AS 9 - Revenue Recognition
Purpose
The Statement 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.
This statement does not deal with the following aspects of revenue recognition to
which special considerations 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.
Explanations
Revenue recognition is mainly concerned with the
timing, of recognition of revenue in the statement of profit and loss of an
enterprise.
Point of time when revenue is recognised for the following transactions:
- Sale of Goods at the time of transfer of significant risks and rewards of ownership
to buyer,
- Rendering of Services is usually recognised either by Proportionate completion method
or completed service contract method.
- Proportionate Completion Method: Performance consists of the
execution of more than one act and revenue is recognised on a straight line basis
over the specific period unless there is evidence that some other method better
represents the pattern of performance.
- Completed Service Contract Method: Performance consists of the
execution of a single act & revenue is recognised when the sole or final act
takes place.
Use by Others, of Enterprise Resources, Yielding Interest, royalties
and Dividends
- Interest: is recognised usually on the time basis determined by
the amount outstanding and the rate applicable.
- Royalty: is recognised in accordance with the terms of the
relevant agreement unless it is more appropriate to recognise on some other systematic
and rational basis.
- Dividends: only when a right to receive payment is established.
When recognition of revenue is postponed due to the effect of uncertainties, it is
considered as revenue of the period in which it is recognised.
Disclosures
In addition to the disclosures required by AS-1 on Disclosure of Accounting
Policies, an enterprise should also disclose the circumstances in which revenue
recognition has been postponed pending the resolution of significant uncertainties.