Accounting standard 2 CA INTER ACCOUNTS

 NAME : NIKITHA PALLAVI NAKKA
 SRO : SRO0736390
 TOPIC : AS-9 , REVENUE
RECOGNITION
 PROJECT : 6
 BATCH : 13 , ITT
 PLACE : VIJAYAWADA

HIGHLIGHTS
Introduction
Definition
Methods used
Proportionate completion method
Completed service contract method
The Use by Others of Enterprise Resources Yielding
Interest, Royalties and Dividends
Effect of Uncertainties on Revenue Recognition
Disclosures

INTRODUCTION
This Standard deals with the bases for recognition of
revenue in the statement of profit and loss of an
enterprise.
 The Standard is concerned with the recognition of
revenue arising in the course of the ordinary
activities of the enterprise from
the sale of goods,
the rendering of services, and
the use by others of enterprise resources
yielding interest, royalties and dividends.

INTRODUCTION
This Standard does not deal with the following
aspects of revenue recognition to which special
considerations apply:
(i) Revenue arising from construction contracts;
(ii) Revenue arising from hire-purchase, lease
agreements;
(iii) Revenue arising from government grants
and other similar subsidies;
(iv) Revenue of insurance companies arising
from insurance contracts

DEFINITION
Revenue is the gross inflow of cash, receivables or
other consideration arising in the course of the
ordinary activities of an enterprise that is
 from the sale of goods,
 from the rendering of services,
and from the use by others of enterprise resources
yielding interest, royalties and dividends.

DEFINITION
Revenue is measured by the charges made to
customers or clients for goods supplied and services
rendered to them and by the charges and rewards
arising from the use of resources by them.
 In an agency relationship, the revenue is the amount
of commission and not the gross inflow of cash,
receivables or other consideration

METHODS USED
Proportion completion method
Completed service contract method

PROPORTIONATE COMPLETION METHOD
Proportionate completion method—Performance
consists of the execution of more than one act.
The revenue recognised under this method would be
determined on the basis of
contract value,
associated costs,
number of acts or
other suitable basis.

PROPORTIONATE COMPLETION METHOD
 Revenue is recognised proportionately by reference
to the performance of each act
For practical purposes, when services are provided
by an indeterminate number of acts over a specific
period of time,
 revenue is recognised on a straight line basis over
the specific period unless there is evidence that some
other method better represents the pattern of
performance

COMPLETED CONTRACT SERVICE METHOD
Completed service contract method—Performance
consists of the execution of a single act.
 Alternatively, services are performed in more than a
single act
 the services yet to be performed are so significant in
relation to the transaction taken as a whole that
performance cannot be deemed to have been completed
until the execution of those acts.
 The completed service contract method is relevant to
these patterns of performance and accordingly revenue is
recognised when the sole or final act takes place and the
service becomes chargeable.

The Use By Others Of Enterprise Resources
Yielding Interest, Royalties And Dividends
 interest—charges for the use of cash resources or
amounts due to the enterprise;
Interest accrues, in most circumstances, on the
time basis determined by the amount outstanding
and the rate applicable
 royalties—charges for the use of such assets as
know-how, patents, trade marks and copyrights;

. Royalties accrue in accordance with the terms of
the relevant agreement and are usually recognised
on that basis unless
 dividends—rewards from the holding of
investments in shares
 Dividends from investments in shares are not
recognised in the statement of profit and loss until
a right to receive payment is established.

 When interest, royalties and dividends from
foreign countries require exchange permission and
uncertainty in remittance is anticipated, revenue
recognition may need to be postponed

Effect Of Uncertainties On Revenue Recognition
Recognition of revenue requires that revenue is
measurable
Where the ability to assess the ultimate collection
with reasonable certainty is lacking at the time of
raising any claim revenue recognition is postponed
to the extent of uncertainty involved
When the uncertainty relating to collectability arises
subsequent to the time of sale or the rendering of the
service, it is more appropriate to make a separate
provision

DISCLOSURES
In addition to the disclosures required by Accounting
Standard 1 on ‘Disclosure of Accounting Policies’ (AS
1),
 an enterprise should also disclose the circumstances
in which revenue recognition has been postponed
pending the resolution of significant uncertainties.

Accounting standard 2 CA INTER ACCOUNTS

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