AS-9 REVENUE RECOGNITION

Revenue is the gross inflow of cash, receivables or other consideration arising in the course of the ordinary activities of an enterprise from the sale of goods, from the rendering of services, and from the use by others of enterprise resources yielding interest, royalties and dividends.

Revenue includes: - Proceeds from sale of goods
- Proceeds from rendering of services
- Interest, royalty and dividends.

Sale of goods

Revenue from sales should be recognized when
• All significant risks and rewards of ownership have been transferred to the buyer from
the seller.
• Ultimate realisability of receipt is reasonably certain.

Rendering of Services

Revenue from service transactions is usually recognized as the service is performed, either by proportionate completion method or by the completed service contract method.

1) Proportionate Completion method – This is a method of accounting, which recognises revenue in the statement of profit and loss proportionately with degree of completion of services under a contract.

Revenue is recognised by reference to the performance of each act. The revenue recognised under this method would be determined on the basis of contract value, associated costs, number of acts or other suitable basis.

2) Completed service contract method – This is a method of accounting, which recognises revenue in the statement of profit and loss only when the rendering of services under a contract is completed or substantially completed.

Revenue under this method is recognised on completion or substantial completion of the job.

Revenue from Interest : Recognised on time proportion basis

Revenue from Royalties: Recognised on accrual basis in accordance with the terms of the relevant agreement.

Revenue from Dividends: Recognised when right to receive is established

Subsequent uncertainty in collection: When the uncertainty relating to collectability arises subsequent to the time of sale or the rendering of services, it is more appropriate to make a separate provision to reflect the uncertainty rather than to adjust the amount of revenue originally recorded.

Disclosure: An enterprise should disclose the circumstances in which revenue recognition has
been postponed pending the resolution of significant uncertainties.
EXAMPLES

1] On sale, buyer takes title and accepts billing but delivery is delayed at buyer’s request
- Revenue should be recognised notwithstanding that physical delivery has not been
completed.

2] Delivery subject to installations and inspections
- Revenue should not be recognised until the customer accepts delivery and
installation and inspection are complete. However, when installation process is very
simple, revenue should be recognised. For example. Television sale subject to
installation.

3] Sale on approval
- Revenue should not be recognised until the goods have been formally accepted or time
for rejection has elapsed or where no time has been fixed, a reasonable time has
elapsed.

4] Sales with the condition of ‘money back if not completely satisfied’
- It may be appropriate to recognize the sale but to make suitable provision for
returns based on previous experience.
5] Consignment sales
- Revenue should not be recognised until the goods are sold to a third party.

6] Installment sales
- Revenue of sale price excluding interest should be recognised on the date of sale.

7] Special order and shipments
- Revenue from such sales should be recognized when the goods are identified and ready
for delivery.

8] Where seller concurrently agrees to repurchase the same goods at a later date
- The sale should not be recognised, as this is a financial arrangement.

9] Subscriptions received for publications
- Revenue received or billed should be deferred and recognised either on a straight-line
basis over time or where the items delivered vary in value from period to period, revenue
should be based on the sales value of the item delivered.

10] Advertisement commission received
- It is recognised when the advertisement appears before public.

11] Tution fees received
- Should be recognised over the period of instruction.

12] Entrance and membership fees
- Entrance fee is generally capitalized
- If the membership fee permits only membership and all other services or products are
paid for separately, the fee should be recognised when received. If the membership fee
entitles the member to services or publications to be provided during the year, it
should be recognised on a systematic and rational basis having regard to the timing and
nature of all services.

13] Sale of show tickets
- Revenue should be recognised when the event takes place.



14] Guaranteed sales of agricultural crops

- When sale is assured under forward contract or government guarantee, the crops can be
recognised at net realizable value although it does not satisfy the criteria of revenue
recognition.


The above accounting standard is not applicable for:
- Revenue arising from construction contracts
- Revenue arising from hire purchase, lease agreements
- Revenue arising from Government grants and subsidies
- Revenue of Insurance companies arising from insurance contracts
- Profit or loss on sale of fixed assets
- Realised or unrealized gains resulting from changes in foreign exchange rates
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