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Applicability
Learning Objective
This standard deals with
Basis of Revenue Recognition
And
Timing of Recognition
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What is Income?
Income
Revenue
Applies to
Gain
Sale Fees
Rendering of Services,
Interest, Royalty, Dividend
Revenue
Gain
Presented as Gross
If a Vehicle is sold for Rs. 7,50,000 net of VAT , with a cost of Rs. 7,00,000.
presentation in Statement of Profit & Loss will be as under
Definitions
4.1 Revenue is the Gross The sale of goods,
inflow of cash, receivables or The rendering of services , and
other consideration arising in From the use of enterprise resources yielding
the ordinary activities of an
interest, royalties and dividends
enterprise from:
4.3 Proportionate
completed method
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Certain Issues - 1
Sales on Approval
Guarantee Normal Abnormal
Cash on Delivery
FOB Destination & shipping
point
Sale to intermediate
Sale & Buy Back substance
over form
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Certain Issues - 2
Consignment sale ??
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Certain Issues - 3
VAT, Excise, Trade Discount
Installment sales
Agent - Commission
Warranty to be deducted from
Revenue ?
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Rendering of Services -1
Revenue from service
transactions is recognised
as the service is
performed either by:
Proportionate
Completion method
Completed Service
Contract method.
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Rendering of Services- 2
Percentage
Completionsame as As 7
Revenue is
recognised in
stages. Based on
some systematic
method.
Completed
Service Contract
method
Revenue is
recognised only on
completion of the
contract
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Dividend
Recognition
Source of Interest,
Royalties and Dividends
Domestic
Foreign
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Effect of Postponement
In which period should the postponement be recorded ?
The postponement due to effect of uncertainties should
recorded in the period in which it is PROPERLY
Recognised. In other words , when uncertainties gets
over, revenue should be recognised.
If the revenue recognition is postponed, make proper
disclosure.
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Uncertainties Summarised-1
Revenue should be recognised when it is measurable
and no uncertainties of collection at the time of
recognition.
When it is not possible to assess the ultimate collection ,
the revenue is not recognised and the recognition is
deferred + coupled with proper disclosure.
Where there is no uncertainty as to ultimate collection,
revenue is recognised at the time of sale or rendering of
service even though payments are made by instalment
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Uncertainties Summarised-2
When uncertainties get resolved , revenue should be
recognised.
Till such time the amount received is treated as Liability.
You must understand the difference between
uncertainty of collection at the time of sale AND
uncertainties , subsequent to the sale or rendering of
services. Refer to slide no
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XX
(X)
X
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Lesson Summary
Revenue to be recognised when measurable and risk &
rewards associated with ownership gets transferred.
Revenue Gross ( still net of VAT, GST, Excise & Trade
Discount). Cash discounted is not an off set against
revenue, but is recognised and presented as expense.
Gain Net of cost and related expenses.
Service Two permissible methods percentage
completion & completed service method.
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Home work
What are the recognition criteria of revenue ?
How uncertainties of collection at the time of sale & those
arising subsequently are dealt with ?
In case of sale on installment , when the revenue is
recognised?
Tip .
Read Appendix attached to AS 9, which is illustrative
only, meaning not forming integral part of the Standard. It
carries various examples .
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MCQ
Revenue from sale of goods is recognised net of
A) VAT
B) Cash Discount
C) Both VAT & Cash Discount
D) None of above
Answer a)
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