The new revenue recognition standard “Ind AS 115” has been notified by Ministry of Corporate Affairs (MCA). Ind AS 115 (equivalent to IFRS 15) has become effective to Indian companies following Ind AS from April 1, 2018.
Ind AS 115 establishes a five-step model that will apply to revenue earned from a contract with a customer (with limited exceptions), regardless of the type of revenue transaction or the industry.
Step 1- Identify the contract(s) with the customer
Step 2- Identify separate performance obligations in the contract
Step 3- Determine the transaction price
Step 4- Allocate the transaction price to the performance obligations
Step 5- Recognise revenue when (or as) each performance obligation is satisfied
New Revenue recognition standard differs considerably as compared to existing accounting principles (Ind AS 18 and Ind AS 11) for revenue recognition. The differences could result in changes in the identification of performance obligations, timing of revenue recognition, measurement and disclosures. Transition to new revenue recognition regime is expected to have significant impact on many companies. Transition to Ind AS 115 is not just an accounting change; as a result of the potential wide-ranging impact of Ind AS 115, the implementation process should be comprehensive and include several functions outside of the traditional finance function, including IT, tax, legal, sales, marketing, human resources, investor relations and the executive management.
MCA Notification dated Mar 28, 2018