IND AS 115 – Revenue Recognition

 IND AS 115 – Revenue Recognition

🎯 Top Interview Q&A for CA / CMA / Finance 📘 Core Concept Questions 🔹 1️⃣ Core principle of Ind AS 115? 👉 Recognize revenue when control of goods/services transfers to the customer. 🔹 2️⃣ Five-step revenue recognition model: 1️⃣ Identify the contract 2️⃣ Identify performance obligations (PO) 3️⃣ Determine transaction price 4️⃣ Allocate transaction price 5️⃣ Recognize revenue when / as PO is satisfied 🔹 3️⃣ What is a performance obligation? 👉 A distinct promise to transfer a good or service. 🔹 4️⃣ When is a good/service ‘distinct’? ✔ Customer can benefit independently ✔ Separately identifiable in the contract 🔹 5️⃣ What is transaction price? 👉 Consideration expected for transferring goods/services. 🔹 6️⃣ What is variable consideration? 👉 Amounts subject to change due to: ✔ Discounts ✔ Rebates ✔ Bonuses ✔ Penalties 🔹 7️⃣ Methods to estimate variable consideration: ✔ Expected value method ✔ Most likely amount method 🔹 8️⃣ Constraint on variable consideration? 👉 Recognize only when it is highly probable that revenue will not reverse. 🔹 9️⃣ Significant financing component? 👉 When timing of payment provides financing benefit → separate interest element. 🔹 🔟 Revenue recognized over time when: ✔ Customer benefits as work progresses OR ✔ No alternative use + enforceable right to payment 🔹 1️⃣1️⃣ Revenue recognized at a point in time when: 👉 Control transfers (delivery, possession, legal title, risks & rewards). 🔹 1️⃣2️⃣ Non-refundable upfront fees: 👉 Recognize over service period unless it provides a separate PO. 🔹 1️⃣3️⃣ Contract Asset vs Contract Liability: ✔ Performance > Billing → Contract Asset ✔ Billing/Payment > Performance → Contract Liability 🔹 1️⃣4️⃣ Unbundling of contracts: 👉 Splitting bundled goods/services into separate POs. 🔹 1️⃣5️⃣ Warranties – Revenue treatment: ✔ Assurance warranty → Not a separate PO ✔ Service warranty → Separate PO, revenue over warranty period 🔧 Practical / Scenario-Based Questions 🔸 1️⃣6️⃣ Phone + 1-year service bundle: 📱 Phone → Point-in-time 🔧 Service → Over time 📌 Allocate consideration using SSP. 🔸 1️⃣7️⃣ 2-year construction contract: 👉 Revenue recognized over time 📊 Method: Cost-to-cost / Output method. 🔸 1️⃣8️⃣ Annual rebate after 10,000 units: 👉 Variable consideration → Estimate & reassess continuously. 🔸 1️⃣9️⃣ Customer prepays 1-year subscription: 👉 Record as Contract Liability → Recognize over subscription period. 🔸 2️⃣0️⃣ 30-day return policy: 👉 Estimate returns and record: ✔ Refund liability ✔ Return asset ✔ Recognize net revenue 🔸 2️⃣1️⃣ SaaS company revenue: ✔ Subscription → Over time ✔ Setup fee → Over time (unless distinct) 🔸 2️⃣3️⃣ Loyalty points: 👉 Separate PO 👉 Allocate transaction price 👉 Revenue on redemption