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

Ind AS 115 Scope and Five-Step Model Overview

Updated 11 October 2026 · Fact-checked

Ind AS 115 sets out how an entity recognises revenue from contracts with customers. It applies to all such contracts except leases, insurance contracts, financial instruments and certain non-monetary exchanges. You apply a five-step model: identify the contract, identify performance obligations, determine the price, allocate the price, and recognise revenue as each obligation is satisfied.

Understand Ind AS 115 Scope and Five-Step Model Overview

Ind AS 115 answers one question: how much revenue should an entity recognise, and when? Instead of asking when goods are sold or cash is received, it asks when the entity transfers control of a promised good or service to the customer. Revenue follows that transfer.

The scope is wide. An entity applies the Standard to all contracts with customers, except four groups (para 5): (a) lease contracts within Ind AS 116; (b) contracts within Ind AS 117, Insurance Contracts (an entity may choose to apply Ind AS 115 to insurance contracts whose primary purpose is services for a fixed fee, as per para 8 of Ind AS 117); (c) financial instruments and other contractual rights or obligations within Ind AS 109, 110, 111, 27 and 28; and (d) non-monetary exchanges between entities in the same line of business to facilitate sales to customers or potential customers. The standard example is two oil companies swapping oil to meet their customers' demand in different locations on a timely basis.

Two key terms drive the model. A contract is an agreement that creates enforceable rights and obligations. A performance obligation is a promise in a contract with a customer to transfer either (a) a good or service (or a bundle) that is distinct, or (b) a series of distinct goods or services that are substantially the same and have the same pattern of transfer. Activities needed only to set up or fulfil a contract, such as administrative set-up tasks, are not performance obligations unless they transfer a good or service to the customer (para 25).

The five-step model is the working framework:

Step 1: Identify the contract with the customer. Two or more contracts entered into at or near the same time with the same customer (or its related parties) are combined and treated as one 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 form a single performance obligation (para 17).
Step 2: Identify the performance obligations.
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. For obligations satisfied over time, the entity measures progress so as to depict its performance in transferring control (para 39).

In disclosure, the entity shows revenue from contracts with customers separately from its other sources of revenue, and shows impairment losses on receivables or contract assets from such contracts separately from other impairment losses (para 113). Revenue is also disaggregated into categories that show how nature, amount, timing and uncertainty are affected by economic factors (para 114, B87).

A note on Ind AS wording: Ind AS 115 uses 'balance sheet' and 'statement of profit and loss' rather than the IFRS terms. Also, para 51 of Ind AS 115 omits 'penalties' from the examples of variable consideration, and para 51AA deals with the treatment of penalties.

Key rules to remember

Five-step model: Contract → Performance obligations → Transaction price → Allocation → Recognition; Learn the order. Every Ind AS 115 problem follows this sequence.
Scope exclusions (para 5): Leases (Ind AS 116); insurance contracts (Ind AS 117); financial instruments etc. (Ind AS 109, 110, 111, 27, 28); non-monetary exchanges between entities in the same line of business to facilitate sales to customers; Everything else with a customer is in scope.
Performance obligation: Promise to transfer (a) a distinct good or service (or bundle), or (b) a series of distinct goods or services that are substantially the same with the same pattern of transfer; Set-up activities that transfer nothing to the customer are not performance obligations.
Combining contracts (para 17): Same customer (or related parties) + at or near the same time + any one of: package with single commercial objective; price depends on the other contract; goods or services form a single performance obligation; Only one criterion needs to be met.
Progress measurement (para 39): For obligations satisfied over time, measure progress to depict performance in transferring control; Used in Step 5 for over-time revenue.

How to solve Ind AS 115 Scope and Five-Step Model Overview questions

Use the five steps as a checklist for any scenario question, and write a short conclusion for each step.

1Check scope first: is the contract a lease, insurance contract, financial instrument or a same-line-of-business non-monetary exchange? If yes, Ind AS 115 does not apply.
2Confirm there is a contract with a customer. Check whether contracts with the same customer at or near the same time must be combined under para 17.
3List the promises and decide which are distinct. Exclude set-up activities that transfer nothing to the customer.
4State the transaction price, adjusting for any variable consideration as the facts require.
5Allocate the price across the performance obligations, and say how you did it.
6Decide for each obligation whether it is satisfied over time or at a point in time, and recognise revenue accordingly.
7Add the disclosure or presentation point if the question asks for it, then give a clear conclusion.

Quickest way: Scope screen then five-line answer

When to use it: Use for 2-mark MCQs and short theory questions where you must decide quickly whether and how Ind AS 115 applies.

Scan the facts for a lease, insurance, financial instrument or same-industry swap. Any of these signals exclusion.
Ask: is there a promise to a customer that is distinct? That is a performance obligation.
Ask: are two contracts with the same customer linked by package, price dependence or a single obligation? If yes, combine.
Ask: is control transferred now or over time? Pick point in time or over time.
For MCQs, eliminate options that mention cash receipt or invoicing as the trigger. Control transfer is the trigger.

Common mistakes in Ind AS 115 Scope and Five-Step Model Overview

Applying Ind AS 115 to lease contracts or financial instruments.
Both involve payments from a counterparty, so they look like sales.
Fix: Remember the para 5 exclusions: leases go to Ind AS 116 and financial instruments to Ind AS 109 and related Standards.
Treating contract set-up work as a separate performance obligation.
Students assume every task in a contract earns revenue.
Fix: Para 25 says set-up activities are not performance obligations unless they transfer a good or service to the customer.
Requiring all combination criteria of para 17 to be met.
The list of three criteria looks like a checklist of conditions.
Fix: Only one or more criteria need be met, along with same customer and at or near the same time.
Recognising revenue when cash is received or the invoice is raised.
Habit from cash-based or billing-based thinking.
Fix: Recognise revenue when or as the performance obligation is satisfied, that is, when control transfers.
Applying the oil-swap exclusion to every non-monetary exchange.
Students remember 'non-monetary exchange' but not the condition.
Fix: The exclusion covers only exchanges between entities in the same line of business to facilitate sales to customers or potential customers.
Using IFRS terms like 'statement of comprehensive income' in answers.
Study material is often based on IFRS 15.
Fix: Use Ind AS terms: 'balance sheet' and 'statement of profit and loss'.

Worked examples

Example 1

Kaveri Fuels Ltd and Narmada Petro Ltd agree to exchange 10,000 litres of diesel each, so that each can supply its own customers in different cities on time. Kaveri Fuels also sells diesel to Sahyadri Transport Pvt Ltd under a separate contract. Decide whether Ind AS 115 applies to each arrangement.

Show the solution

Step 1: Examine the exchange with Narmada Petro. It is a non-monetary exchange between entities in the same line of business (oil).
Step 2: Its purpose is to facilitate sales to customers in different locations on a timely basis. This matches the para 5(d) exclusion.
Step 3: So Ind AS 115 does not apply to the swap.
Step 4: The sale to Sahyadri Transport is a contract with a customer and is not within any para 5 exclusion.
Step 5: So Ind AS 115 applies to that sale.

Answer: Ind AS 115 does not apply to the diesel exchange with Narmada Petro Ltd (para 5(d)). It applies to the sale to Sahyadri Transport Pvt Ltd.

Example 2

Deccan Software Ltd signs two contracts on the same day with Ganga Retail Ltd: a contract to license software, and a separate contract for customisation of that software. The customisation price is set at ₹1 only if the licence contract is signed. In its set-up phase, Deccan also spends time on internal administrative tasks to open the customer account. How should Deccan apply Step 1 and Step 2 of Ind AS 115?

Show the solution

Step 1: Both contracts are with the same customer and entered into at the same time.
Step 2: The customisation price depends on the licence contract being signed, so the amount of consideration in one contract depends on the other. This meets para 17(b).
Step 3: Only one criterion is needed, so Deccan combines the two contracts and accounts for them as a single contract.
Step 4: The internal administrative tasks to open the customer account are set-up activities. They do not transfer a service to Ganga Retail.
Step 5: Under para 25 these tasks are not a performance obligation.
Step 6: Deccan then assesses the licence and customisation promises to decide which are distinct performance obligations, and moves to Steps 3 to 5.

Answer: Deccan combines the two contracts under para 17(b) and treats them as one contract. The administrative account-opening tasks are not a performance obligation (para 25). The distinct promises in the combined contract are then identified as performance obligations.

Exam tips

In MCQs, the scope exclusions and the para 17 combination criteria are favourite test points. Learn the exact lists.
In case-based answers, name each step of the model in your working. Examiners award marks per step.
Use Ind AS terminology: 'balance sheet' and 'statement of profit and loss'.
Do not quote a paragraph number unless you are sure. The ones in this page are safe: 5, 17, 25, 39, 113.
Always end a scenario answer with a clear conclusion on whether, what and when revenue is recognised.

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

Ind AS 115 Scope and Five-Step Model Overview in other exams

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

Ind AS 115 Scope and Five-Step Model Overview: frequently asked questions

What is the objective of Ind AS 115?

It sets out how an entity accounts for revenue arising from contracts with customers. Revenue is recognised as control of promised goods or services passes to the customer. It also requires disclosures about such revenue.

Which contracts are outside the scope of Ind AS 115?

Lease contracts under Ind AS 116, insurance contracts under Ind AS 117, financial instruments and related rights or obligations under Ind AS 109, 110, 111, 27 and 28, and non-monetary exchanges between entities in the same line of business to facilitate sales to customers. An entity may choose to apply Ind AS 115 to certain fixed-fee service insurance contracts.

What is a performance obligation?

It is a promise in a contract with a customer to transfer a distinct good or service (or bundle), or a series of distinct goods or services that are substantially the same with the same pattern of transfer. Set-up activities that transfer nothing to the customer are not performance obligations.

What are the five steps of Ind AS 115?

Identify the contract with the customer, identify the performance obligations, determine the transaction price, allocate the price to the performance obligations, and recognise revenue when or as each obligation is satisfied. Follow this order in every problem.