Comparison Chart of ICDS-IV, AS-9 & IndAS-115 - Income Tax - Ready Reckoner - Income Tax

Topic ICDS Indian GAAP Ind AS Revenue from Contracts with ICDS IV : Revenue Recognition AS 9 Revenue Recognition Ind AS 115 Revenue from Contracts with Customers Scope This ICDS deals with computation of income chargeable under head PGBP or Income from other sources and not for the purpose of maintenance of books of account AS-9 , Deals with revenue from sale of goods, rendering of services, interest , royalties and dividen Ind AS 115 requires evaluation of performance obligations to account for distinct goods or services (or a bundle of distinct goods or services, or a series of distinct goods or services i.e. a separate unit of account) based on the following criteria: a) The customer can benefit from the goods or services either on its own or together with other resources that are readily available to the customer, b) Promise to transfer the good or services to the customer is separately identifiable from other promises in the contract (that is, the goods or services is distinct within the context of the contract). A good or service that does not meet these criteria would be combined with other goods or services in the contract until the criteria are met Recognition of Revenue from Contracts with Customers Under ICDS III, contract revenue shall comprise of variations in contract work, claims and incentive payments to the extent that it is probable that they will result in revenue and their capable of being reliably measured. Further, retention money is included as part of contract revenue. However, as per practice for computing Income- tax payable, in certain cases, retention is considered as part of revenue while in others, it is deferred till receipt. In case, wgere services are provided by an indeterminate number of acts over a specific period of time, revenue shall be recognised on straight line basis over the specific period. Revenue from service contracts of not more than 90 days duration shal be recognised as per completed service contract method whether or not the method relates revenue to the work performed. Revenue is recognised when significant risk and rewards of ownership is transferred to the customer/ Variable considerations (including potentially contingent considerations) are only included in the transaction price to the extent that it is probable that the amount of cumulative revenue recognised would not be subject to a significant future revenue reversal when such estimates are revised. Variable considerations are estimated using either 1) an expected value which is a sum of probability-weighted amounts in a range of possible consideration amounts. An expected value may be appropriate if there are a large number of contracts with similar characteristics, or 2) most likely amount in a range of possible consideration amounts. Most likely amount is appropriate when contract has only two possible outcomes (for example, an entity either achieves a performance bonus or does not). Time value of money Similar to Indian GAAP Revenue is not adjusted for the time value. Transaction price is adjusted for the time value of money when a significant financing component exists. Allocating the transaction price Not covered by ICDS. No guidance included. The transaction price is allocated to each performance obligation identified in the contract on the basis of a relative stand- alone selling price determined at contract inception. The stand-alone selling price is the price at which an entity would sell a promised good or service separately to a customer (the best evidence being the observable price at which the good or service is separately sold in similar circumstances and to similar customers. If not directly observable, estimation methods are used e.g. cost plus margin method, residual approach, competitor pricing Satisfaction of performance obligation ICDS IV is similar to Indian GAAP however completed service method to recognise revenue is not permitted under ICDS IV for revenue from service transactions. Under ICDS III, during early stages, where outcome of the contract cannot be reliably estimated, revenue is recognised to the extent of costs incurred. This is possible only when up to 25% of the work is completed otherwise proportionate method will apply. Thus, profit recognition has to start compulsorily once 25% stage is completed. Under AS 9, revenue from sale of goods is recognised when seller has transferred the property in goods to the buyer for a consideration which in most cases coincides with transfer of significant risks and rewards of ownership. Revenue from service transactions is usually recognised as the services are performed either by the proportionate completion method or by the completed service contract method. Revenue is recognised as control of the goods or services underlying the performance obligation is transferred to the customer. The control-based model differs from the risk-and-rewards model. Entities need to determine whether control is transferred over time. If not, it is transferred at a point in time. For each performance obligation satisfied over time, revenue is recognised by measuring the progress towards complete satisfaction (by using either output or input methods) and only if it can reasonably measure its progress towards completion; else, revenue should be recognised only to the extent of contract costs incurred of which recovery is probable. Dividends Dividends are recognised in accordance with the provisions of the Act. Dividends are recognised when the owner s right to receive the payment is established. When dividends on equity shares are declared from pre-acquisition profits, the same is deducted from cost. If it is difficult to make an allocation of source of dividend between pre-acquisition profits and post-acquisition profits except on an arbitrary basis, the cost of the equity shares is normally reduced by dividends receivable only if they clearly represent a recovery of a part of the cost. Dividends are recognised in profit or loss only when: (a) the entity s right to receive payment of the dividend is established; (b) it is probable that the economic benefits associated with the dividend will flow to the entity; and (c) the amount of the dividend can be measured reliably. Interest, discount and premium on debt securities Interest shall accrue on time basis. Interest on refund of tax, duty or cess to be recognised as income in the year of receipt. Discount or premium on debt securities held should be accrued over the period to maturity. Thus, interest and discount or premium on debt securities will be taxed annually in the hands of the holder before maturity Interest accrues, in most circumstances, on the time basis determined by the amountoutstanding and the rate applicable. Usually, discount or premium on debt securities held is treated as though it were accruing over the period to maturity. Interest shall be calculated by using the effective interest rate method.