University · Ind AS 115

Ind AS 115 Revenue Tester.

Walk through the Ind AS 115 five-step model for a contract with a customer. Allocates transaction price across performance obligations and computes revenue recognised at period-end.

STEP 1

Identify the contract with a customer (para 9)

The parties have approved the contract and are committed to perform.Each party’s rights regarding goods / services are identifiable.Payment terms are identifiable.The contract has commercial substance.Collection of the consideration is probable.

✓ Contract qualifies — proceed to step 2.

STEP 2

Identify the performance obligations (para 22)

STEP 3

Determine the transaction price (para 47)

Fixed transaction price (₹)

Variable consideration — expected (₹)

Estimate using expected value or most-likely amount (paras 53-54). Constrain so highly probable not to reverse (para 56).

Significant financing component (≥ 1 year)?

STEP 4-5

Allocate transaction price + recognise revenue

Performance obligation	SSP	Allocated	% Done	Recognised
Software license (1-year subscription) (over-time)	₹1,00,000	₹88,889	25%	₹22,222
Implementation services (over-time)	₹50,000	₹44,444	60%	₹26,667
Hardware delivery (point-in-time)	₹30,000	₹26,667	100%	₹26,667
Total revenue recognised this period				₹75,556

The 5-step revenue model.

Ind AS 115 — effective for periods beginning 1 April 2018 — converged with IFRS 15 to replace the older Ind AS 11 (Construction Contracts) and Ind AS 18 (Revenue). The principle: recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled.

The five steps: (1) identify the contract, (2) identify performance obligations, (3) determine the transaction price, (4) allocate to POs, (5) recognise revenue when (or as) the PO is satisfied.

Audit angle

Revenue is a presumed fraud risk under SA 240 para 26. The auditor must obtain understanding of the entity’s revenue recognition policy under Ind AS 115, walk through a sample of contracts, confirm bill-and-hold / consignment / multiple-element arrangements, and test cut-off at year-end. SA 240, JE Risk Scorer.

Schedule III Validator Cash Compliance Checker

How Ind AS 115 revenue recognition works

Ind AS 115 — "Revenue from Contracts with Customers" — was made effective for accounting periods beginning on or after 1 April 2018. It replaced Ind AS 18 (Revenue) and Ind AS 11 (Construction Contracts) and converges with IFRS 15. The core principle: recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

The standard prescribes a five-step model: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; (5) recognise revenue when (or as) the entity satisfies a performance obligation. Each step has detailed application guidance and several specific industries (telecommunications, real estate, software, construction) have additional considerations.

A performance obligation is satisfied either at a point in time or over time. Over-time recognition applies when: (a) the customer simultaneously receives and consumes the benefits as the entity performs (typically services), (b) the entity's performance creates or enhances an asset the customer controls, or (c) the entity's performance does not create an asset with alternative use and the entity has an enforceable right to payment for performance completed to date.

Worked example — software contract with multiple POs

An IT services entity has a 1-year contract for ₹1.60 cr — a software license, implementation services, and hardware delivery. Standalone selling prices are ₹1 cr (license), ₹50 L (implementation), ₹30 L (hardware), summing to ₹1.80 cr. The customer gets a ₹20 L discount.

Inputs

Step 1 — Contract qualifiedYes (5 criteria met)

Step 2 — POs identified3

Step 3 — Transaction price₹1.60 cr (discount ₹20 L)

Step 4 — Allocation basisPro-rata of SSP

Output

License allocation₹88.89 L (55.6%)

Implementation allocation₹44.44 L (27.8%)

Hardware allocation₹26.67 L (16.7%)

Period-end recognitionPer % complete × allocation

The ₹20 L discount is allocated pro-rata across all three POs because no specific PO is associated with the discount. License is recognised over time (subscription); implementation over time (service); hardware at a point in time (on delivery). At quarter-end, recognise 25% of license allocation, 60% of implementation (per progress), and 100% of hardware if delivered.

Common mistakes

Combining distinct goods / services into one PO

Two goods or services are distinct if (a) the customer can benefit from each on its own or with readily available resources, and (b) the entity's promise to transfer each is separately identifiable. Bundling distinct items into one PO defers revenue and is incorrect. Conversely, splitting non-distinct items overstates current revenue.

Recognising license revenue at a point in time when it should be over time

Para 56 distinguishes "right to use" (point in time) and "right to access" the entity's intellectual property as it exists throughout the license period (over time). SaaS, telecom subscriptions, and trademark licenses with significant ongoing activities by the licensor are typically over-time recognition.

Ignoring variable consideration constraint

Variable consideration (volume discounts, rebates, penalties, performance bonuses) must be estimated using expected value or most likely amount, then constrained — included in transaction price only to the extent it is highly probable that a significant reversal will not occur (para 56). Many companies recognise variable consideration without applying the constraint.

Treating principal vs agent incorrectly

A principal recognises revenue gross; an agent recognises revenue net of consideration paid to the principal. Indicators of principal status: primary responsibility for fulfillment, inventory risk, discretion in pricing, exposure to credit risk. Misclassification can dramatically overstate revenue (especially for marketplaces and aggregators).

Missing the financing component

When the timing of payments (advance or deferred) provides a significant financing benefit to either party, the entity must adjust the transaction price for the time value of money. Practical expedient: not required if the period between transfer and payment is one year or less.

Frequently asked questions

What is Ind AS 115?+

Ind AS 115 — "Revenue from Contracts with Customers" — is the Indian Accounting Standard for revenue recognition. It is converged with IFRS 15 and was made effective for periods beginning on or after 1 April 2018, replacing the older Ind AS 18 (Revenue) and Ind AS 11 (Construction Contracts).

What is the five-step model?+

(1) Identify the contract with a customer. (2) Identify the performance obligations in the contract. (3) Determine the transaction price. (4) Allocate the transaction price to the performance obligations. (5) Recognise revenue when (or as) the entity satisfies a performance obligation.

When is revenue recognised over time vs at a point in time?+

Para 35 — over time if any of: (a) customer simultaneously receives and consumes benefits as entity performs; (b) entity's performance creates or enhances an asset customer controls; (c) entity's performance does not create an asset with alternative use AND entity has enforceable right to payment for work performed to date. Otherwise — point in time, typically when control transfers.

What is a performance obligation?+

A promise in a contract with a customer to transfer to the customer either: (a) a good or service (or bundle of goods or services) that is distinct, or (b) a series of distinct goods or services that are substantially the same and have the same pattern of transfer.

How is variable consideration estimated?+

Using either the expected value (probability-weighted amount over a range of possible outcomes) OR the most likely amount (the single most likely amount in a range of outcomes). The constraint: include in the transaction price only to the extent it is highly probable that a significant reversal of cumulative revenue recognised will not occur.

What is the difference between contract assets and trade receivables?+

A contract asset is the entity's right to consideration in exchange for goods or services that the entity has transferred to a customer, when that right is conditioned on something other than the passage of time (e.g., completion of a future PO). A receivable is when the right is unconditional — only the passage of time is required to collect.

Are warranties separate performance obligations?+

It depends. If the warranty provides the customer with assurance that the product complies with agreed specifications (assurance-type warranty), it's NOT a separate PO and is accounted for under Ind AS 37 (provisions). If the warranty provides a service in addition to assurance (service-type warranty, e.g., extended warranty), it IS a separate PO under Ind AS 115.

How does Ind AS 115 affect tax returns?+

Ind AS 115 changes the timing and amount of revenue recognition but does not generally change the underlying transactions. For tax purposes (Section 145A and ICDS), companies often need to maintain a separate computation. Differences create permanent or timing differences, which feed into deferred tax under Ind AS 12 / AS 22.

Authoritative sources

Ind AS 115 — Revenue from Contracts with Customers — Converged with IFRS 15. ICAI has issued an Educational Material providing detailed guidance, FAQs, and industry-specific illustrations.

Always confirm against the latest version of the source. Regulations evolve and amendments are common.

Related calculators

Schedule III Validator →SA 240 — Revenue Fraud Risk →JE Risk Scorer →Deferred Tax Calculator →

Last reviewed: 2026-05-28 · For informational purposes only — not professional advice.