REVENUE RECOGNITION :ACCOUNTING STANDARD 09

Define revenue .Explain in detail AS09

This standard explains when the revenue should be recognized in P&L

account and also state the circumstances in which revenue
recognition can be postponed.Revenue means gross inflow of
cash, receivables or consideration received from the customer
or clients for the goods sold or for the services rendered,and
yielding or receiving interest,dividend and royalties for the
use of Enterprise resources by others.
APPLICABILITY OF AS09:
AS 09 is applicable to the revenue resulting from the following
sources:
1. Revenue from sale of goods.
2. Revenue from rendering of service.
3. Revenue from interest.
4. Revenue from dividend.
5. Revenue from Royalties.
6. Fees from Franchise,management,subscription etc.
TIMING OF REVENUE RECOGNITION:
Revenue from sale or rendering of services should be
recognized at the time of sale or rendering of services.But at
that time if there is any significant uncertainty in ultimate
collection of revenue then the recognition is to be
postponed.In such cases revenue should be recognized only
when it becomes reasonably certain.Revenue from sale of
goods is recognized when the following conditions are
fulfilled:
1The seller has transferred the ownership of the goods
without any retention of the control.
2. There is no significant uncertainty in collection of the
amount of consideration.
Revenue recognition when the delivery of goods is delayed on
the request of Buyer
In such cases revenue should be recognized
immediately,but goods are in the hands of the seller only.
As the goods are already sold they are
separately identified and ready for delivery at the time of
recognition of revenue.
Revenue Recognition when delivery of goods sold in the
following conditions
1. Installation &Inspection: revenue should be recognized
when goods are installed ,inspected&accepted by the buyer.
2. Sale on approval:revenue should be recognized when
buyer confirms his desire to buy.
3. Consignment sales:Revenue should be recognized only
when goods are sold to third party.
4. Guaranteed sales:Revenue should be recognized after the
expiry of reasonable period .
5. Warranty sales: Sales should be recognized immediately
but provision is to be made to cover unexpired warranty.
6. Instalment sales:Revenue of sale price excluding interest
should be recognized on the date of sale.Interest should be
recognized proportionately to the unpaid balance.
REVENUE FROM RENDERING OF THE SERVICES:
 Revenue from the service is generally recognized as the
service is performed.The performance of service is measured
by two methods as under.
1. Completed service contract method: Revenue is recognized
when service is about to be completed and no significant
uncertainties exist about the collection of amount of service
charges.
2. Proportionate completion method: Revenue is recognized
by reference to the performance of each act.The revenue
recognized under this method would be determined on the
basis of contract value,associated costs ,number of acts or
other suitable basis.Further no significant uncertainty exists
about the collection of amount of service charges of
performed acts.
REVENUE RECOGNITION IN SPECIAL CASES:
1 Installation fees:This revenue is recognized when the
installation has been completed and accepted by the clients.
3. Admission fees:Revenue from artistic performance& other
special events should be recognized when event takes place.
4. Tuition fees:Revenue should be recognized over the period
of instruction.
5. Entrance fees & membership fees:Entrance fees is
generally capitalized.Membership fees should be recognized
on systematic and rational basis having regard to timing and
nature of service provided.
REVENUE FROM INTEREST
Revenue from interest should be recognized on time
proportion basis.
REVENUE FROM ROYALTIES
On accrual basis as per terms of agreement.
REVENUE FROM DIVIDEND
When the declaring company declares.
AS09 IS NOT APPLICABLE IN THE FOLLOWING:
1. Revenue from Govt grants &subsidies
2. Revenue from construction contracts.
3. Revenue from lease agreement or Hire purchase.
4. Insurance company revenue from insurance contracts.
5. Realized or unrealized gains. Eg profit from sale of fixed
Assets etc
DISCLOSURE:
1. The accounting policies adopted by the organization with
regard to the revenue recognition should be disclosed.
2. When revenue recognition is postponed the reasons for
such postponement should be disclosed.
3. If any changes in accounting policies are exists those
changes should be disclosed.

Q NO2: Explain the effect of uncertainties on revenue

recognition.
Recognition of revenue requires that revenue is measurable
that revenue is measurable at the time of sale or rendering of
service.it should also be reasonable to expect ultimate
collection.Where the ability to assess the ultimate collection
with reasonable certainty is lacking at the time of raising any
claim revenue recognition is to be postponed to the extent of
uncertainty involved.In such cases it may be appropriate to
recognize revenue only when it is reasonably certain that the
ultimate collection will be made.When there is no uncertainty
with regard to ultimate collection revenue is to be recognized
at the time of sale or rendering of service eventhough
payments are made by installments.
When uncertainty about collection of revenue
arises subsequently after the revenue recognition it is better
to make a provision for uncertainty in collection rather than
adjustment in already recognized revenue. When revenue
recognition is postponed,the reasons for such postponement
are to be disclosed.

CASE STUDUES
1. Z Ltd is in the business of selling of computers.During the
financial year 2017-18 it sold 25 computers to software
solutions Ltd for an amount of 12,50,000 on March
29th2018.25 systems are packed and kept ready for
delivery.However software solutions ltd requested Z ltd to
deliver the computers after 10 days due to the ongoing repair
work at their end Given the circumstances,can Z ltd recognize
this as revenue from sale for the year2017-18.
2. ABC LTD is in the Business of selling mechanical
appliances.They sold50 items of mechanical appliances to PQR
industries ltd.As per the conditions of sale PQR industries ltd
wanted to inspect the goods,before they confirm as to
whether they are fit for sale or not.Can the revenue be
recognized.
3. Nice Guy company sells goods with a cost of1,00,000 to
start up company for Rs 1,40,000&a crediy period of six
months.Nice guy company normal cash price would have
beenRS1,25,000 with a credit period of one month or with
RS5,000 discount for cash on delivery. How should Nice Guy
company measures the income from the transaction.
4. Full service company sells some Equipment,the cash price
of which is RS1,00,000 for RS1,40,000 with acommitment to
service the Equipment for a period of two years with no
further charges. Recognize the revenue of the company.
5. YLTD used certain resources of X LTD.In return,XLTD
receives RS 10,00,000 & 15,00,000 as interest& Royalties
respectively from YLTD during the year2007-08.State on what
basisXLTD should recognize their Revenue as per AS09.
6. When can revenue be recognized in the case of transactions
of sale of goods.
7. The board of directors decided on 31-03-2010 to increase
the sale price of certain items retrospectively from 1st january
2010.In view of price revision witheffect from 01-01-2010 the
company has to receive 25,00,000 from its customers in
respect of sales made from 1st january 2010 to 31-03-2010 and
the accountant can not makeup his mind whether to include
RS25,00,000 in the sales for 2009-2010.Suggest
8. The NDALTD recognized RS 7.5 lakhs on accrual basis
income from dividend on securities and units of Mutual funds
of face value of RS 50lakhsheld by it as at the end of the
financial year.31-03-2010.The dividends on the securities&
mutual funds were declared @15% on 15-06-2010.The
dividend was proposed on 10-04 -2010by the declaring
company.Where the treatment as per the relevant accounting
standard?