Revenue recognition AS-9

As-9

1. Presented by Goutamabhat ACCOUNTING STANDARD-9

2. REVENUE: It is the gross inflow of cash, receivables or other consideration arising in the course of ordinary activities of an enterprise from the Sale of goods Rendering of services Use of enterprise resources by others, yielding interest, royalties and dividends RECOGNITION: Recording of the monetary effects of a business transaction into books of accounts or financial statements MEASURING OF REVENUE: Charges made to clients or customers for goods supplied and services rendered Charges and rewards arising from use of resources by others

3. Relationship between revenue recognition , the matching concept and the accrual concept The matching principle directs a company to report an expense in the same period as the related revenues. It is associated with the accrual method of accounting The matching principle accrual cncept(revenues and expenses are recorded as they are incurred, no matter when cash is received) With the revenue recognition principle(revenue should be recognised when they are earned no matter when cash is received

4. Principles Revenue recognition principle provides that revenue is recognized: When it is earned When it is realizes or realizable Earned –when earning proocess is substantially complete Realized-when goods and services are exchanged for cash Realizable-assets received are convertible into known amount of cash Primary criteria Persuasive evidence for an arrangement Delivery has occurred or services have been rendered The sellers price to the buyer is fixed or determinable Collectability is reasonabally assured

5. AS9 doesnot deals with revenue arising from Construction contracts(AS-7) Hire purchase, lease agreements(AS-9) Governament grants and other similar subsidiaries(AS-12) Revenue of insurance companies arising from insurance contracts Revenue recognition is mainly concerned with timing of recognition of revenue in statement of p&l. Revenue recognition types-no significant uncertainity exists 1)Sales-date of transfer of ownership 2)Services-performed and billed *complete service contract method *proportionate complete method 3)Use of enterprises by others-Accrual basis

6. 1)Completed contract method Recognizes all income when project is completed Applicable where service can be completed in single act Where extent of progress cannt be measured 2)Proportionate completion method Where many acts of service to be completed Eg.actual job Total job Revenue recognition-services

7. Effect of uncertainities on revenue recognition Revenue recognition requires that revenue is measurable and expects ultimate collection If it is not possible to determine the consideration within reasonable limits, the recognition of revenue is postponed When such postpone takes place, it is considered asrevenue of the period in which it is properly recognised Uncertainity relating to collectability arises subsequent to time of sale or providing service, separate provisions should be made to reflect the uncertainity

8. Sale of goods -conditions Realized On approval basis After formal approval by customers consignment After goods sold to third party Cash on delivery sales After cash received Installment payments,delivery of goods after final payment Untill goods are delivered Sale and repurchase agreements Not recognised as revenue Rendering of services Realized Installation fees After installment and acceptence by customers Insurance agency Commencement of related paties Admisson fees Event take place ILLUSTRATIONS

9. conclusion: Revenue recognition principle is a cornestore of accrual accounting together with the matching principle. They both determine the accounting period, in which revenues and expenses are recognized, in contrast to cash accounting where revenues are recognized when cash is received no matter when goods are sold or services are rendered References: www.icai.org www.mca.gov.in www.quora.com