Indian Accounting Standard (Ind AS) 115 – Revenue from Contracts with Customers

Flashcards cover definitions, five-step model, contract criteria, performance obligations, variable consideration, financing components, contract costs, licences, repurchase agreements, bill-and-hold, disclosure, service concessions, and comparisons with AS 7/AS 9.

What is the core principle of Ind AS 115?

Recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to.

List the five-step revenue recognition model in Ind AS 115.

1) Identify the contract; 2) Identify performance obligations; 3) Determine the transaction price; 4) Allocate the transaction price to performance obligations; 5) Recognise revenue when (or as) performance obligations are satisfied.

Which types of contracts are excluded from Ind AS 115?

Leases (Ind AS 116), insurance contracts (Ind AS 117), financial instruments & investments (Ind AS 109/110/111/27/28) and non-monetary exchanges between entities in the same line of business to facilitate sales.

When does a contract exist for Ind AS 115 purposes?

Only when it meets all 5 criteria: approval & commitment, identifiable rights, identifiable payment terms, commercial substance, and probable collectability of consideration.

Define ‘performance obligation’.

A promise to transfer to the customer (a) a distinct good or service, or (b) a series of distinct goods or services that are substantially the same and have the same transfer pattern.

What makes a good or service ‘distinct’?

It is capable of being distinct (customer can benefit on its own or with readily available resources) AND it is distinct in the context of the contract (not highly integrated, modified, or inter-dependent with other items).

Give two indicators that promised goods/services are NOT separately identifiable.

1) Entity provides a significant integration service; 2) One good/service significantly modifies or is highly inter-dependent with another.

What is ‘variable consideration’?

Portion of the transaction price that can vary due to discounts, rebates, refunds, price concessions, bonuses, penalties, etc.

Which two methods can be used to estimate variable consideration?

Expected value (probability-weighted) or Most-likely amount (single most likely outcome).

Explain the ‘constraint’ on variable consideration.

Include variable consideration only to the extent it is highly probable that a significant revenue reversal will NOT occur when the uncertainty is resolved.

When is revenue recognised for a sale with a right of return?

Recognise revenue only for products not expected to be returned; record a refund liability and an asset for the right to recover returned goods.

How is a significant financing component treated?

Adjust the promised consideration for the time value of money if payment timing provides significant financing benefit to either party (except practical expedient of ≤1 year).

Give three situations where no significant financing component is assumed.

1) Advance payment at customer’s discretion (e.g., prepaid card). 2) Variable consideration based on factors outside control (e.g., sales-based royalty). 3) Difference between cash price & consideration relates to reasons other than financing (e.g., retention money for performance).

What is a ‘contract asset’?

An entity’s right to consideration for goods/services transferred when that right is conditional on something other than passage of time.

What is a ‘contract liability’?

Obligation to transfer goods/services for which the entity has received consideration (or consideration is due).

How are discounts allocated under Ind AS 115?

Generally proportionally to all performance obligations based on stand-alone selling prices, unless specific criteria show the discount relates entirely to one or more obligations.

When can the ‘residual approach’ estimate stand-alone selling price?

If stand-alone prices are highly variable or uncertain AND at least one other good/service in the contract has an observable stand-alone price.

How is non-cash consideration measured?

At fair value; if fair value can’t be reasonably estimated, use stand-alone selling price of goods/services transferred.

Define ‘bill-and-hold’ arrangement and key recognition criteria.

Customer is billed but goods are held by seller; revenue only if: substantive reason, goods separately identified, ready for physical transfer, and seller cannot use/redirect goods.

What distinguishes a ‘right to access’ licence from a ‘right to use’ licence?

Right to access: revenue over time (IP is dynamic & entity’s activities affect customer). Right to use: revenue at a point in time (static IP as at grant date).

In a repurchase agreement, when is it a financing arrangement?

If entity has an obligation/right to repurchase at an amount ≥ original selling price (after time value adjustment).

What are ‘contract costs’ that may be capitalised?

Incremental costs to obtain a contract and costs to fulfil a contract that are directly related, generate/enhance resources for future transfer, and are expected to be recovered.

How are capitalised contract costs amortised?

Systematically over the period the related goods or services are transferred to the customer; test for impairment regularly.

What disclosures are required for revenue disaggregation?

Entities must disaggregate revenue into categories that depict nature, amount, timing and uncertainty, and reconcile with segment disclosures.

Give two examples of performance obligations satisfied over time.

1) Routine cleaning services consumed as performed; 2) Construction of a building on customer-controlled land.

What is the ‘series’ guidance for services?

A series of distinct goods/services is one performance obligation if each unit is transferred over time and the same measure of progress is used for each.

How are warranties accounted for under Ind AS 115?

Assurance-type: cost accrual under Ind AS 37; Service-type (additional coverage): separate performance obligation with revenue deferred and recognised over warranty period.

How are principal vs agent relationships distinguished?

Principal controls the goods/services before transfer; recognises gross revenue. Agent arranges transfer by another party; recognises net fee/commission.

Explain ‘consignment’ arrangement revenue timing.

Revenue recognised when control passes to end customer, not when goods delivered to consignee; consignor retains control during consignment period.

What are the three approaches to accounting for a contract modification not treated as a separate contract?

1) Terminate old & create new (distinct remaining goods); 2) Cumulative catch-up (non-distinct remaining goods); 3) Mixed approach for partly distinct goods.

When can an entity recognise revenue under a contract that initially failed Step 1 collectability?

When collectability issue is resolved OR entity has received non-refundable consideration and has no remaining obligations or contract terminated with non-refundable consideration.

Give an example of allocating variable consideration to specific performance obligation.

Early-completion bonus in construction contract allocated only to construction promise because bonus relates specifically to that obligation and allocation meets overall allocation objective.

What practical expedient exists for incremental costs to obtain a contract?

Expense them immediately if the amortisation period of the asset would be one year or less.

How is interest presented in the income statement under Ind AS 115?

Interest income/expense from significant financing components is presented separately from contract revenue.

What is the treatment for ‘consideration payable to a customer’?

Reduce transaction price unless payment is for a distinct good/service at fair value; excess amounts always reduce revenue.

Under Ind AS 115, what is the transaction price for a contract with a 3-year service at ₹800/month and ₹2,000 joining fee non-refundable?

Joining fee usually viewed as advance payment for future services; revenue recognised over service period (unless fee relates to distinct upfront goods/services).

When does the ‘practical expedient to invoice’ apply?

If entity’s right to consideration corresponds directly with value transferred to customer (e.g., time-and-materials contracts), revenue equals amount invoiced.

Name two significant new disclosures not required under AS 7/AS 9.

Disclosure of remaining performance obligation backlog and disclosure of significant judgments in applying revenue recognition policies.

How is a refund liability measured?

At the amount of consideration the entity expects to refund to the customer for goods/services expected to be returned or for retrospective price reductions.

What is the impact of loyalty points that give customers options for future goods?

If option provides a material right, it is a separate performance obligation; allocate portion of transaction price based on stand-alone selling price of the option.

How are ‘uninstalled materials’ treated in an input method?

Exclude cost of uninstalled materials from progress measure if they are significant and do not depict performance; recognise revenue equal to cost when control transfers.

State the transition methods available when first adopting Ind AS 115.

Full retrospective (restating comparatives) or Modified retrospective (cumulative effect in opening equity).

What balances are presented separately under Ind AS 115?

Contract assets, contract liabilities and receivables (if not presented elsewhere).

How does Ind AS 115 treat ‘non-refundable upfront fees’ in franchise agreements?

If fee does not relate to a distinct good/service, treat as advance payment and recognise over expected franchise term.

What are ‘service concession arrangements’ and how are they treated?

Public-to-private arrangements (e.g., build-operate-transfer). Operator recognises a financial asset if it has unconditional right to cash; otherwise an intangible asset (right to charge users).

Under Ind AS 115, when does control pass ‘FOB shipping point’?

Typically when goods are shipped (customer obtains legal title & risks), unless other factors delay control transfer (e.g., installation obligation).

Give an example of contract costs to fulfil that must be expensed immediately.

General & administrative costs not chargeable to customer, or wasted materials/labour not reflected in contract price.

How are sales-based royalties on licences recognised?

Recognised only when (a) subsequent sale/usage occurs AND (b) performance obligation to which royalty relates has been satisfied.

State one key difference between Ind AS 115 and AS 9 in measuring revenue.

Ind AS 115 measures revenue at transaction price (may include variable consideration, time-value adjustments); AS 9 measures at amount charged without such adjustments.

What is the effect of a ‘put’ option at a price lower than the original selling price in a repurchase agreement?

If customer has significant economic incentive to exercise, treat as lease; otherwise treat as sale with right of return.

When must an entity re-assess progress toward completion?

At each reporting date, and update measure of progress for changes in facts or estimates (treated as change in accounting estimate).

How does Ind AS 115 treat ‘slotting fees’ paid to a retailer?

Usually not for distinct goods/services; treated as consideration payable to a customer and deducted from transaction price.

Which standard applies to interest and dividend revenue after Ind AS 115 adoption?

Interest and dividend income are within the scope of Ind AS 109 (financial instruments), not Ind AS 115.