Ind AS 115

Revenue from Contracts with Customers

{/* BASICS SECTION */}

1. Objective

To report useful information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

2. Scope & Exclusions

Applies to all contracts with customers, EXCEPT:

Lease contracts (Ind AS 116)
Insurance contracts
Financial instruments
Non-monetary exchanges between entities in the same line of business

3. Meaning of Customer

A party that contracts with an entity to obtain goods/services that are outputs of the entity’s ordinary activities in exchange for consideration.

The 5-Step Revenue Recognition Model

{/* STEP 1 */}

Identify the Contract

Conditions (All must be met)

Approved by both parties
Each party’s rights identified
Payment terms identified
Commercial substance exists
Collection of consideration is probable

📌 Note: No Contract?

Even if the criteria are not met, revenue may be recognised if:

Entity has transferred goods/services AND
No remaining obligations AND
Consideration is non-refundable

{/* STEP 2 */}

Identify Performance Obligations (PO)

A PO is a promise to transfer a distinct good/service OR a series of distinct goods/services.

Criteria for DISTINCT

Customer can benefit from the good/service on its own (or with available resources).
Promise to transfer is separately identifiable from other promises.

NOT Distinct If:

Significant integration service provided.
One good significantly modifies another.
Highly interdependent.

📌 Series Guidance: Similar services transferred over time (e.g., technical support for 3 years) = Single PO.

Specific Situations in Step 2

{/* Customer Options */}

Customer Options

Material Right = Separate PO

(e.g., Discount vouchers, loyalty points)

Accounting: Allocate price to option. Recognise when exercised or expired.

{/* Consignment */}

Consignment Arrangements

Revenue NOT recognised on delivery to dealer if:

Entity controls product
Dealer has right to return
Entity can redirect product

{/* Fees */}

Upfront Fees

Non-Refundable:

Relates to future services → Advance Payment
Relates to transferred service → Revenue

(e.g., Gym membership, Activation fee)

{/* Principal vs Agent */}

Principal vs Agent

Principal	Agent
Controls good/service before transfer	Facilitates transfer
Recognise Gross Revenue	Recognise Net Commission
Indicators: Primary responsibility, Inventory risk, Pricing discretion	Indicators: No inventory risk, fixed fee

{/* STEP 3 */}

Determine Transaction Price

The amount the entity expects to be entitled to.

{/* Variable Consideration */}

1. Variable Consideration

(Bonuses, discounts, penalties, refunds)

Methods:

Expected Value: For many outcomes.
Most Likely Amount: For two outcomes.

Include only if highly probable that significant reversal will not occur.

{/* Financing Component */}

2. Significant Financing Component

Exists if significant benefit of financing due to time gap.

Accounting: Interest recognised using EIR.

Exclude if:

Advance at customer discretion.
Gap < 1 year (Practical expedient).

{/* Non-Cash */}

3. Non-Cash Consideration

Measured at Fair Value.

If FV unreliable → Use Standalone Selling Price (SSP).

FV change due to form = Ignore.
FV change due to other reasons = Variable consideration rules.

{/* Payable to Customer */}

4. Payable to Customer

(Coupons, Rebates, Slotting fees)

Treatment: Reduce Transaction Price.

Exception: Unless payment is for a distinct service received from customer.

{/* Refund Liability */}

Sales with Right of Return

Recognise:

Revenue (excluding expected returns)
Refund Liability (Amount returned to customer)
Asset for right to recover goods (Cost - recovery cost)

*Restocking fees reduce the refund liability.

{/* Warranties */}

Warranties

Assurance Warranty
Quality assurance.
Treatment: Provision as per Ind AS 37.

Service Warranty
Additional service.
Treatment: Separate PO (Allocate transaction price).

{/* STEP 4 */}

Allocate Transaction Price

Allocation based on relative Standalone Selling Prices (SSP).

1. Adjusted Market Assessment

2. Expected Cost + Margin

3. Residual Approach (Strict conditions)

Change in Price: Allocate on same basis as original. Bonus changes → Re-allocate.

{/* STEP 5 */}

Recognise Revenue

When Control Transfers

Indicators of Control

Right to payment
Legal title
Physical possession
Significant risks & rewards
Customer acceptance

Recognise OVER TIME

If ANY ONE is met:

Customer simultaneously receives & consumes benefits.
Asset created has no alternative use AND enforceable right to payment.
Customer controls asset as it is created.

Methods: Input Method or Output Method.

{/* SPECIAL TOPICS */}

Special Topics

{/* Bill and Hold */}

Bill-and-Hold Arrangements

Revenue recognised only if all met:

Substantive reason for bill-and-hold
Product identified separately

Ready for physical transfer
Entity cannot use or redirect

{/* Repurchase Agreements */}

Repurchase Agreements

Type	Accounting Treatment
Forward / Call Option (Entity obligation/right to repurchase)	1. Financing: If Repurchase Price > Selling Price 2. Lease: If Repurchase Price < Selling Price
Put Option (Customer right to return)	1. Financing: If Repurchase Price > Selling Price 2. Sale with Right of Return: If Repurchase Price < Selling Price (and no economic incentive to exercise)

{/* Contract Costs */}

Contract Costs

1. Acquisition Cost

Incremental costs (e.g., Commission).
Treatment: Capitalise & Amortise.

2. Fulfilment Cost

Directly related, enhances resources, recoverable.
Treatment: Capitalise assets.

{/* Service Concession */}

Service Concession (SCA)

Infrastructure not recognised as PPE by operator.

Financial Asset Model:
Operator has right to receive cash (Guaranteed).

Intangible Asset Model:
Operator has right to charge users (Demand risk).

{/* Licensing */}

Licensing of Intellectual Property (IP)

1. Right to Access (Dynamic IP)

IP changes throughout the period.

Entity activities significantly affect IP.

Revenue: Over Time

2. Right to Use (Static IP)

IP exists at a point in time.

Entity has no remaining obligation to change IP.

Revenue: Point in Time

{/* Modifications */}

Contract Modification

Separate Contract if:

Adds distinct goods/services AND
Price reflects Standalone Selling Price (SSP).

Otherwise:

Prospective Adjustment: Remaining goods are distinct.
Cumulative Catch-up: Remaining goods are NOT distinct.

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Ind AS 115 - Revenue from Contracts with Customers