Corporate Financial Reporting · Revenue from Contracts with Customers (Ind AS 115)

Ind AS 115: Identifying and Combining Contracts

Updated 11 October 2026 · Fact-checked

Step 1 of Ind AS 115 decides whether you have a contract to account for. It must meet five criteria in paragraph 9. You combine contracts entered at or near the same time with the same customer if paragraph 17 applies. You treat a modification as a separate contract, a new contract, or part of the old one.

Understand Identifying the Contract and Combining Contracts

Ind AS 115 is built on a five-step model. Step 1 asks one question: is there a contract with a customer that the standard applies to? If not, you do not recognise revenue under the model.

A contract exists for accounting only when all five criteria of paragraph 9 are met. The parties have approved the contract and are committed to perform. You can identify each party's rights and the payment terms. The contract has commercial substance. It is probable that you will collect the consideration. For collectability you look only at the customer's ability and intention to pay when due.

If the criteria are met at inception, you do not reassess them unless facts change significantly, for example the customer's ability to pay deteriorates (para 13). If they are not met, you keep assessing (para 14). Meanwhile, cash received is recognised as revenue only in two cases (para 15): you have no remaining obligations and substantially all the consideration is received and non-refundable, or the contract is terminated and the consideration received is non-refundable. Until then it is a liability.

Sometimes several contracts are really one deal. Paragraph 17 requires you to combine contracts entered at or near the same time with the same customer (or its related parties) if they are negotiated as a package with a single commercial objective, if the price in one depends on the price or performance of the other, or if the goods or services are a single performance obligation.

A contract modification is a change in scope or price (or both) approved by the parties (para 18). It may be approved in writing, orally or by customary practice. Until approved, you keep applying the standard to the existing contract. The accounting depends on whether the added goods are distinct and whether the price reflects stand-alone selling prices.

Key rules to remember

Contract criteria (para 9): Approved and committed + rights identifiable + payment terms identifiable + commercial substance + collection probable; All five must be met. Collectability considers only the customer's ability and intention to pay.
Separate contract (para 20): Added goods/services are distinct AND price rises by stand-alone selling prices (with appropriate adjustments); Both conditions are needed. Then the modification is a separate contract and the old contract is unchanged.
Prospective treatment (para 21(a)): Remaining consideration = unrecognised consideration of old contract + consideration for the modification; Used when remaining goods are distinct from those already transferred. Treated as termination of old and creation of new contract.
Cumulative catch-up (para 21(b)): Revenue adjustment at modification date = effect on transaction price and on measure of progress; Used when remaining goods are not distinct and form part of a single partly satisfied performance obligation.
Combination test (para 17): Same customer + at or near same time + (package OR price interdependence OR single performance obligation); Any one of the three criteria is enough.
Cash received, no contract (para 15): Revenue only if no remaining obligations and consideration non-refundable, or contract terminated and non-refundable; Otherwise recognise a liability.

How to solve Identifying the Contract and Combining Contracts questions

Use this order for any question on identifying, combining or modifying contracts.

1Check whether there are several contracts with the same customer at or near the same time. Apply the para 17 tests. If any is met, combine them and treat as one contract.
2Test the contract against all five para 9 criteria. Note any failure, especially collectability.
3If a criterion fails, do not recognise revenue under the model. Treat cash received as a liability unless a para 15 event has occurred.
4If a modification exists, confirm it is approved (para 18). If only scope is approved and price is pending, estimate the price change as variable consideration (para 19).
5Ask if the added goods or services are distinct. Then ask if the price increase reflects stand-alone selling prices. If both are yes, it is a separate contract (para 20).
6If not a separate contract, ask if the remaining goods are distinct from those already transferred. Yes: prospective, as a new contract (para 21(a)). No: cumulative catch-up (para 21(b)). Mixed: apply para 21(c).
7Compute revenue for the period and state the journal or amount clearly, with the paragraph basis.

Quickest way: Two-gate modification test

When to use it: Use in the MCQ section or when a modification question gives limited time.

Gate 1: distinct additional goods AND price at stand-alone selling price? If yes, separate contract. Stop.
Gate 2: are the remaining goods distinct from those already delivered? Yes means prospective: spread remaining old consideration plus new consideration over the remaining items.
If no, it is a catch-up: recompute total price and progress, and adjust revenue today.
For cash received from a doubtful customer, default to a liability unless a para 15 event is stated.

Common mistakes in Identifying the Contract and Combining Contracts

Treating any modification adding distinct goods as a separate contract.
Students check only the first condition of para 20.
Fix: Also check that the price rise reflects stand-alone selling prices. A discounted add-on beyond appropriate adjustments fails.
Recognising cash received as revenue when the para 9 criteria fail.
Students link revenue with receipt of cash.
Fix: Recognise a liability until a para 15 event occurs, or until the criteria are later met (para 14).
Reassessing collectability every year for a contract that met the criteria at inception.
Confusion with ongoing impairment checks.
Fix: Reassess only if there is an indication of a significant change in facts, as in para 13.
Combining contracts with different customers or far apart in time.
Students focus on the commercial link only.
Fix: Para 17 needs the same customer (or related parties) and contracts entered at or near the same time.
Using cumulative catch-up when remaining goods are distinct.
Students apply one method to all modifications.
Fix: Distinct remaining goods lead to prospective treatment under para 21(a). Catch-up applies only to a single partly satisfied obligation.
Ignoring a modification that is approved in scope but not in price.
Students wait for a final price.
Fix: Under para 19 the modification may exist. Estimate the price change using the variable consideration rules.

Worked examples

Example 1

Nilgiri Tools Ltd sells 100 machines to Bharat Motors at ₹10,000 each (total ₹10,00,000). After 60 machines are delivered, the contract is modified to add 20 more machines at ₹9,000 each. The stand-alone selling price of a machine at that date is ₹9,000. Account for the modification and compute total revenue.

Show the solution

The 20 additional machines are distinct goods, so scope increases by distinct items. Para 20(a) is met.
The price rises by 20 × ₹9,000 = ₹1,80,000, which equals their stand-alone selling price. Para 20(b) is met.
So the modification is a separate contract.
The original contract continues: 100 × ₹10,000 = ₹10,00,000. The new contract: 20 × ₹9,000 = ₹1,80,000.
Total revenue = ₹10,00,000 + ₹1,80,000 = ₹11,80,000.

Answer: Account for the modification as a separate contract. Total revenue is ₹11,80,000: ₹10,00,000 under the original contract and ₹1,80,000 under the new one.

Example 2

Kaveri Supplies Ltd contracts to deliver 100 units at ₹500 each (₹50,000). After 40 units are delivered, the contract is modified to add 20 units, and the price of all remaining units is changed to ₹400 each. The units are distinct, and ₹400 is not the stand-alone selling price of the added units. Compute revenue on the remaining units.

Show the solution

The price reduction means para 20(b) is not met, so it is not a separate contract.
The remaining units are distinct from those already delivered, so para 21(a) applies: treat as termination of the old contract and creation of a new one.
Revenue already recognised on 40 units = 40 × ₹500 = ₹20,000.
Unrecognised consideration under the old contract = 60 × ₹500 = ₹30,000.
Consideration promised for the modification is 20 × ₹400 = ₹8,000. Remaining units total 80.
Total consideration for remaining units = ₹30,000 + ₹8,000 = ₹38,000.
Revenue per remaining unit = ₹38,000 ÷ 80 = ₹475.

Answer: Treat it as a new contract prospectively. Revenue on each remaining unit is ₹475, a total of ₹38,000 for 80 units.

Exam tips

Write the paragraph number next to each conclusion. It shows the examiner your basis.
In case scenarios, look for words such as same customer, negotiated together, or discount linked to another contract. They signal combination under para 17.
For modifications, state both tests of para 20 explicitly before moving to para 21.
In prospective questions, show the blended price per remaining unit clearly. Marks follow the working.
In MCQs, watch for traps such as cash received despite failing collectability. The answer is usually a liability.

Practice questions from Revenue from Contracts with Customers (Ind AS 115)

Identifying the Contract and Combining Contracts in other exams

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

Identifying the Contract and Combining Contracts: frequently asked questions

What are the criteria to identify a contract under Ind AS 115?

Paragraph 9 gives five: approval and commitment of the parties, identifiable rights, identifiable payment terms, commercial substance, and probable collection. All must be met before you apply the model to the contract.

When must contracts be combined under Ind AS 115?

When two or more contracts are entered at or near the same time with the same customer or its related parties, and any one of three conditions holds. They are a package with a single commercial objective, price interdependence, or a single performance obligation.

When is a contract modification a separate contract?

When the scope increases because of distinct additional goods or services, and the price increases by an amount reflecting their stand-alone selling prices, with appropriate adjustments. Both conditions must be met.

What if the parties agree a scope change but not the price?

A modification may still exist. You estimate the change in the transaction price using the variable consideration and constraint rules, as para 19 requires.