AN EXTRACT FROM IND AS DRONE CHARTS A B. 5 Step Model recognizing & measuring revenue ... · 2020-05-30 · AN EXTRACT FROM IND AS DRONE CHARTS FOR ALL CA FINAL STUDENTS NEW COURSE

Ind AS 115 : Revenue from Contracts with Customers

OVER VIEW

A

C

D

E

F

B

recognizing &

B

E

F

C

A

D

B. 5 Step Model recognizing & measuring revenue

Legend for Ind AS 115

Revenue

Step I Step IVStep IIIStep II Step V

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C1

C2

C3

C. Contract Cost

Special Topics (Appendix to Ind AS)

Cost Inclusion & Exclusion

Appendix C

SCA

Appendix B Appendix D

to Ind AS 115

PO :

t/f : g/s:

Rev. Vr. Cons. :

w/o:

CF : Tr.Pr. : CWC :


OVER VIEW

A

C

D

E

F

B

recognizing &

B

E

F

C

A

D



Revenue



C1

C2

C3

C. Contract Cost



Appendix C

SCA


to Ind AS 115

PO :

t/f : g/s:

Rev. Vr. Cons. :

w/o:

CF : Tr.Pr. : CWC :

AN EXTRACT FROM IND AS DRONE CHARTS

FOR ALL CA FINAL STUDENTS NEW COURSEALSO RELEVANT FOR CA FINAL OLD COURSE

Ind AS - 115


OVER VIEW

A

C

D

E

F

B

recognizing &

B

E

F

C

A

D



Revenue



C1

C2

C3

C. Contract Cost



Appendix C

SCA


to Ind AS 115

PO :

t/f : g/s:

Rev. Vr. Cons. :

w/o:

CF : Tr.Pr. : CWC :


OVER VIEW

A

C

D

E

F

B

recognizing &

B

E

F

C

A

D



Revenue



C1

C2

C3

C. Contract Cost



Appendix C

SCA


to Ind AS 115

PO :

t/f : g/s:

Rev. Vr. Cons. :

w/o:

CF : Tr.Pr. : CWC :


OVER VIEW

A

C

D

E

F

B

recognizing &

B

E

F

C

A

D



Revenue



C1

C2

C3

C. Contract Cost



Appendix C

SCA


to Ind AS 115

PO :

t/f : g/s:

Rev. Vr. Cons. :

w/o:

CF : Tr.Pr. : CWC :


OVER VIEW

A

C

D

E

F

B

recognizing &

B

E

F

C

A

D



Revenue



C1

C2

C3

C. Contract Cost



Appendix C

SCA


to Ind AS 115

PO :

t/f : g/s:

Rev. Vr. Cons. :

w/o:

CF : Tr.Pr. : CWC :


OVER VIEW

A

C

D

E

F

B

recognizing &

B

E

F

C

A

D



Revenue



C1

C2

C3

C. Contract Cost



Appendix C

SCA


to Ind AS 115

PO :

t/f : g/s:

Rev. Vr. Cons. :

w/o:

CF : Tr.Pr. : CWC :


OVER VIEW

A

C

D

E

F

B

recognizing &

B

E

F

C

A

D



Revenue



C1

C2

C3

C. Contract Cost



Appendix C

SCA


to Ind AS 115

PO :

t/f : g/s:

Rev. Vr. Cons. :

w/o:

CF : Tr.Pr. : CWC :


OVER VIEW

A

C

D

E

F

B

recognizing &

B

E

F

C

A

D



Revenue



C1

C2

C3

C. Contract Cost



Appendix C

SCA


to Ind AS 115

PO :

t/f : g/s:

Rev. Vr. Cons. :

w/o:

CF : Tr.Pr. : CWC :



A. Applicability & Scope Step I . Contract with customerB. 5 Step Model

1. Ind AS applies only to contracts with customers

2. Customers : Party contracted to obtain g/s (goods/services) that are output of

3. Ind AS N.A. on contracts which

output between collaborators.

Eg. A Ltd., has land, B. Ltd., contracts to construct bldg. on

between then in equal

4. Ind N.A. on sale of assets that

ordinary course of business like PPE held for sale, Sale of Invst. Property, Financial assets etc.

Ind AS refers to Ind AS 115

assets. In such case Ind AS 115 will become relevant. (Eg) Ind

-ness of leasing out assets on

revenue on sale of such assets as per Ind AS 115. (Eg.) When to Derecognise a PPE? Ind AS 16 refers to principles of Ind AS 115.

Incremental Contracts the contract

is prescribed

follow that Ind AS, else apply Ind AS 115.

contract and to be covered in scope of this Ind AS

each

O regarding g/s to be transferred (t/f)

2

payment terms for g/s to be transferred

3Contract to have commercial substance i.e. CFs of asset transferred to customer for the customer

-ent from CFs to the

Exchange of similar g/s be-tween 2

is not a contract for sale of g/s.

4

probable to collect the considera-

Checked: When consid. will

later expects to bear further discounts/ concessions when the consid. * will be payable, it shall not be treated as

this condi-

certainty exist, no revenue

this Ind AS.

51

approved and

to perform the contract

Oral / Cus-tomary or

(Implied)

• Agreement between

creates enforceable

for one's promise) and

under the contract)•

have right to unilater-ally cancel the wholly unperformed contract without paying com-

-formed contract;

&

not transferred

g/s

not yet received

to receive price in the

contract +

Can be unilaterally i.e. at choice of either party without consent of other;

+ Cancelled w/o

payable

*Then it is not treated as a contract

B. Criteria for contract5. Ind AS N.A. to: a) Insurance Contracts b) Financial Instruments c) Leases (unless such standard pro-vides to refer to Ind AS 115)

Eg. -

Ind AS 109 refers to Ind AS 115.

6. Ind AS N.A. to non-mon-etary exchange between

-tate sales to customer or

Eg. One Oil Co. gives Oil to other oil Co. at one

exchange for Oil

customers are covered in this Ind AS.

7. Scope:certain extent

(Contract Costs)

Analysis


OVER VIEW

A

C

D

E

F

B

recognizing &

B

E

F

C

A

D



Revenue



C1

C2

C3

C. Contract Cost



Appendix C

SCA


to Ind AS 115

PO :

t/f : g/s:

Rev. Vr. Cons. :

w/o:

CF : Tr.Pr. : CWC :


OVER VIEW

A

C

D

E

F

B

recognizing &

B

E

F

C

A

D



Revenue



C1

C2

C3

C. Contract Cost



Appendix C

SCA


to Ind AS 115

PO :

t/f : g/s:

Rev. Vr. Cons. :

w/o:

CF : Tr.Pr. : CWC :


OVER VIEW

A

C

D

E

F

B

recognizing &

B

E

F

C

A

D



Revenue



C1

C2

C3

C. Contract Cost



Appendix C

SCA


to Ind AS 115

PO :

t/f : g/s:

Rev. Vr. Cons. :

w/o:

CF : Tr.Pr. : CWC :


OVER VIEW

A

C

D

E

F

B

recognizing &

B

E

F

C

A

D



Revenue



C1

C2

C3

C. Contract Cost



Appendix C

SCA


to Ind AS 115

PO :

t/f : g/s:

Rev. Vr. Cons. :

w/o:

CF : Tr.Pr. : CWC :


C Ind AS Scope : Covers contract for sale of g/s to customer that are not unilaterally cancellable. (as above)

D.

E.

Eg. Contract to build road * Contract 1 P to M (400 KM) Contract 2 M to J (400 KM)

accounted as single combined contract * Co. has constructed 200 KM of road from P to M, cost incurred 400/- Revenue : Revenue

400 100

Cost 400 125

2 or more contract ++

entered into

Then Combine the contracts, else account separately

a) Single commercial on price / performance of other contract

c) G/s under both contracts form a single P.O.

Change in terms of the contract scope / P.O. or priceQ.

uncertainty of recoverability of amt. from customers is a

Ans. No, it is just a change in

have approved W/O/I

perform it.> Not necessary that the

change in scope/price

should be without any uncertainty

> Facts to be seen to determine whether

Increase in scope and/or price; and

Goods/ Services are

corresponds to

chargeable for the

to reasonable adjustments (Eg. Loyalty discount, Discount against savings of selling cost etc.)

A. Treat it as a separate contract

original contractElse

terms on the date of

a) Measure of pro-gress of P.O. (% of work completed)

-

nised and a) above adjusted P or L

Consider it as

of Old Contract

New Contract

contract

revenue in old contract

+/-




1-4-19

1-7-19 There is following change in terms of contract, how will it be dealt.

Contract?

I CA Ltd., now to also to yes verify PPE quarterly @ 1L per quarter (for 3 quarters standalone price also 1L p.q.)

No

No

No

of WC

What if, if price charged was just 50,000 per quarter as a bundled price.

What if the contract was changed to con-tract of PV of FA from PV of stock with revised total price of 15 L

Addln revenue 0.75 L

what if contrach was reduced to 6m from 1 year and total to contract price for 6am to be 7.57

II

III

IV

over 3 quarters

As above Types: PO To transfer a) g/s that are dis-

or

g/s that are

same and have same

Customer can

on its own or with other resources available with customer i.e. g/s generates dis-

that can be used/sold/consumed etc. by customer

Check CONTEXT of the contract as to whether contract is to t/f g/s individually or as a bundled item

Treat the series of g/s to have same

Following factors indicate that g/s are not to be transferred individually

for customersSame

method is used to measure

the progress of

performance

Promise to transfer g/s -

rately under the contract The series of g/s meet the criteria of

single PO given in Para 35

Para 35 Contracts

TIME

Types of PO

emphasises on b) One or more

other g/s

c) G/S are highly interrelated/

interdependent between themselves

3. Contract may have PO; explicit in contract or implied; one or more than one.

& And

CONT RACT

SIGN UP CO

B. 5 Step Model



Input Based Output basedConsistent usage of method

+-

ment of P.O.

required every

yearend.

Change in

Ind AS 8

When

only to the extent of cost.

expects (probable) to cover the costs

Types Common principle

Measurement to be P.O. wise Methods of Measurement Revenue = Cost

T/f means the customers obtains

Similar to as discussed in Ind AS 16a) Substance

over form b) Legal

ownership is indicator of control

c) Ability to di-rect/use the

the asset or right to pre-vent others from using it.

control asset

G/s under the contract will create an asset for the customer i.e. generate economic

customer. Types:

consumed (At consumed 1

Or

Over a period of

Para 35: Prescribes criteria when

the point when control over asset

is transferred

of control”

to demand payment

b) Customer has

rights over asset

c) T/f of posses-sion

indicatorEg. Consignment,

-

of ownershipe) Customer has

accepted the asset

C1 Principle

When customer

simultaneously

consumes

performed

Performance enhances the asset

that customer controls

Performance does not

(seller) but generates -

ment” Seen context of:

Simple basis of

whether right to receive payment is created is

demand payment if customer 3rd party cancels the contract without the fault of

over

cannot reliably measure the progress of

of P.O.

Eg. Based on cost

spent, resources used etc.

Based on outcome of P.O. performed

Ind AS permits SLM

distributed

Based on directly the

value of g/s t/f to customer,

total g/s to be t/f.

Eg. Physical survey, work

milestone achieved,

etc.

Excluding inputs on which no progress is made by

Eg. *Goods supplied under the contract without

* Goods where customer obtains control before any

is made.

Value of g/s on which no performance made is ignored

Output based method is recommend-ed when rev-enue directly related to performance completed.

t/f of g/s to customer under the contract

B. 5 Step Model



upon future event-

Eg.

Eg.4. Expressed or Implied in

contract5. Method to measure VC

1. VC will be considered in

reversal will occur.

reversals

is receivable is highly

giving discounts.d) Contract possible outcomes

Eg. of Constraining Factors Contractor charges 50L for

subject to no seepages. Tr. Price 50L provided 10% is

highly probable to be received, in which 5L is VC

2. In such cases Cash Price to be the Tr.

as interest income (expense) to be

3. D.F. would be computed for unwinding of interest.

charged and Cash Price.-

component considered when:

b) Deferred Credit / Advance is due

usually assumed when:

nature like sales based royalty

reasons.

1. Measured at fair value of

2. If it is not reliably measure-able, standalone price of

considered. In such case FV of

3. Goods/Services Supplied by Customer

B. Principle

Payable by

(against promise) under the contract,

expects to receive, and excludes any amt. received on behalf of 3rd

determined as per contracts terms and

expects to receive is included in Tr. Price

change

variable or both

5. While determining

amount of price recoverable, assuming that contract is not cancelled by

-

(Eg. Cash back Coupons etc.)4. Non-Monetary

3. Financing element

Also treated

received +

receive + expected to return such

remeasured every period end.

mostly only 2 outcome

Most likely outcome

Outcomes Possible

Expected value of VC included in TP Probability weighted value,like Ind AS 37.

*FV of non-monetary

to be ignored unless changes

i.e. variable consid.

Fair value of g/s supplied to be added to Tr. Price

FV of g/s need not be added

price

Whether

(seller) obtains control over such g/s supplied

by customer

No

* What if FV of g/s supplied by customer is not determinable?

contract.* If cons. payable to customer is in other than cash, Its fair

value to be determined, * Cons. payable to customer will be adjusted from Revenue,

later of when:

coupon given for next purchase, however similar

Whether it relates to payments for g/s under a separate contract (if or

Whether amt .paid to customer under separate

of g/s adj. to

Tr. Price

No adj. to

treat it as separate purchase contract

yes

No

B. 5 Step Model



A. Principle

to

to be such that

represents the amount that the

expects to earn from

transfer g/s

2. Ind AS suggest that standalone price of each P.O. should be the basis of

of TP

part of TP relates

any individual PO it should be allocated to that PO.

Cons. and Discount to be based on

of Ind As115

be used

2. Standalone Price :the P.O. independently / separately

3. Guidelines in determining Standalone Price :a) Price to be based on observable market inputs.List Price

may be used, but it may not always be the fair priceb) When no observable market input to determine the

of the following methods:

1. Applicable : When contract has:

b) Single PO but Vr. Consid. relates to part performance of that single P.O.

2.

that PO

prices

3. Remember! Vr. Cons. is only

to Vr. Cons. as discussed earlier.

Adjusted market price

Price of

similar product

subject to adjustment Used only when :

a) Such g/s sold at highly variable price or

b) Such g/s not sold earlier and its price is

not yet decided

Cost + Margin

Approach

Residual Value approach

TP of PO Whose standalone

be computed as

Price of other PO

price of each PO

Allocated discount to

standalone price unless discount can be specially allocated to a PO. Not a separate contract but

change in Vr. Cons.

will be allocated

Tr. price allocated on DoI

to be based on Tr prices

-

Else

Change in Tr. Price allocate

of standalone price of DoI. (and not date change in TP)

Change in TP

No Whether it is a

Over a period

P.O.

performance

CONTRACT

Eg.

circumtances have changed, etc

B. 5 Step Model

B : 5 Step Model



Cost otherwise incurred

whether or not contract is secured/ obtained

Eg. Non-refundable upfront tender fees

Incremental cost to secure the contract

eg. Agreement charges, Agent

commission payable on successful award

of contract

Such costs which would have been

avoided had contract not been

secured

Cost to be

provided it is probable to be

recovered

Expense to

whether or not contract is secured

C. CONTRACT COSTS

Cost Impairment

consistent with transfer of g/s to customer, to which the asset relates (i.e.

as in Ind AS 8/36

Less : Amt. expected to be recovered; subject to allowance for credit loss, if

Ind AS 36.

Provided it is:a) Probable that it will be

recovered

Andb) it relates to

Andc) enhances an asset or

resource used in -

Nature of Costs

Included Excluded

Eg. DM,DL, Directly

allocatable costs,Cost that can

charged to cus-tomers

Eg.behalf of

recoverable

Cost that would not have been incurred had con-tract not been executed

Eg. Wastages/ Abnormal Costs/PenaltyGeneral Admin

* Costs of

cannot be reocgnised as an asset

* Cost that cannot be allocated be-

PO will also not be added to asset and to be expensed

Apply other Ind AS

Whether contract costs

under any other Ind AS Eg. Ind AS

2, 23, etc.

1) Sale with right to return

3) Principal Vs Agent -

mission-

tomer to acquire

services

unexercised rights

6) Non-refundable upfront fees

7) Licensing

9) Consignment Sales

arrangements11) Customer

acceptance


1. Sale with Right to Return


Do not recognize revenue

separately

b) Depends on

Allocate TP to t/f of g/s and warranty

Accounted like consignment

sales if

be returned

Separate when PO

1. Recognise Revenue

&

2. Provide for refund liabil-

refunds (every year end

&

in value of goods if any (every yr end

Prov. for

warranty

per Ind 37

ElseElse

Inventory with customers will be shown as an

asset

Legal needs

Length of Warranty

Nature of services to be

provided during warranty period

Then as per Ind AS 115 principles

3.Principal Vs Agent

a) Agreement to arrange for g/s

agent.

commission/fees as income

monentarily obtain control over g/s

a) When the agreement is to provide g/s itself.

-enue of price of g/s

c) In an agreement

principal for cer-

for others.d) Control over g/s

is with the principal

-sponsible to perform promise

obsolescence risk, etc.

price at which g/s to be supplied

conrol over g/s before t/f

34800

34800

i) Eg.

available if customer did not enter into the present contract for supply of g/s.

:

of TP: if standalone price is not then the standalone price should

a) Disc. other wise given

Eg.

Ans.

revenue to be recognised ?

also to be considered.Eg.


7.A * Sales Based Royalty:

dependent on sale/usage of customer then:

and

to undertake Customer directly

not result in t/f of g/s to the customer as and

Part of g/s transferred

(like Caraavan Transistors)

when license is granted

the period of license.

revenue for t/f

of g/s

Eg. that is non-refundable but gives

to/Gold/Prime membership fees, upfront reg. charges of a club, etc.

customer against which customer has

chances of customer exercising the rights.

and it is not refundable by law.




Treat as Financial Liability

Treat as

to be adjusted against

over the term

repurchase)*

to repurchase)

Customer has

(Likely to be exercised on DoI)

Op. Lease (Ind AS 17)

In substance, no transfer of control

-

Financing customer will resell

sales with return

Ind AS 109

1 1 Jan Bank A/c Dr. 10,00,000

To FL 10,00,000

2) 31 Dec A) If repurchased: FL Dr. 10,00,000

To Bank 11,00,000

B) If unexercised: Int. Dr. 100,000 To FL 1,00,000

FL Dr. 11,00,000 To Sales 11,00,000

Ind AS (109)

or *Ind AS

(16)

Ind AS (17)

Goods/Service have been t/f load are subject to customer acceptance / approved

If any PO pending like

then T.P. to that extent not

determine t/f of control (based on

acceptance unless acceptance is only a legal formality (based

a) There is no transfer of control over asset hence no revenue to

security deposit

consignment sales:

(i)

legal right over goods

(ii)

call back the goods

(iii) Other party, consignee

pay for the goods.

loose control over g/s

Customer can direct the goods as he wishes i.e.

customer has control over

the goods

reason to hold goods on behalf

of customer

Goods to be use/sell to others goods

that have been billed but not delivered

Criteria to establish t/f of control to

customersubject to any

PO to hold goods.

Eg.as customer is building its body in the yard. Eicher has no more PO pending except delivery of truck to buyer for delivery charges 50,000 included in price above.

Ans. Eicher has t/f control over asset hence revenue can be

when delivered.


x

or or

APPENDIX ‘D’: Service Concession Arrangements

contract to build/upgrade an infrastructure along with right to operate it to the operator

-der the contract

2. Scope

infra are not covered

Appendix3. Eg. :

to construct a Tollmotorway and operate it for 5 years from

to collect toll for 5 years

Step I : Determine TP

Step II: infra and

Step III:

Step IV: Contract Asset : Till asset under construc-

-ceivable from the grantor (A/c name

-ery from public using the constructed

infrastructure as it is in nature of

no control over infrastructure.


Service Concession Arrangement

Step IV : Finance Income

Eg. 1

Soln: Step I : Financial Asset 50 Crores Intangible Asset 150 Crores

Step II :

Step III: 76.67)

motor way.

cost incurred was 30 crores and 60

D.F. 10%

crores.

of road are 50 crores p.a.

1 102.68 10.27 - 112.95 2 112.95 11.30 - 124.25 3 124.25 12.43 50 86.68 4 86.68 8.67 50 45.35 5 45.35 4.65 50 Nil

Finance Income 47.32

Interest Income

Step V

IA FA

FVTPL

also recognised

Ind AS 38A/c under Ind AS 109

FVOCIACM


(1) Contract Exp. (PorL) Dr. 30 To Bank 30

(2) Contract Asset Dr. 38.33

(3) Contract Asset Dr. 10.27 +4.13 To Finance Inc. 10.27 +4.13

(1) Tract Exp. (PorL) Dr. 60 To Bank 60

(2) Contract Asset Dr. 76.67

(3) Contract Asset Dr. 4.55 +11.30 To Finance Inc. 4.55 + 11.30

2. Ind AS 23 applies

3. Goods supplied by Grantor : Ind AS 115 provision apply

Journal Entries

* Service Concession Arrangements

Basic Rule :

Costs to obtain/

& Change

Disclosures

included, if any to be presentenly separately

2. Accounted for under Ind AS 109

AS 115 and 109. 4. Tested for impairment under

Ind AS 109

5. Subsequent measurement also as per Ind AS 109

upon something other

Payment received or due but PO pending

Eg.

Ans.

Eg. What if amt. is payable subject

Ans.record contract asset

Eg. Advance received against con-tract Ans. Contract liability

No


1. disclosed separately

2. • Goods/services• Over / At a point • Fixed / Cost +• Class of customer•

3.

adj. etc. on balances.

of PO

Over a period When t/f of control over

etc.

Op, Cl.,

and Impairment

Eg. associated PO, is payable but not yet

Ans. To Contract Liability

4. PO When recog. (Policy)

beg. of year from which Ind AS 115 adopted i.e 1.4.18 (no p.y.

Adj. done thru Op. reserves.

completed contracts

+

(known as contract is now completed)



OVER VIEW

A

C

D

E

F

B

recognizing &

B

E

F

C

A

D



Revenue



C1

C2

C3

C. Contract Cost



Appendix C

SCA


to Ind AS 115

PO :

t/f : g/s:

Rev. Vr. Cons. :

w/o:

CF : Tr.Pr. : CWC :


OVER VIEW

A

C

D

E

F

B

recognizing &

B

E

F

C

A

D



Revenue



C1

C2

C3

C. Contract Cost



Appendix C

SCA


to Ind AS 115

PO :

t/f : g/s:

Rev. Vr. Cons. :

w/o:

CF : Tr.Pr. : CWC :


OVER VIEW

A

C

D

E

F

B

recognizing &

B

E

F

C

A

D



Revenue



C1

C2

C3

C. Contract Cost



Appendix C

SCA


to Ind AS 115

PO :

t/f : g/s:

Rev. Vr. Cons. :

w/o:

CF : Tr.Pr. : CWC :


OVER VIEW

A

C

D

E

F

B

recognizing &

B

E

F

C

A

D



Revenue



C1

C2

C3

C. Contract Cost



Appendix C

SCA


to Ind AS 115

PO :

t/f : g/s:

Rev. Vr. Cons. :

w/o:

CF : Tr.Pr. : CWC :


OVER VIEW

A

C

D

E

F

B

recognizing &

B

E

F

C

A

D



Revenue



C1

C2

C3

C. Contract Cost



Appendix C

SCA


to Ind AS 115

PO :

t/f : g/s:

Rev. Vr. Cons. :

w/o:

CF : Tr.Pr. : CWC :


OVER VIEW

A

C

D

E

F

B

recognizing &

B

E

F

C

A

D



Revenue



C1

C2

C3

C. Contract Cost



Appendix C

SCA


to Ind AS 115

PO :

t/f : g/s:

Rev. Vr. Cons. :

w/o:

CF : Tr.Pr. : CWC :

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