Corporate Accounting and Financial Management · Accounting Standards

AS 9 Revenue Recognition and AS 12 Government Grants for CS Executive

Updated 11 October 2026 · Fact-checked

AS 9 says revenue from sale of goods is recognised when risks and rewards of ownership pass to the buyer, and revenue from services as they are performed. Interest accrues by time, royalty by the agreement, dividend when the right to receive is established. AS 12 recognises a grant only when conditions are met and receipt is reasonably assured.

Understand AS 9 Revenue Recognition and AS 12 Government Grants

Revenue is the gross inflow from a company's ordinary activities, such as selling goods, rendering services, or letting others use its resources for interest, royalty and dividend. The main question is timing: in which year do you book it? Cash received is not the test. Under accrual accounting, you book revenue when it is earned, not when the money arrives.

AS 9 applies to companies not following Ind AS. It appears in the notified list of Accounting Standards applicable in their entirety to such companies. The Conceptual Framework belongs to Ind AS, not to AS 9, but it helps you see the idea. It notes that a sale of goods for cash gives both income and an expense, because one asset (the cash) is recognised and another asset (the goods) is derecognised. This simultaneous recognition of income and expense can result from recognising changes in assets and liabilities. Matching of costs with income is not itself an objective of the Conceptual Framework.

For sale of goods, revenue is recognised when the seller has transferred the significant risks and rewards of ownership to the buyer, and no significant uncertainty remains about collecting the price. For services, revenue is recognised as the service is performed, usually by the proportionate completion method or the completed service contract method. Interest is recognised on a time basis, royalty on an accrual basis as per the agreement, and dividend when the shareholder's right to receive payment is established.

Government grants are assistance by government in cash or kind to an entity in return for past or future compliance with certain conditions. AS 12 covers monetary grants and also non-monetary grants, such as land given free or at a concessional rate. AS 12 gives two tests before you recognise a grant: the entity must comply with the attached conditions, and there must be reasonable assurance that the grant will be received. Receipt alone does not prove that the conditions are met.

Once recognised, a grant is taken to the profit and loss account over the periods in which the related costs are incurred. The grant is matched with the cost it compensates. A grant related to a depreciable asset is shown either as a deduction from the asset's cost or as deferred income credited to profit and loss over the asset's life. If the grant equals the whole cost of the asset, the asset is shown at a nominal value. Grants in the nature of promoters' contribution go to capital reserve. Treat these three groups as the main ones, not a complete list. A non-monetary grant may be shown at its fair value or at a nominal value, and a grant that later has to be refunded needs separate treatment. Always follow the method the question directs.

Key rules to remember

Sale of goods: recognition test: Revenue is recognised when risks and rewards of ownership pass to the buyer and collection of the price is not significantly uncertain; Delivery of possession usually marks the transfer, but a sale with the seller retaining significant risks is not yet a sale.
Rendering of services: Revenue = contract price × proportion of service performed; Used under the proportionate completion method. Under the completed service contract method, revenue waits until performance is complete.
Interest: Interest income = Principal × Rate × Time; Accrue on a time basis, even if not yet received. Time is the period in the accounting year.
Royalty and dividend: Royalty: accrual as per agreement. Dividend: when the right to receive is established; Declared dividend on shares held is income when the shareholder's right is established, not when cash arrives.
Grant recognition (AS 12): Recognise only if conditions will be complied with AND receipt is reasonably assured; Both conditions must hold. Then match the grant to the costs it compensates. This covers non-monetary grants too.
Grant related to depreciable asset: Net asset cost = Cost − Grant, or Deferred income released over asset life; When the grant is released in proportion to depreciation over the same life, as in the worked example, both methods give the same net profit effect. Pick the one the question asks for.
Grant equal to the whole cost of the asset: Asset is shown at a nominal value; The cost-deduction method would reduce the asset to nil, so the asset is carried at a nominal value instead.

How to solve AS 9 Revenue Recognition and AS 12 Government Grants questions

Use the same method for any AS 9 or AS 12 question. It keeps you from mixing up timing with cash receipt.

1Identify the nature of the item: sale of goods, services, interest, royalty, dividend, or a government grant.
2For goods, check whether risks and rewards have passed. Look for clues such as delivery, acceptance, or goods sent on approval.
3For services, find the proportion performed by the year end and apply it to the contract price.
4For interest, royalty and dividend, accrue by time, agreement or established right, and ignore the date of cash receipt.
5For a grant, test both conditions: compliance with conditions and reasonable assurance of receipt. If either fails, do not recognise it.
6Classify the grant: revenue grant, grant for a depreciable asset, promoters' contribution, or a non-monetary grant, and pick the matching treatment. If a grant equals the whole cost of the asset, show the asset at a nominal value. Treat this list as the main cases, not a complete one.
7Pass the journal entries or give the amounts for the year, and state the conclusion in one clear line.

Quickest way: Timing and matching check

When to use it: Use this when the question is short and asks only how much to recognise in the current year.

Write the event and ask: has the earning event happened this year?
Goods: has ownership risk passed? Services: what fraction is done? Interest: how many months?
Grants: are conditions met and receipt assured? If not, recognise nil.
For asset grants, divide by useful life to get the yearly credit, or reduce depreciation base if the cost-deduction method is asked.
State the amount and the reason in one line.

Common mistakes in AS 9 Revenue Recognition and AS 12 Government Grants

Recognising revenue when cash is received instead of when it is earned.
Students think in terms of cash book entries.
Fix: Ask whether the earning event has occurred. Cash timing only affects the receivable or advance, not revenue.
Treating goods sent on approval as sold at dispatch.
Dispatch looks like delivery.
Fix: Recognise the sale only when the buyer accepts or the approval period lapses, because the risks have not yet passed.
Recognising a government grant as soon as it is sanctioned.
Sanction feels like a certain receipt.
Fix: Check both tests: conditions complied with and reasonable assurance of receipt. Sanction alone is not enough.
Crediting the entire grant for a depreciable asset to profit and loss in the year of receipt.
Students treat every grant as ordinary income.
Fix: Spread it over the asset's life as deferred income, or deduct it from the asset's cost, as the question directs.
Booking dividend on the date cash arrives, or booking interest only when paid.
Mixing up the cash receipt date with the date the right arises.
Fix: Accrue interest by time. Book dividend when the right to receive is established, for example on declaration.

Worked examples

Example 1

Prime Textiles Ltd sold goods for ₹6,00,000 on 1 March. Risks and rewards passed on delivery on 28 March. Separately, it began a service contract worth ₹9,00,000 and by 31 March had performed 40% of the work. Compute revenue recognised for the year ended 31 March under AS 9.

Show the solution

Goods: risks and rewards passed on 28 March, within the year, so the sale is recognised in full: ₹6,00,000.
Services: proportionate completion applies. Revenue = ₹9,00,000 × 40% = ₹3,60,000.
Total revenue = ₹6,00,000 + ₹3,60,000 = ₹9,60,000.

Answer: Revenue recognised is ₹9,60,000 (goods ₹6,00,000 and services ₹3,60,000).

Example 2

Bharat Engineering Ltd, a non-Ind AS company, received on 1 October a government grant of ₹10,00,000 for buying machinery costing ₹50,00,000. The machine was put to use on 1 October and has a useful life of 10 years. It is depreciated on a straight-line basis with nil residual value from that date, so depreciation is charged for six months in the year ended 31 March. The conditions are met and receipt is reasonably assured. Show the treatment for that year under the deferred income method.

Show the solution

Both recognition tests are met, so the grant is recognised.
Depreciation for six months = ₹50,00,000 ÷ 10 × 6/12 = ₹2,50,000, charged on full cost under this method.
Grant release for six months = ₹10,00,000 ÷ 10 × 6/12 = ₹50,000, credited to profit and loss.
Deferred income balance at year end = ₹10,00,000 − ₹50,000 = ₹9,50,000, shown in the balance sheet.
Net effect on profit = ₹2,50,000 depreciation less ₹50,000 grant income = ₹2,00,000 charge.

Answer: Depreciation of ₹2,50,000 is charged, ₹50,000 of grant is credited to profit and loss, and deferred income of ₹9,50,000 is carried forward. Under the alternative cost-deduction method, the asset would be shown at ₹40,00,000 and depreciation for the six months would be ₹40,00,000 ÷ 10 × 6/12 = ₹2,00,000. The net charge is the same here because the grant is released in proportion to depreciation over the same 10-year life.

Exam tips

Answer in ICSI style: state the standard's rule, apply it to the facts, then give a clear conclusion.
In theory questions on AS 9, name the recognition test for each type of revenue separately, and use a short list.
Always state the two tests for recognising a government grant, even in a numerical question.
In grant numericals, show both the deferred income method and the cost-deduction method if the question does not choose. Note that they give the same net profit effect when the grant is released in proportion to depreciation over the same life.
If a grant equals the whole cost of the asset, show the asset at a nominal value instead of deducting the grant to nil.
Check whether a company follows Ind AS or not. AS 9 and AS 12 apply to companies not following Ind AS, as the notified list shows.

Practice questions from Accounting Standards

AS 9 Revenue Recognition and AS 12 Government Grants 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 Revenue Recognition and AS 12 Government Grants: frequently asked questions

When is revenue from sale of goods recognised under AS 9?

It is recognised when the seller has transferred the significant risks and rewards of ownership to the buyer and there is no significant uncertainty about collecting the price. Delivery is usually the sign, but check the terms of sale.

What are the two conditions for recognising a government grant under AS 12?

The entity must comply with the conditions attached to the grant, and there must be reasonable assurance that the grant will be received. If either test fails, you do not recognise the grant.

How is a grant for a depreciable asset shown?

Either deduct it from the asset's cost, or show it as deferred income and credit it to profit and loss over the asset's life. When the grant is released in proportion to depreciation over the same life, both methods give the same net profit effect. If the grant equals the whole cost of the asset, the asset is shown at a nominal value.

When do you recognise dividend and interest income?

Interest accrues with time on the amount outstanding. Dividend is recognised when the shareholder's right to receive it is established, usually on declaration, not when cash arrives.