Advanced Accounting · AS 9 Revenue Recognition

AS 9 Scope, Definitions and Revenue Concept for CA Inter

Updated 4 October 2026 · Fact-checked

AS 9 Revenue Recognition deals with when to recognise revenue arising from the sale of goods, rendering of services, and use of enterprise resources by others (interest, royalties, dividends). It covers only gross inflows from ordinary activities. To solve questions, identify the type of income, check scope exclusions, then apply the matching recognition rule.

Understand AS 9 Scope, Definitions and Revenue Concept

Revenue under AS 9 is the gross inflow of cash, receivables or other consideration arising in the course of the ordinary activities of an enterprise.

AS 9 covers three things:

(a) Sale of goods: the enterprise's own products or goods purchased for resale.
(b) Rendering of services: performing a contractually agreed task over an agreed period.
(c) Use by others of enterprise resources, yielding interest (a charge for the use of cash resources or cash equivalents, or of amounts due to the enterprise), royalties (charges for use of assets such as know-how, patents, trademarks and copyrights) and dividends (rewards from holding investments in shares, distributed to holders in proportion to their holding).

The word gross matters. Revenue is the total amount received or receivable by the enterprise on its own account. Amounts collected on behalf of a third party, such as sales tax, GST or value added tax collected for the government, are not revenue of the enterprise. They are excluded from revenue. Excise duty is different. It is a duty borne by the manufacturer, so it stays in the sale price and is part of revenue from sale of goods. In the same way, an agent's revenue is only its commission. Amounts the agent collects for the principal are not the agent's revenue.

The word ordinary activities matters too. A trading firm earns revenue from selling goods. A consultancy earns revenue from fees. Profit on sale of a fixed asset is not from ordinary activities, so it is a gain and not revenue under AS 9. This is the core of the revenue versus gains distinction.

AS 9 does not deal with revenue arising from construction contracts (AS 7), hire purchase and lease agreements (AS 19), government grants and similar subsidies (AS 12), and insurance contracts of insurance companies. It also does not deal with these items:

Realised gains from the disposal of non-current assets.
Unrealised holding gains, such as appreciation in the value of fixed assets.
Gains arising from changes in foreign exchange rates.
Discovery of mineral resources.

Read the list of exclusions carefully before answering.

Key rules to remember

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.

How to solve AS 9 Scope, Definitions and Revenue Concept questions

Use this sequence for any scope or definition question on AS 9.

1Read the transaction and identify what the enterprise has actually done: sold goods, rendered a service, or allowed others to use its resources.
2Ask whether the inflow arises from the enterprise's ordinary activities. If it is from selling a fixed asset or revaluing an asset, it is a gain, not AS 9 revenue.
3Check the exclusion list: construction contracts, leases, grants and insurance contracts are dealt with under other standards or rules. Realised gains on disposal of non-current assets, unrealised holding gains, foreign exchange gains and mineral discovery are not dealt with by AS 9.
4Decide which of the three AS 9 heads applies: sale of goods, rendering of services, or use of enterprise resources by others (interest, royalty or dividend).
5Compute revenue on the enterprise's own account: take the total invoice value and remove sales tax, GST or VAT collected for the government. Do not remove excise duty. For an agent, take only the commission.
6State the applicable recognition rule briefly, naming the correct standard where AS 9 does not apply.
7Write a one-line conclusion giving the amount recognised as revenue and the reason.

Quickest way: Three-question filter for MCQs and short answers

When to use it: Use when time is short, especially for MCQs asking whether an item is revenue or falls within AS 9.

Ask: Is it from ordinary activities? If no, it is a gain, not revenue.
Ask: Is it on the enterprise's own account? If it is GST, sales tax or VAT collected for the government, or an amount collected for a principal (when you are the agent), strip it out. An agent's revenue is only the commission.
Ask: Is it covered by another standard (AS 7, AS 12, AS 19)? If yes, AS 9 does not apply.
In written answers, use three lines: provision of AS 9, application to the facts, conclusion. This earns the step marks.

Common mistakes in AS 9 Scope, Definitions and Revenue Concept

Treating profit on sale of a fixed asset as revenue under AS 9.
Students see a gain and an inflow of cash and assume it is income of the same kind as sales.
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.
The invoice total looks like the amount received from the customer.
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.
Applying AS 9 to construction contracts or lease income.
Both involve revenue, so students assume AS 9 covers them.
Fix: Construction contracts go to AS 7 and leases to AS 19. Government grants go to AS 12.
Confusing royalty with interest or dividend.
All three are income from others using enterprise resources.
Fix: Interest relates to money, royalty to intangibles such as patents and copyrights, dividend to share investments.
Calling unrealised gains, such as an increase in the value of assets, revenue.
Students focus on the increase in value and ignore the lack of an inflow from ordinary activity.
Fix: Unrealised holding gains, such as appreciation in the value of fixed assets, are outside AS 9. Gains from exchange rate changes are also outside AS 9. Do not recognise them as AS 9 revenue.

Worked examples

Example 1

X Ltd sold goods to customers for ₹11,80,000 including GST of ₹1,80,000 collected for the government. It also sold an old machine at a profit of ₹50,000. Compute revenue as per AS 9.

Show the solution

Total invoice value = ₹11,80,000.
GST collected for the government is not revenue: deduct ₹1,80,000.
Revenue from sale of goods = ₹11,80,000 − ₹1,80,000 = ₹10,00,000.
Profit on sale of machine is a gain, not from ordinary activities, so it is excluded from revenue.

Answer: Revenue as per AS 9 is ₹10,00,000. The ₹50,000 profit on sale of the machine is a gain and not revenue.

Example 2

State with reasons whether AS 9 applies to these items: (a) interest on a loan given by a trading company, (b) lease rentals under a finance lease, (c) dividend received on shares held as investment, (d) government grant received.

Show the solution

(a) Interest is a charge for use of cash by others. It is covered by AS 9 as use of enterprise resources.
(b) Lease agreements are dealt with in AS 19, so they are outside AS 9.
(c) Dividend is a reward from holding investments in shares. It is covered by AS 9.
(d) Government grants are dealt with in AS 12, so they are outside AS 9.

Answer: AS 9 applies to (a) interest and (c) dividend. It does not apply to (b) lease rentals, covered by AS 19, or (d) government grants, covered by AS 12.

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.

Practice questions from AS 9 Revenue Recognition

AS 9 Scope, Definitions and Revenue Concept in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

AS 9 Scope, Definitions and Revenue Concept: frequently asked questions

What is revenue as per AS 9?

Revenue is the gross inflow of cash, receivables or other consideration arising in the course of the ordinary activities of an enterprise. AS 9 covers the sale of goods, the rendering of services, and the use by others of enterprise resources yielding interest, royalties and dividends.

What is the difference between revenue and gains under AS 9?

Revenue arises from the ordinary activities of the enterprise, and includes interest, royalties and dividends from others using its resources. Gains from non-ordinary events, such as disposal of fixed assets or unrealised holding gains, are not AS 9 revenue.

Which items are excluded from the scope of AS 9?

AS 9 does not deal with revenue from construction contracts (AS 7), lease and hire purchase agreements (AS 19), government grants (AS 12) and insurance contracts of insurance companies. It also does not deal with realised gains on disposal of non-current assets, unrealised holding gains such as appreciation in the value of fixed assets, gains from changes in foreign exchange rates, and discovery of mineral resources.

Is GST part of revenue under AS 9?

No. Revenue is the gross inflow on the enterprise's own account. Sales tax, GST and VAT collected on behalf of the government are not revenue of the enterprise. Excise duty borne by the manufacturer is different: it is included in the sale price. Likewise, an agent's revenue is only its commission.