Ind AS 115: Revenue from Contracts with Customers
Ind AS 115 replaces risk-and-reward thinking with a single control-based, five-step model for recognising revenue from contracts with customers, converged with IFRS 15.
- Standard
- Ind AS 115
- Model
- 5-step
- IFRS twin
- IFRS 15
- Tested at
- CA Final
Applicability
Applies to all contracts with customers except leases, insurance contracts, financial instruments and certain non-monetary exchanges. Core to CA Final Financial Reporting.
Key points to remember
- Five steps: identify the contract → identify performance obligations → determine transaction price → allocate the price → recognise revenue when (or as) each obligation is satisfied.
- Revenue is recognised when control of goods or services passes — over time (if criteria met) or at a point in time.
- Variable consideration is estimated (expected value or most likely amount) and constrained to amounts highly probable not to reverse.
- Transaction price is allocated to obligations in proportion to stand-alone selling prices.
- Contract assets, contract liabilities and receivables are presented separately.
How the exam tests it
One of the highest-weight standards in CA Final Paper 1 (Financial Reporting) — long case-study questions on the five-step model, variable consideration and over-time recognition appear almost every attempt.
Related standards
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Talk to usWhat are the five steps of Ind AS 115?
1) Identify the contract with a customer; 2) identify the performance obligations; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations; 5) recognise revenue when or as each performance obligation is satisfied.
When is revenue recognised over time?
When the customer simultaneously receives and consumes the benefits, the entity's performance creates or enhances an asset the customer controls, or the asset has no alternative use to the entity and the entity has an enforceable right to payment for performance completed to date.
How is variable consideration handled?
It is estimated using the expected-value or most-likely-amount method, then included in the transaction price only to the extent it is highly probable that a significant revenue reversal will not occur when the uncertainty resolves.