ICDS – IV- Revenue Recognition
ICDS – IV on Revenue Recognition came into force with effect from 1st day of April, 2015, i.e. from AY – 2016-17.
This Income Computation and Disclosure Standard deals with the bases for revenue recognition arising in the course of the ordinary activities of a person from
(i) the sale of goods;
(ii) the rendering of services;
(iii) the use by others of the person’s resources yielding interest, royalties or dividends.
This Income Computation and Disclosure Standard does not deal with the aspects of revenue recognition which are dealt with by other Income Computation and Disclosure Standards.
“Revenue” is the gross inflow of cash, receivables or other consideration arising in the course of the ordinary activities of a person from the aforesaid activities. In an agency relationship, the revenue is the amount of commission and not the gross inflow of cash, receivables or other consideration.
Sale of goods
1. In sale of goods the revenue shall be recognized when the seller has transferred to the buyer the property in the goods for a price or all significant risks and rewards of ownership have been transferred to the buyer and seller retains no effective control of the goods transferred to a degree usually associated with ownership. In a situation, where transfer of property in goods does not coincide with the transfer of significant risks and rewards of ownership, revenue in such a situation shall be recognized at the time of transfer of significant risks and rewards of ownership to the buyer.
2. Revenue shall be recognized when there is reasonable certainty of its ultimate collection.
3. Where the ability to assess the ultimate collection with reasonable certainty is lacking at the time of raising any claim for escalation of price and export incentives revenue recognition in respect of such claim shall be postponed to the extent of uncertainty involved.
Rendering of service
Revenue from service transactions shall be recognized by the percentage completion method. Income Computation and Disclosure Standard on Construction contract also requires the revenue recognition on this basis. The requirements of that Standard shall mutatis mutandis apply to the revenue recognition and the associated expenses for a service transaction.
Interest shall accrue on the time basis determined by the amount outstanding and the rate applicable. Discount or premium on debt securities held is treated as though it were accruing over the period to maturity.
Royalties shall accrue in accordance with the terms of the relevant agreement and shall be recognized on that basis unless, having regard to the substance of the transaction, it is more appropriate to recognize revenue on some other systematic and rational basis.
Dividends are recognized in accordance with the provisions of the Income Tax Act.
Following disclosures shall be made in respect of revenue recognition, namely –
- in the sale of goods amount not recognized as revenue during the previous year;
- The amount of revenue from service transactions recognized as revenue during the previous year.
- The method used to determine the stage of completion of service transactions in progress; and
- for service transactions in progress at the end of previous year: amount of costs incurred and recognized profits (less recognized losses) up to end of previous year, amount of advances received and amount of retentions.
- The transitional provisions of ICDS on construction contract shall mutatis mutandis apply to the revenue recognition and the associated costs for a service transaction undertaken on or before March 31, 2015 but not completed by the said date.
- Revenue for a transaction (other than a service transaction) undertaken on or before March 31, 2015 but not completed by the said date, shall be recognized in accordance with the provisions of this standard for the previous year 2015-16 (or subsequent year). The amount of revenue, if any, recognized for the said transaction for the previous year 2014-15 (or earlier year) shall be taken into account for recognizing revenue for the said transaction for the previous year 2015-16 (or subsequent year).
ICDS – 4- Revenue Recognition
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