Ind AS 115 — Revenue from Contracts with Customers

Ind AS 115 is FR's most-tested standard since it replaced the old AS 9 +

multi-element revenue rules with a single principle-based five-step model.

Every paid attempt under the new scheme has tested it; the question shapes

vary but the framework is fixed.

1. The five-step model

Memorise the sequence — examiners reward students who quote the step number

before they answer:

1. Identify the contract with the customer
2. Identify the performance obligations in the contract
3. Determine the transaction price
4. Allocate the transaction price to each performance obligation
5. Recognise revenue when (or as) each performance obligation is satisfied

The standard converts the entire revenue question into "what did I promise,

what's the price for that promise, and did I deliver it yet?" Almost every

exam scenario reduces to a clean application of these five steps.

2. Step-by-step principles

2.1 Step 1 — Identifying the contract

A contract exists when five criteria are met simultaneously: it's approved

by both parties, each party's rights and payment terms are identifiable,

the contract has commercial substance, and collection is probable.

If any of these fail — most commonly because collection isn't probable for

a stretched-payment customer — revenue is not recognised, and the entity

holds the consideration received as a liability ("contract liability") until

it collects or refunds.

2.2 Step 2 — Performance obligations

A performance obligation is a distinct promise to transfer a good or

service. "Distinct" has a two-part test: the good or service is capable of

being distinct (the customer could benefit from it on its own), AND it's

separately identifiable from the other promises in the contract.

Worked-example archetypes:

• •A software licence + 1 year of maintenance + a training package: usually

three distinct obligations

• •A construction project for a custom factory: typically one obligation

(the inputs are highly interdependent)

• •A sale of equipment with installation: often two if installation is

routine; one if installation is highly bespoke

2.3 Step 3 — Transaction price

The transaction price is the amount the entity expects to be entitled to in

exchange for transferring the promised goods or services. It includes:

• •Fixed consideration
• •Variable consideration (rebates, refunds, performance bonuses) — estimated

by either the expected value method (probability-weighted across many

outcomes) or the most-likely amount method (binary outcomes). The

estimate is constrained so revenue is recognised only to the extent that

it is highly probable a significant reversal will not occur.

• •A significant financing component if the payment timing differs from the

performance timing by more than ~12 months. Discount the consideration

to its present value; the difference is interest.

• •Non-cash consideration measured at fair value
• •Consideration payable to the customer (treated as a reduction of revenue

unless it's payment for a distinct good or service from the customer)

2.4 Step 4 — Allocation

Allocate the transaction price to each performance obligation in proportion

to each obligation's standalone selling price. If a standalone price isn't

observable, estimate it using one of three approaches: adjusted market

assessment, expected cost plus margin, or residual (only when one promise

has a highly variable or uncertain selling price).

2.5 Step 5 — Recognition: over time vs at a point in time

Revenue is recognised over time if any of three criteria is met:

1. The customer simultaneously receives and consumes the benefits as the

entity performs (e.g., cleaning services)

1. The entity's performance creates or enhances an asset the customer

controls as it's created (e.g., construction on the customer's land)

1. The entity's performance does not create an asset with alternative use,

AND the entity has an enforceable right to payment for performance to

date

If none of those three applies, recognise revenue at a point in time —

typically when control of the good transfers to the customer (indicators:

physical possession, legal title, customer acceptance, payment, risks &

rewards).

Over-time measurement methods: output methods (units delivered, milestones

achieved) or input methods (costs incurred, time elapsed). Choose the one

that best depicts performance — and stick with it.

3. Contract assets vs receivables vs liabilities

• •Contract asset: entity has performed but receipt is conditional on

something other than the passage of time

• •Receivable: entity has an unconditional right to payment (only time

has to pass)

• •Contract liability: entity has received payment (or has an

unconditional right to receive) but hasn't yet performed

The distinction matters for impairment and for presentation in the balance

sheet. Examiners frequently test this with a 2-mark sub-part.

4. ICAI exam patterns

Ind AS 115 appeared in 8 of the last 10 FR attempts — almost every

attempt has at least one 6-8 mark question. Expected weight: 10-12 marks.

5. The 60+ marks topper convention

• •Number the steps explicitly — "Step 1: ... Step 2: ... " — examiners

use this as a checklist

• •State the judgement before computing — e.g., "Maintenance is distinct

because the customer could benefit from it independently and it's

separately identifiable from the licence"

• •Show the standalone-price allocation as a 3-column table:

Obligation | Standalone Price | Allocated Price

• •Cite Ind AS 115 paragraph — Para 31 (control transfer), Para 35 (over

time), Para 47 (transaction price), Para 73 (allocation). The paragraph

citation is worth 1-2 marks per answer

• •Box the revenue figure for each period and the total