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In order to uniform the accounting methods theInstitute of Chartered Accountant of India has prescribed the Indian Accounting Standard which has to be adopted by every entity to be compliant with various governments regulatory. In every business, the source of income is very important to know the accumulation of income. There is a specific Indian Accounting Standard i.e. IND-AS18, concerned with the recognition of revenue arising in the Ordinary Course of the business.
Table of Contents
“Revenue is the gross inflow of economic benefits
during the period arising in the course of the ordinary activities of an entity
when those inflows result in increases in equity, other than increases relating
to contributions from equity participants.”
“Fair value” is the
amount for which an asset could be exchanged or the liability settled between
the knowledgeable, willing parties in an arm’s length transaction.
As per IND-AS 18, Recognition is the process of determining the revenue from the business. The revenue can be recognized:
In this Standard i.e. IND-AS 18 recognition,
criteria are applied to separate the transaction. For example when the selling
price of a product includes the other amount of service then the amount is deferred
and recognized as revenue over the period when the service is performed.
Let’s understand the effect of a series of
transaction, recognition criteria be applied on two or more transactions at the
Revenue from the sale of goods can only be taken into
consideration if the following conditions are fulfilled.
Yes, Mr. A can recognize the revenue in its book of
The sale of a product involves the rendering of the
service can be estimated reliably, the revenue generated at the time of
completion of the transaction through rendering the services can only be
considered if the following conditions are fulfilled.
The stage of completion of the transaction may be
determined by a variety of methods depending upon the nature of the transaction.
In this case, Mr. X would recognize the sale of Rs.
2,00,000 should be considered and Rs. 50,000 would recognize after 2 years when
the service is delivered.
To recognize the revenue related to Interest,
Royalties and dividends, the following conditions to be fulfilled.
Revenue shall be recognized on the following basis:
As per IND-AS 18, dividends from investment in
shares shall be recognized when the shareholder’s right to receive payment is
established. In the above example, the
dividend is proposed on 5th May 2017 and it was declared on 12th
August 2017. The Right to receive the payment is established on 12th
August 2017. So income from dividend must be recognized by Z ltd for the year
ended on 31st March 2018.
The entity shall disclose the following as per the IND-AS 18:
For every entity falling
under the criteria of Indian Accounting Standard need to disclose the
information as prescribed under IND-AS 18 and recognize the revenue
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