Accounting Standard-9 Revenue Recognition (Key Points)

1).Revenue from sales or service transactions should be recognised when the requirements as to performance as

set out are satisfied, provided that at the time of performance it is not unreasonable to expect ultimate

collection. If at the time of raising of any claim it is unreasonable to expect ultimate collection, revenue

recognition should be postponed.

2).In a transaction involving the sale of goods, performance should be regarded as being achieved when the

following conditions have been fulfilled:

 (i) the seller of goods has transferred to the buyer the property in the goods for a price or all significant risks and rewards of ownership have been transferred to the buyer and the seller retains no effective control of the goods transferred to a degree usually associated with ownership; and

(ii) no significant uncertainty exists regarding the amount of the consideration that will be derived from the

sale of the goods.

3).In a transaction involving the rendering of services, performance should be measured either under the

completed service contract method or under the proportionate completion method, whichever relates the

revenue to the work accomplished.

4).Such performance should be regarded as being achieved when no significant uncertainty exists regarding the

amount of the consideration that will be derived from rendering the service.

5).Revenue arising from the use of other enterprise resources yielding interest, royalties and dividends should

only be recognised when no significant uncertainty as to measurability or collectability exists. These revenues

are recognised on the following bases:

(i) Interest: on a time proportion basis taking into account the amount outstanding and the rate applicable.

(ii) Royalties: on an accrual basis in accordance with the terms of the relevant agreement.

(iii) Dividends from investments in shares: when the owner’s right to receive payment is established.

Disclosure

1).In addition to the disclosures required by Accounting Standard 1 on ‘Disclosure of Accounting Policies’

(AS-1), an enterprise should also disclose the circumstances in which revenue recognition has been

postponed pending the resolution of significant uncertainties.

2).In cases where revenue cycle of the entity involves collection of excise duty the enterprise is required to

disclose revenue at gross as reduced by excise amount thereby finally arriving net sales on the face of the

profit and loss account.

3).The standard is followed by an appendix that though is not part of the Standard, illustrate the application of

the Standard to a number of commercial situation deals with various situations in an endeavour to assist in

clarifying application of the Standard.