Accounting Standard (AS) 9 (issued 1985) Revenue Recognition Paragraphs INTRODUCTION Definitions E !

"ANATION Sale of Goods Rendering of Services The Use ! "thers of #nterprise Reso$rces %ielding &nterest' Ro!alties and Dividends #ffect of Uncertainties on Reven$e Recognition ACCOUNTIN# STANDARD Disclos$re A!!ENDI 1-4 4 5-9 6 7 ( 9 1)-14 14

(This Accounting Standard includes paragraphs 10-14 set in bold italic type and paragraphs 1-9 set in plain type, which have equal authority. aragraphs in !old italic type indicate the "ain principles. This Accounting Standard should !e read in the conte#t o$ the re$ace to the State"ents o$ Accounting Standards 1. % The follo*ing is the te+t of the ,cco$nting Standard -,S. 9 iss$ed /hartered ,cco$ntants of &ndia on 0Reven$e Recognition01 2 ! the &nstit$te of

&n the initial !ears' this acco$nting standard *ill e reco33endator! in character1 D$ring this period' this standard is reco33ended for $se ! co3panies listed on a recognised stoc4 e+change and other large co33ercial' ind$strial and $siness enterprises in the p$ lic and private sectors1 5 Introduction 11 This State3ent deals *ith the ases for recognition of reven$e in the state3ent of profit and loss of an enterprise1 The State3ent is concerned *ith the recognition of reven$e arising in the co$rse of the ordinar! activities of the enterprise fro3

the sale of goods'

the rendering of services' and the $se ! others of enterprise reso$rces !ielding interest' ro!alties and dividends1

1 ,ttention is specificall! dra*n to paragraph 415 of the Preface' according to *hich ,cco$nting Standards are intended to appl! onl! to ite3s *hich are 3aterial1 2 &t is reiterated that this ,cco$nting Standard -as is the case of other acco$nting standards. ass$3es that the three f$nda3ental acco$nting ass$3ptions i1e1' going concern' consistenc! and accr$al have een follo*ed in the preparation and presentation of financial state3ents1

5 &t 3a! e noted that this ,cco$nting Standard is no* 3andator!1 Reference 3a! e 3ade to the section titled 0,nno$nce3ents of the /o$ncil regarding stat$s of vario$s doc$3ents iss$ed ! the &nstit$te of /hartered ,cco$ntants of &ndia0 appearing at the eginning of this /o3pendi$3 for a detailed disc$ssion on the i3plications of the 3andator! stat$s of an acco$nting standard1 4 See also ,cco$nting Standards &nterpretation -,S&. 14' *hich is p$ lished else*here in this /o3pendi$31

21 This State3ent does not deal *ith the follo*ing aspects of reven$e recognition to *hich special considerations appl!6

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Reven$e arising fro3 constr$ction contracts7

Reven$e arising fro3 hire-p$rchase' lease agree3ents7 Reven$e arising fro3 govern3ent grants and other si3ilar s$ sidies7 Reven$e of ins$rance co3panies arising fro3 ins$rance contracts1

51 #+a3ples of ite3s not incl$ded *ithin the definition of 8reven$e8 for the p$rpose of this State3ent are6 i1 Realised gains res$lting fro3 the disposal of' and $nrealised gains res$lting fro3 the holding of' non-c$rrent assets e1g1 appreciation in the val$e of fi+ed assets7 Unrealised holding gains res$lting fro3 the change in val$e of c$rrent assets' and the nat$ral increases in herds and agric$lt$ral and forest prod$cts7 Realised or $nrealised gains res$lting fro3 changes in foreign e+change rates and ad9$st3ents arising on the translation of foreign c$rrenc! financial state3ents7 Realised gains res$lting fro3 the discharge of an o ligation at less than its carr!ing a3o$nt7 Unrealised gains res$lting fro3 the restate3ent of the carr!ing a3o$nt of an o ligation1

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5 Refer to ,S 7 on 0,cco$nting for /onstr$ction /ontracts01 ,S 7 -iss$ed 19(5. has een revised in 2))2 and titled as 0/onstr$ction /ontracts01 The pre-revised as *ell as the revised ,S 7 are p$ lished else*here in this /o3pendi$31

E$%&anation 51 Reven$e recognition is 3ainl! concerned *ith the ti3ing of recognition of reven$e in the state3ent of profit and loss of an enterprise1 The a3o$nt of reven$e arising on a transaction is $s$all! deter3ined ! agree3ent et*een the parties involved in the transaction1 :hen $ncertainties e+ist regarding the deter3ination of the a3o$nt' or its associated costs' these $ncertainties 3a! infl$ence the ti3ing of reven$e recognition1

De'initions

41 The follo*ing ter3s are $sed in this State3ent *ith the 3eanings specified6 411 &evenue is the gross inflo* of cash' receiva les or other consideration arising in the co$rse of the ordinar! activities of an enterprise fro3 the sale of goods' fro3 the rendering of services' and fro3 the $se ! others of enterprise reso$rces !ielding interest' ro!alties and dividends1 Reven$e is 3eas$red ! the charges 3ade to c$sto3ers or clients for goods s$pplied and services rendered to the3 and ! the charges and re*ards arising fro3 the $se of reso$rces ! the31 &n an agenc! relationship' the reven$e is the a3o$nt of co33ission and not the gross inflo* of cash' receiva les or other consideration1 412 'o"pleted service contract "ethod is a 3ethod of acco$nting *hich recognises reven$e in the state3ent of profit and loss onl! *hen the rendering of services $nder a contract is co3pleted or s$ stantiall! co3pleted1 415 roportionate co"pletion "ethod is a 3ethod of acco$nting *hich recognises reven$e in the state3ent of profit and loss proportionatel! *ith the degree of co3pletion of services $nder a contract1

() Sa&e o' #oods 611 , 4e! criterion for deter3ining *hen to recognise reven$e fro3 a transaction involving the sale of goods is that the seller has transferred the propert! in the goods to the $!er for a consideration1 The transfer of propert! in goods' in 3ost cases' res$lts in or coincides *ith the transfer of significant ris4s and re*ards of o*nership to the $!er1 ;o*ever' there 3a! e sit$ations *here transfer of propert! in goods does not coincide *ith the transfer of significant ris4s and re*ards of o*nership1 Reven$e in s$ch sit$ations is recognised at the ti3e of transfer of significant ris4s and re*ards of o*nership to the $!er1 S$ch cases 3a! arise *here deliver! has een dela!ed thro$gh the fa$lt of either the $!er or the seller and the goods are at the ris4 of the part! at fa$lt as regards an! loss *hich 3ight not have occ$rred $t for s$ch fa$lt1 <$rther' so3eti3es the parties 3a! agree that the ris4 *ill pass at a ti3e different fro3 the ti3e *hen o*nership passes1 612 ,t certain stages in specific ind$stries' s$ch as *hen agric$lt$ral crops have een harvested or 3ineral ores have een e+tracted' perfor3ance 3a! e s$ stantiall! co3plete prior to the e+ec$tion of the transaction generating reven$e1 &n s$ch cases *hen sale is ass$red $nder a for*ard contract or a govern3ent g$arantee or *here 3ar4et e+ists and there is a negligi le ris4 of fail$re to sell' the goods involved are often val$ed at net realisa le val$e1 S$ch a3o$nts' *hile not reven$e as defined in this State3ent' are so3eti3es recognised in the state3ent of profit and loss and appropriatel! descri ed1

*) Rendering o' Services 711 Reven$e fro3 service transactions is $s$all! recognised as the service is perfor3ed' either ! the proportionate co3pletion 3ethod or ! the co3pleted service contract 3ethod1 i1 roportionate co"pletion "ethod -Perfor3ance consists of the e+ec$tion of 3ore than one act1 Reven$e is recognised proportionatel! ! reference to the perfor3ance of each act1 The reven$e recognised $nder this 3ethod *o$ld e

deter3ined on the asis of contract val$e' associated costs' n$3 er of acts or other s$ita le asis1 <or practical p$rposes' *hen services are provided ! an indeter3inate n$3 er of acts over a specific period of ti3e' reven$e is recognised on a straight line asis over the specific period $nless there is evidence that so3e other 3ethod etter represents the pattern of perfor3ance1 ii1 'o"pleted service contract "ethod-Perfor3ance consists of the e+ec$tion of a single act1 ,lternativel!' services are perfor3ed in 3ore than a single act' and the services !et to e perfor3ed are so significant in relation to the transaction ta4en as a *hole that perfor3ance cannot e dee3ed to have een co3pleted $ntil the e+ec$tion of those acts1 The co3pleted service contract 3ethod is relevant to these patterns of perfor3ance and accordingl! reven$e is recognised *hen the sole or final act ta4es place and the service eco3es chargea le1

8) T+e Use ,- Ot+ers o' Enter%rise Resources .ie&ding Interest/ Ro-a&ties and Dividends (11 The $se ! others of s$ch enterprise reso$rces gives rise to6 i1 interest-charges for the $se of cash reso$rces or a3o$nts d$e to the enterprise7 ro!alties-charges for the $se of s$ch assets as 4no*-ho*' patents' trade 3ar4s and cop!rights7 dividends-re*ards fro3 the holding of invest3ents in shares1

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&nterest accr$es' in 3ost circ$3stances' on the ti3e asis deter3ined ! the a3o$nt o$tstanding and the rate applica le1 Us$all!' disco$nt or pre3i$3 on de t sec$rities held is treated as tho$gh it *ere accr$ing over the period to 3at$rit!1 (15 Ro!alties accr$e in accordance *ith the ter3s of the relevant agree3ent and are $s$all! recognised on that asis $nless' having regard to the s$ stance of the transactions' it is 3ore appropriate to recognise reven$e on so3e other s!ste3atic and rational asis1 (14 Dividends fro3 invest3ents in shares are not recognised in the state3ent of profit and loss $ntil a right to receive pa!3ent is esta lished1 (15 :hen interest' ro!alties and dividends fro3 foreign co$ntries re=$ire e+change per3ission and $ncertaint! in re3ittance is anticipated' reven$e recognition 3a! need to e postponed1

9) E''ect o' Uncertainties on Revenue Recognition 911 Recognition of reven$e re=$ires that reven$e is 3eas$ra le and that at the ti3e of sale or the rendering of the service it *o$ld not e $nreasona le to e+pect $lti3ate collection1

912 :here the a ilit! to assess the $lti3ate collection *ith reasona le certaint! is lac4ing at the ti3e of raising an! clai3' e1g1' for escalation of price' e+port incentives' interest etc1' reven$e recognition is postponed to the e+tent of $ncertaint! involved1 &n s$ch cases' it 3a! e appropriate to recognise reven$e onl! *hen it is reasona l! certain that the $lti3ate collection *ill e 3ade1 :here there is no $ncertaint! as to $lti3ate collection' reven$e is recognised at the ti3e of sale or rendering of service even tho$gh pa!3ents are 3ade ! instal3ents1 915 :hen the $ncertaint! relating to collecta ilit! arises s$ se=$ent to the ti3e of sale or the rendering of the service' it is 3ore appropriate to 3a4e a separate provision to reflect the $ncertaint! rather than to ad9$st the a3o$nt of reven$e originall! recorded1 914 ,n essential criterion for the recognition of reven$e is that the consideration receiva le for the sale of goods' the rendering of services or fro3 the $se ! others of enterprise reso$rces is reasona l! deter3ina le1 :hen s$ch consideration is not deter3ina le *ithin reasona le li3its' the recognition of reven$e is postponed1 915 :hen recognition of reven$e is postponed d$e to the effect of $ncertainties' it is considered as reven$e of the period in *hich it is properl! recognised1

Accounting Standard 10) Revenue from sales or service transactions should be recognised when the requirements as to performance set out in paragraphs 11 and 12 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. 11) 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 ris s 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 no significant uncertainty exists regarding the amount consideration that will be derived from the sale of the goods. of the

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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 wor accomplished. "uch 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. 12) Revenue arising from the use by others of enterprise resources yielding interest, royalties and dividends should only be recognised when no significant uncertainty as to measurability or collectability exists. #hese revenues are recognised on the following bases: i. Interest : on a time proportion basis ta ing into account the amount

outstanding and the rate applicable. ii. Royalties : on an accrual basis in accordance with the terms of the relevant agreement. $ividends from investments in shares : when the owner%s right to receive payment is established.

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$isclosure 13) In addition to the disclosures required by &ccounting "tandard 1 on %$isclosure of &ccounting 'olicies% (&" 1), an enterprise should also disclose the circumstances in which revenue recognition has been postponed pending the resolution of significant uncertainties.

A!!ENDI This appendi+ is ill$strative onl! and does not for3 part of the acco$nting standard set forth in this State3ent1 The p$rpose of the appendi+ is to ill$strate the application of the Standard to a n$3 er of co33ercial sit$ations in an endeavo$r to assist in clarif!ing application of the Standard1 A) Sa&e o' #oods 11 (elivery is delayed at !uyer)s request and !uyer ta*es title and accepts !illing Reven$e sho$ld e recognised not*ithstanding that ph!sical deliver! has not een co3pleted so long as there is ever! e+pectation that deliver! *ill e 3ade1 ;o*ever' the ite3 3$st e on hand' identified and read! for deliver! to the $!er at the ti3e the sale is recognised rather than there eing si3pl! an intention to ac=$ire or 3an$fact$re the goods in ti3e for deliver!1 21 (elivered su!+ect to conditions a1 installation and inspection i1e1 goods are sold s$ 9ect to installation' inspection etc1 Reven$e sho$ld nor3all! not e recognised $ntil the c$sto3er accepts deliver! and installation and inspection are co3plete1 &n so3e cases' ho*ever' the installation process 3a! e so si3ple in nat$re that it 3a! e appropriate to recognise the sale not*ithstanding that installation is not !et co3pleted -e1g1 installation of a factor!-tested television receiver nor3all! onl! re=$ires $npac4ing and connecting of po*er and antennae.1 1 on approval

Reven$e sho$ld not e recognised $ntil the goods have een for3all! accepted ! the $!er or the $!er has done an act adopting the transaction or the ti3e period for re9ection has elapsed or *here no ti3e has een fi+ed' a reasona le ti3e has elapsed1 c1 g$aranteed sales i1e1 deliver! is 3ade giving the $!er an $nli3ited right of

ret$rn Recognition of reven$e in s$ch circ$3stances *ill depend on the s$ stance of the agree3ent1 &n the case of retail sales offering a g$arantee of 83one! ac4 if not co3pletel! satisfied8 it 3a! e appropriate to recognise the sale $t to 3a4e a s$ita le provision for ret$rns ased on previo$s e+perience1 &n other cases' the s$ stance of the agree3ent 3a! a3o$nt to a sale on consign3ent' in *hich case it sho$ld e treated as indicated elo*1 d1 consign3ent sales i1e1 a deliver! is 3ade *here ! the recipient $nderta4es to sell the goods on ehalf of the consignor Reven$e sho$ld not e recognised $ntil the goods are sold to a third part!1 e1 cash on deliver! e recognised $ntil cash is received sales ! the seller or his

Reven$e sho$ld not agent1 51

Sales where the purchaser "a*es a series o$ instal"ent pay"ents to the seller, and the seller delivers the goods only when the $inal pay"ent is received Reven$e fro3 s$ch sales sho$ld not e recognised $ntil goods are delivered1 ;o*ever' *hen e+perience indicates that 3ost s$ch sales have een cons$33ated' reven$e 3a! e recognised *hen a significant deposit is received1 41 Special order and ship"ents i.e. where pay"ent (or partial pay"ent% is received $or goods not presently held in stoc* e.g. the stoc* is still to !e "anu$actured or is to !e delivered directly to the custo"er $ro" a third party Reven$e fro3 s$ch sales sho$ld not e recognised $ntil goods are 3an$fact$red' identified and read! for deliver! to the $!er ! the third part!1 51 Sale,repurchase agree"ents i.e. where seller concurrently agrees to repurchase the sa"e goods at a later date <or s$ch transactions that are in s$ stance a financing agree3ent' the res$lting cash inflo* is not reven$e as defined and sho$ld not e recognised as reven$e1 61 Sales to inter"ediate parties i.e. where goods are sold to distri!utors, dealers or others $or resale Reven$e fro3 s$ch sales can generall! e recognised if significant ris4s of o*nership have passed7 ho*ever in so3e sit$ations the $!er 3a! in s$ stance e an agent and in s$ch cases the sale sho$ld e treated as a consign3ent sale1 71 Su!scriptions $or pu!lications

Reven$e received or illed sho$ld e deferred and recognised either on a straight line asis over ti3e or' *here the ite3s delivered var! in val$e fro3 period to period' reven$e sho$ld e ased on the sales val$e of the ite3 delivered in relation to the total sales val$e of all ite3s covered ! the s$ scription1 (1 -nstal"ent sales

:hen the consideration is receiva le in instal3ents' reven$e attri $ta le to the sales price e+cl$sive of interest sho$ld e recognised at the date of sale1 The interest ele3ent sho$ld e recognised as reven$e' proportionatel! to the $npaid alance d$e to the seller1 91 Trade discounts and volu"e re!ates

Trade disco$nts and vol$3e re ates received are not enco3passed *ithin the definition of reven$e' since the! represent a red$ction of cost1 Trade disco$nts and vol$3e re ates given sho$ld e ded$cted in deter3ining reven$e1 4) Rendering o' Services 11 -nstallation .ees

&n cases *here installation fees are other than incidental to the sale of a prod$ct' the! sho$ld e recognised as reven$e onl! *hen the e=$ip3ent is installed and accepted ! the c$sto3er1 21 Advertising and insurance agency co""issions

Reven$e sho$ld e recognised *hen the service is co3pleted1 <or advertising agencies' 3edia co33issions *ill nor3all! e recognised *hen the related advertise3ent or co33ercial appears efore the p$ lic and the necessar! inti3ation is received ! the agenc!' as opposed to prod$ction co33ission' *hich *ill e recognised *hen the pro9ect is co3pleted1 &ns$rance agenc! co33issions sho$ld e recognised on the effective co33ence3ent or rene*al dates of the related policies1 51 .inancial service co""issions

, financial service 3a! e rendered as a single act or 3a! e provided over a period of ti3e1 Si3ilarl!' charges for s$ch services 3a! e 3ade as a single a3o$nt or in stages over the period of the service or the life of the transaction to *hich it relates1 S$ch charges 3a! e settled in f$ll *hen 3ade or added to a loan or other acco$nt and settled in stages1 The recognition of s$ch reven$e sho$ld therefore have regard to6 a1 *hether the service has asis7 een provided 8once and for all8 or is on a 8contin$ing8

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the incidence of the costs relating to the service7 *hen the pa!3ent for the service *ill e received1 &n general' co33issions charged for arranging or granting loan or other facilities sho$ld e recognised *hen a inding o ligation has een entered into1 /o33it3ent' facilit! or loan 3anage3ent fees *hich relate to contin$ing o ligations or services sho$ld nor3all! e recognised over the life of the loan or facilit! having regard to the a3o$nt of the o ligation o$tstanding' the nat$re of the services provided and the ti3ing of the costs relating thereto1 $ees

41 Ad"ission

Reven$e fro3 artistic perfor3ances' an=$ets and other special events sho$ld e recognised *hen the event ta4es place1 :hen a s$ scription to a n$3 er of events is sold' the fee sho$ld e allocated to each event on a s!ste3atic and rational asis1

51 Tuition $ees

Reven$e sho$ld e recognised over the period of instr$ction1 61 /ntrance and "e"!ership $ees

Reven$e recognition fro3 these so$rces *ill depend on the nat$re of the services eing provided1 #ntrance fee received is generall! capitalised1 &f the 3e3 ership fee per3its onl! 3e3 ership and all other services or prod$cts are paid for separatel!' or if there is a separate ann$al s$ scription' the fee sho$ld e recognised *hen received1 &f the 3e3 ership fee entitles the 3e3 er to services or p$ lications to e provided d$ring the !ear' it sho$ld e recognised on a s!ste3atic and rational asis having regard to the ti3ing and nat$re of all services provided1