CA Intermediate · Advanced Accounting

AS 9 Revenue Recognition: formula sheet

Full chapter guide

Key formulas

Definition of revenue: Revenue = gross inflow of cash, receivables or other consideration from ordinary activities; Covers sale of goods, rendering of services, and use of enterprise resources by others (interest, royalties, dividends).
Revenue excludes amounts collected for others: Revenue from sale of goods = Total invoice value − Sales tax, GST or VAT collected on behalf of the government; Sales tax, GST and value added tax collected for the authorities are not revenue. Excise duty is not deducted: it is borne by the manufacturer and is included in the sale price. For an agent, revenue is only the commission; amounts collected for the principal are not revenue.
Interest: Interest = charge for use of cash resources or cash equivalents, or of amounts due to the enterprise; Recognised on a time basis, considering the amount outstanding and the rate applicable.
Royalties: Royalty = charge for use of know-how, patents, trademarks, copyrights; Recognised on an accrual basis as per the terms of the relevant agreement.
Dividends: Dividend = reward from holding investments in shares, in proportion to holding; Recognised when the owner's right to receive payment is established.
Items outside AS 9: Excluded: construction contracts (AS 7), leases and hire purchase (AS 19), government grants (AS 12), insurance contracts of insurance companies, realised gains on disposal of non-current assets, unrealised holding gains such as appreciation in value of fixed assets, gains from changes in foreign exchange rates, discovery of mineral resources; Use this list to decide quickly whether a transaction falls under AS 9.
Core recognition test: Revenue recognised when (1) property in goods, or all significant risks and rewards of ownership, transferred to buyer AND (2) no significant uncertainty about consideration; Both conditions must hold. If either fails, defer recognition.
Consignment sales: Revenue recognised when the consignee sells the goods to a third party; Goods sent to the consignee are not a sale. Unsold stock stays with the consignor.
Bill and hold: Revenue recognised when buyer takes title, if goods are identified and ready, and buyer accepts delivery delay; Check that the delay is at the buyer's request and the seller has nothing more to perform.
Instalment sales: cash price: Revenue on date of sale = Sale price excluding interest (cash price); The interest component is not part of sale revenue on day one.
Instalment sales: interest: Interest for a period = Outstanding balance × Rate × Time; Recognise interest revenue as it accrues, over the instalment period.
Significant uncertainty about collection: If a significant uncertainty exists about collection, defer revenue until the uncertainty is resolved; Recognise revenue when the uncertainty is resolved and collection is reasonably certain. If the uncertainty arises after revenue has been recognised, do not reverse or adjust the revenue. Recognise the uncollectable amount as an expense (provision or bad debt).
Proportionate completion: revenue for a period: Revenue = Total contract fee × (Service performed ÷ Total service); Measure performance by acts, days, units, or cost proportion, as the question gives. Use the basis stated in the question.
Completed service contract method: Revenue = Total fee, recognised when the service is completed or substantially completed; Before that date, revenue is nil and costs are carried forward as work in progress.
Revenue for a later period: Revenue of the period = Cumulative revenue to date − Revenue recognised in earlier periods; Always compute cumulative first, then subtract what was recognised earlier.
Recognition condition: No significant uncertainty about the consideration to be received; If collection of an already recognised amount becomes doubtful, provide for it as an expense. Do not reverse the revenue.
Interest income (time basis): Interest = Principal outstanding × Rate % × Time (in years or months ÷ 12); Recognise for the period that has passed, whether or not received. Use the amount actually outstanding in each period.
Royalty income: Royalty = Agreed rate × Base (e.g. sales, units, or fixed amount for the period); Recognise on accrual as per the agreement. Read the base and the period carefully.
Dividend recognition rule: Recognise when the right to receive payment is established; This is the AS 9 rule. As an application, a final dividend is usually established on approval by shareholders in the general meeting, and an interim dividend on declaration by the board. A board proposal for a final dividend alone does not usually create the right.
Uncertainty rule: Significant uncertainty about collection → postpone recognition; If uncertainty arises after recognition, provide for the doubtful amount instead of reversing revenue.
Accrued interest on investments bought cum-interest: Interest for the period before purchase = Principal × Rate × Months before purchase ÷ 12; This part is a recovery of the price paid, not income. Only the post-purchase portion is income.
Uncertainty when the claim is raised (at sale): Ability to assess ultimate collection with reasonable certainty lacking at the time of raising the claim → postpone revenue recognition until the uncertainty is resolved; No revenue is booked in the period of sale. Revenue is booked when the uncertainty is resolved. Receipt is one possible point, not the general rule.
Uncertainty arising after recognition: Uncertainty about collectability arises for an amount already recognised as revenue → recognise a separate expense (provision for doubtful debts or bad debt); revenue is not adjusted; Recognise a separate expense rather than adjusting revenue. Sales returns and discounts are different matters and may affect revenue.
Recognition test (goods): Revenue recognised when: (a) significant risks and rewards of ownership transferred, and (b) no significant uncertainty about the amount of consideration and its collection; This is a working summary of AS 9, not its exact wording. Both conditions must be met. Transfer of ownership alone is not enough.
Disclosure rule: Disclose the accounting policy adopted for revenue recognition (AS 1); where recognition is postponed, explain the circumstances in the notes as good practice; Policy disclosure comes from AS 1. Linked with AS 1 on disclosure of accounting policies.
Doubt about an amount already recognised: If uncertainty arises about collectability of an amount already recognised as revenue → recognise a separate expense for that amount; do not adjust revenue. If collection could not be assessed with reasonable certainty at the time of raising the claim → postpone recognition; Use the timing of the doubt to decide.

Quick revision

AS 9 covers sale of goods, rendering of services, and interest, royalties and dividends.
Revenue is gross inflow of cash, receivables or other consideration from ordinary activities.
Goods: recognise when significant risks and rewards of ownership pass to the buyer and collection is reasonably certain.
Delivery alone is not the test; check where the risks and rewards lie.
Services: use the proportionate completion method or the completed service method as the facts suit.
Interest: recognise on a time basis, based on the amount outstanding and the rate applicable.
Royalties: recognise on an accrual basis as per the terms of the agreement.
Dividends: recognise when the owner's right to receive payment is established.
Recognise revenue only when there is reasonable certainty of ultimate collection. If the ability to assess ultimate collection with reasonable certainty is lacking at the time of raising the claim, postpone recognition.
If uncertainty arises after revenue has been recognised, make a separate provision for the uncollectable amount, not an adjustment to the revenue originally recognised.
Disclose the accounting policies adopted for revenue recognition, including the circumstances for any change.
Revenue excludes GST, sales tax and VAT collected on behalf of the government, because these amounts are not economic benefits flowing to the enterprise. Excise duty is a historical point from the pre-GST era and matters little now.

Common mistakes

Treating profit on sale of a fixed asset as revenue under AS 9. Fix: Remember that revenue must arise from ordinary activities. Realised gains from disposal of non-current assets are outside AS 9.
Including GST or sales tax collected in revenue. Fix: Revenue is the amount on own account. Sales tax, GST and VAT collected for the government are excluded. Excise duty borne by the manufacturer is not deducted.
Recognising revenue when goods are dispatched to a consignee. Fix: Treat consignment stock as the consignor's inventory. Book revenue only when the consignee sells to a third party.
Treating the total instalment price as revenue on the sale date. Fix: Take the cash price as sales revenue. Spread the interest over the instalment period.
Recognising revenue when cash is received Fix: Revenue follows performance of the service. Advance received is a liability until the service is performed.
Using proportionate completion for a service with one critical final act Fix: If the last act is so significant that it decides completion, use the completed service contract method and recognise revenue at completion.
Recognising interest only when cash is received. Fix: Under AS 9, interest accrues with time. Recognise it for the period elapsed even if unpaid, subject to collectability.
Treating a dividend proposed by the board as income. Fix: Under AS 9, recognise a dividend when the right to receive it is established. As an application, a final dividend is usually established when the shareholders approve it at the general meeting, and an interim dividend when the board declares it. A dividend whose right is established after the year end is not recognised in that year.
Reducing sales when a debtor later turns bad. Fix: If revenue was rightly recognised, keep it. Charge a bad debt or provision to the Statement of Profit and Loss.
Recognising full revenue when collection was doubtful at the time of sale. Fix: Apply both checks. If collection could not be assessed with reasonable certainty at sale, postpone recognition until it is resolved.

Exam tips

Learn the definition word by word. Examiners often test the words gross inflow and ordinary activities.
Memorise the exclusion list with its standards: AS 7, AS 12, AS 19. MCQs often ask which item is outside AS 9.
In revenue versus gains questions, state the reason in one line. A bare answer loses marks.
Always remove sales tax, GST or VAT collected for the government before stating revenue in numerical questions. Do not deduct excise duty. For an agent, revenue is only the commission.
For descriptive questions, write provision, application and conclusion in that order.
For MCQs, hunt for trigger words: consignee, approval, buyer's request, instalment. Each maps to one rule.
In written answers, name AS 9 and quote the transfer-of-risks-and-rewards condition before computing anything.
Always show the date of revenue recognition in a one-line note. Examiners give marks for the date.