AS9: Revenue Recognition

• Proceeds from the selling of items are among the sources of revenue.
• Expenses incurred as a result of providing services
• Interest, royalties, and dividends are all forms of income.
• Goods for sale
• When it comes to sales revenue, it’s important to keep track of it.
• The seller has passed all important ownership risks and benefits to the buyer.
• Receipt’s ultimate realisability is relatively assured.
• Providing Services

AS9 Revenue Recognition: Service revenue is often recorded as the service is delivered, either via the proportional completion technique or through the completed service contract approach: AS9 Revenue Recognition

1) Proportionate Completion Method: This is an accounting method that recognises revenue proportionately with the degree of completion of services under a contract in the statement of profit and loss.

Revenue is calculated based on how well each act is performed. The revenue recognised under this method would be calculated based on the contract value, associated costs, number of acts, or any other appropriate factor.

2) Completed service contract method: This is an accounting technique in which revenue is recognised in the profit and loss statement only when the contract’s services are completed or substantially completed.

Under this system, revenue is recognised when the project is completed or almost completed. Interest income is recognised on a time-proportional basis. Royalty revenue is recognised on an accrual basis in line with the provisions of the applicable agreement. Dividend income is recognised after the right to receive is established.

When there is doubt about collectability after the sale or providing of services, it is preferable to make a separate provision to represent the uncertainty rather than adjusting the amount of revenue initially reported. An organisation should disclose the circumstances in which revenue recognition has occurred. The vote has been postponed awaiting the resolution of major doubts.

Examples of AS9 Revenue Recognition

1] The buyer accepts title and accepts billing at the time of sale, but delivery is postponed at the buyer’s discretion.

Regardless of whether or not actual delivery has occurred, revenue should be recognised.

2] Installations and inspections are required before to delivery.

Revenue should not be recognised until the client has accepted delivery and signed the delivery receipt.

Both the installation and the inspection have been completed. When the installation procedure is lengthy, income should be acknowledged. As an example. The selling of televisions is subject to several conditions.

3] Sale subject to approval

Revenue should not be recognised until the items are properly accepted or the period of time has passed. A reasonable period has expired for rejection or, if no time has been set, a reasonable time has gone.

4] Sales with the stipulation of a “money return guarantee” if the customer is not totally happy.

It may be acceptable to acknowledge the transaction while also making adequate provisions for the future. Returns based on past performance

5] Sales on consignment

Until the items are sold to a third party, revenue should not be recognised.

6] Sales in instalments

On the day of sale, revenue equal to the selling price less interest should be recognised.

7] Orders and shipping on a one-time basis

When the products are identified and ready for delivery, revenue from such transactions should be recorded.

8] When the seller promises to buy the same things again at a later period.

Because this is a financial agreement, the sale should not be recognised.

9] Publication subscriptions received

Revenue collected or billed should be deferred and recognised on either a straight-line or a dotted-line basis. Revenue is earned on a period-by-period basis or when the products provided fluctuate in value from one period to the next. Should be determined by the retail value of the delivered item.

10] Amount of advertising commission earned

When the advertising is shown in front of the public, it gets recognised.

11] Receipt of tuition costs

Over the course of education, this should be recognised.

12] Fees for admission and membership

In most cases, the entrance cost is capitalised. If the membership price just allows for membership and all other services or goods must be purchased separately, the cost should be recognised when it is received. If the membership price entitles the member to services or publications that will be supplied throughout the year, it should be recognised in a systematic and sensible manner, taking into account the time and frequency of the services or publications. All services have the same essence.

13] Ticket sales for performances

When the occurrence occurs, revenue should be recognised.

14] Agricultural crop sales assurance

When a sale is guaranteed by a forward contract or a government guarantee, the crops might be recognised at net realisable value even if they do not meet the revenue recognition requirements.

The preceding accounting standard does not apply to:

• Contracts for building bring in a lot of money.
• Hire buy and leasing arrangements generate revenue.
• Grants and subsidies from the government generate revenue.
• Insurance companies’ revenue is derived from insurance contracts.
• Sale of fixed assets profit or loss
• Changes in foreign currency rates resulted in realised or unrealized profits.