On February 16, 2015, the Ministry of Corporate Affairs notified 39 Indian accounting standards. Ind AS 115, which was converged with the International Financial Reporting Standards 15, is one of these standards.
Following the postponement of IFRS 15 to January 1, 2018, the MCA also postponed the implementation of Ind AS 115 on March 30, 2016, and released Ind AS 11 (construction contract) and Ind AS 18 (revenue recognition)
The MCA notified Ind AS 115, a revised revenue recognition requirement that replaced the current Ind AS 11 and Ind AS 18, on March 28, 2018. The updated norm also superseded the existing guidelines on real estate income identification.
Ind AS 115 came into effect on April 1, 2018. Its core principle is that the revenue recognition under AS must be equal to the amount of which the entity claims to be entitled, whenever the ownership/control of goods and services is transferred from the entity to consumers.
Ind AS applicability is based on a five-step model:
It deals with determining if the contract falls under the purview of Ind AS 115. The following conditions must be followed in order to qualify a contract under this standard:
Contracts entered into at or around the same time and with the same client will be treated as a single contract if one or more of the following conditions are met:
A change in scope or price that is agreed to by the contract parties is considered as contract modification (E.g. Change order, variation or an amendment). If both the following provisions are met, contract modification should be seen as a separate contract:
An agency should evaluate the goods or services promised in a contract and recognize each obligation to transfer either:
Revenue Recognition under Ind AS deals with recognizing revenue at a certain moment in time or overtime depending on performance commitments/obligations. Revenue recognition under Ind AS must take place with each performance obligation fulfilled over time by calculating the progress towards satisfaction on the completion of each reporting cycle. For such measurements, an organization can consistently use a single method.
Ind AS applicability is valid for all the contracts with customers, except:
The change to retained earnings would be a part of the "transition amount," and book profit will be raised or reduced by one-fifth of the amount of each year beginning with the convergence year and continuing for the next four years, subject to some exceptions.
The current reporting period covered under an entity's "first Ind AS financial statement" is defined by the "First Ind AS reporting period" stated under Ind AS 101. Therefore, when an entity incorporates Ind AS applicability, the "convergence date" will occur only once in the company's lifetime. Therefore, the substitution of one Ind AS with another, subject to the new Ind AS notification, is different from the 'convergence date'. Hence, the changes and adjustment made to retained earnings after adopting Ind AS 115 will not be the transition amount's part.
The implications discussed above can result in double taxation or double non-taxation. Therefore, a representation should be made to the Central Board of Direct Taxes to obtain clarity.
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