Revenue recognition deals with timing and amount of revenue to be recognized in the Profit and Loss Account.
This AS is not applicable to Construction Contracts.
It recognizes the flow of revenue from:
Sale of goods
Rendering of services; and
Use of resources by others [interest, dividend and royalty]
If consideration is not measurable, postpone the recognition of revenue.
If there is uncertainty in collection, postpone to the extent of uncertainty.
If uncertainty arise after recognition, then recognize the revenue, but make a provision.
In case of sale of goods, revenue is recognized if the seller has transferred to the buyer the property in goods for a consideration, or significant risk and rewards of ownership has been transferred to the buyer and no uncertainty exists regarding collectability of consideration.
For rendering of services, this AS suggests two methods:
Complete service method (when the final act is done); and
Proportionate service method
The disclosure requirement is that the amount of turnover less excise duty is disclosed on the face of Profit and Loss account.
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