be regarded as being

achieved when seller of the good has transferred to the buyer the property in the
goods for a price.
2. No significant uncertainty exists regarding the amount of the consideration that will
derived from the sales of good.
3. Transaction involving the rendering of services, performance should be measured
either under the completed service contract method or under proportionate method.
4. Revenue arising from the use by others of enterprise resources yielding interest,
royalties and dividends should only be recognised when no significant uncertainty as
to measurability or collectability exists.
Indian Accounting Standard (Ind AS) 18
Income is defined as increase in economic benefits during the accounting period in the form
of inflows or enhancements of assets or decreases of liabilities that result in increases in
equity, other than those relating to contributions from equity participants.
Primary issue in accounting is to determine when to recognise revenue. It is recognised when
it is known that future economic benefits will flow to the entity and these benefits can be
measured. The standard will be applied when revenue arise from following given below
1. Sales of good
2. Rendering of services
3. The use of others entity assets yields interest, dividends.
Measurement of Revenue- Revenue is value of consideration received or receivable.
Identification of the Transaction- It is necessary to apply recognition criteria to the separately
identifiable components of single transaction in order to reflect the substance of transaction.
Recognition criteria in this Standard are usually applied separately to each transaction.
Sales of Goods- When entity has transferred to the buyer, the significant risk and rewards of
ownership of the goods. When the amount of revenue can be measured reliably. The cost
incurred in respect of the transaction can be measured reliably. It is probable that the
economic benefits associated with the transaction will flow to the entity. The costs incurred
or to be incurred in respect of the transaction can be measured reliably.
Rendering of services- The amount of revenue can be measured reliably. It is probable that
economic benefits associated with transaction will flow to the utility. The costs incurred for
the transaction and the costs to complete the transaction can be measured reliably. The stage
of completion of the transaction at the end of the reporting period can be measured reliably.
An entity is generally able to make reliable estimates after it has agreed to the consideration
to be exchanged, the manner and terms of settlement.
Interest, royalties and dividends- It is probable that the economic benefits associated with
the transaction will flow to the entity. The amount of revenue can be measured reliably.
royalties shall be recognised on an accrual basis in accordance with the substance of the
relevant agreement. Revenue is recognised only when it is probable that the economic
benefits associated with the transaction will flow to the entity. When unpaid interest has
accrued before the acquisition of an interest-bearing investment, the subsequent receipt of
interest is allocated between pre-acquisition and post-acquisition periods.
Disclosure- The accounting policies adopted for the recognition of revenue, including the
methods adopted to determine the stage of completion of transactions involving the
rendering of services.

AS9 Revenue Recognition

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AS9 Revenue Recognition

Proportionate Completion Method is a method of accounting recognizes revenue in the

Effect of uncertainty on revenue recognition

1. In a transaction involving the sale of goods, performance should be regarded as being

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