Indian Accounting Standard (Ind AS) 115 - K C …

1 Indian Accounting Standard ( ind as ) 115 revenue from Contracts with CustomersInd AS 115 revenue from Contracts with CustomersBackgroundThe Ministry of Corporate Affairs (MCA), Government of India vide notification GSR 111 (E) dated 16th February, 2015 notified the Companies (India Accounting standards ) Rules, 2015. The applicability of these standards to various listed / unlisted companies (including their holding, subsidiary, joint venture or associate companies) was laid down in this notification also laid down the various standards commonly known as ind as . ind as standards are in broadly line with International Financial Reporting standards (IFRS).IFRS 15 IFRS 15 revenue from Contracts with Customers was issued in May 2014 and was made effective for an entity's IFRS financial statements for the periods beginning on or after 1st January, 2017.

2 Subsequently, in September, 2015 International Accounting Standard Board (IASB) deferred the effective date to 1st January, AS 115 The MCA notification dated 16th February, 2015 had notified ind as 115. However, subsequent to the decision of IASB to defer the implementation of IFRS 15, the MCA vide Companies ( Indian Accounting standards ) (Amendment) Rules, 2016 dated 30th March, 2016 omitted ind as 115 and inserted ind as 11 Construction Contracts and ind as 18 revenue . ind as 115 is yet to be notified again. The following details are on the presumption that ind as 115 when introduced shall be in line with IFRS 151 Summary of ind as 115 standards superseded ind as 115 provides a single comprehensive framework to be used by businesses to recognize revenue from customers. The following current revenue recognition standards & guidance will be superseded by ind as 115 ind as 11 Construction ContractsInd AS 18 RevenueAppendix A & B Service Concession Arrangements (shall become Appendix C & D of ind as 115)

3 Appendix A Barter transactions involving advertising services Appendix B Customer Loyalty ProgrammesAppendix C Transfer of Assets from CustomersObjectiveThe objective of this Standard is to establish the principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a AS 115 revenue from Contracts with Customers2 ind as 115 revenue from Contracts with CustomersThe 5 step model frameworkInd AS 115 moves away from the transfer of risk and rewards approach and introduces a new transfer of control approach delivered through the new five-step the with a contractcustomerIdentify the separate performance obligations in the contractDetermine the transaction priceAllocate the transaction price to the separate performance obligationsRecognise revenue when (or as) each performance obligation is satisfied3 ind as 115 revenue from Contracts with CustomersBrief comparisonInd AS 18 / 11 ind as 115 Separate models for.

4 Construction contracts Goods ServicesSingle model for performance obligations Satisfied over time Satisfied at a point in timeFocus on risks and rewardsFocus on controlLimited guidance on Multiple element arrangements Variable considerations LicensesMore guidance on: Separating elements Allocating the transaction price Variable consideration Licenses Options Repurchase AS 115 revenue from Contracts with CustomersKey challenges for different industriesThe revenue and profit recognition will change for some entities and they will need to consider whether revenue should be recognised over time or at a point in time how shipping term will change the timing of recognition the extent to which distinct goods or services are supplied, which should be accounted for separately whether particular costs relating to obtaining a contract must be capitalised whether revenue must be adjusted for the effects of the time value of money how to account for contract modifications the impact of new guidance where pricing mechanisms include variable amounts whether Accounting treatment will be changed for different types of licenses and royalties Accounting for warranty covers given to customers5 ind as 115 revenue from Contracts with CustomersMajor ConsiderationsContract ModificationA separate contractNOT a separate contractContract6 ModificationOriginalContractModification OriginalOriginalAdditional goods / services distinctConsideration for additional goods / services reflects their stand-alone selling priceAdditional goods / services distinct.

5 NOTORC onsideration for additional goods / services DOES NOTreflect their stand-alone selling price7 ind as 115 revenue from Contracts with Customers7 When to Recognize revenue ?Customer receives / consumes as the simultaneouslyentity performsEntity creates / enhances an asset and customer controls it during this processCreated asset has to the entity + no alternative usethe entity had for enforceable right to paymentperformance up to dateYesNoRevenue AT THE POINT OF timeRevenue OVER timeWhen control is transferred Based on progress ind as 115 revenue from Contracts with CustomersSome issues Revenues from manufactured goods may historically have been recognized on delivery to the customer. Now, if the contract meets the 'over time' test, then the revenue would be recognized as the manufacturing happens akin to current long-term contract Accounting Free goods and services as well as options for additional goods and services for a discounted price might be separate performance obligations Cash incentives and incentives to provide free or discounted goods can be separate performance obligations rather than marketing incentives Non-performance penalties ( for failure to meet service level agreements)

6 Will generally need to be deducted from revenue rather than charged as an expense The Accounting for contract modifications is complex and differs significantly depending on whether a new performance obligation is created and on the pricing Extended payment terms might result in recognition of interest revenues Analysis of contracts for integrated solutions (more relevant in case of technology sector) to conclude whether one or multiple performance obligations exist and what revenue pattern is appropriate The determination of whether warranty is an assurance-type or service-type warranty will require professional judgement Cash received more than a year in advance is seen as a loan the related 'financing cost' is recorded as an interest AS 115 revenue from Contracts with CustomersWay ForwardContracts with Customers Existing contract reassessment New contract definition Payment termsContract Performance Obligations Service commitment Product delivery Method of measuring progressTransaction Price Discounts Refunds Rebates Credits Incentives BonusAllocate Transaction Price Standard Price Discounts Allocations Service and Product Delivery CommitmentRecognize revenue when a Performance Obligation is met Direct Labour Direct Materials

7 Allocation of Overheads Explicitly chargeable Cost9 ind as 115 revenue from Contracts with CustomersDisclosure RequirementsInd AS 115 significant disclosure requirements are in line with the new Standard 's objective of providing users of financial statements with information that will help them understand the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts with customersDisclosuresInformation about contracts with customersInformation about performance obligationsInformation about costs to obtain or fulfill the contractInformation about disaggregation of revenueInformation about judgements usedInformation about reconciliation of contract revenue10 Meghdhanush, Race Course, Vadodara 390 007, INDIA Phone: +91 265 2341626 / 2440400 Vadodara101, Cosmos Court, Above Waman Hari Pethe, Road, Vile Parle (West), Mumbai 400 056, INDIA Phone: +91 22 26125834 Mumbai308, Aaryan Workspaces, St.

8 Xavier's College Corner, Umashankar Joshi Marg, Navrangpura, Ahmedabad 380 009,INDIA Phone: +91 79 40326400 Ahmedabad19/4, 4th Main, Between 7th & 8th Cross, Malleshwaram, Bengaluru 560 003, INDIA Phone: +91 80 23561880 Bengaluru website: Member