Ind AS 115 & IFRS 15: 5-Step Revenue Recognition

Ind AS 115 (“Revenue from Contracts with Customers”) sets a single, principles-based framework for recognising revenue in India and is aligned with IFRS 15. It replaces older guidance and applies broadly to contracts with customers across industries. The core idea is straightforward: recognise revenue when (or as) control of promised goods or services passes to the customer, and in the amount you expect to be entitled to (Paras 31, 35–38).

This guide covers the Ind AS 115 / IFRS 15 five-step model—scope, contracts & performance obligations, transaction price, allocation, and revenue timing—plus key measurement topics (variable consideration, financing, non-cash, consideration payable, changes). It also covers contract costs, presentation and disclosure (incl. Paras 109AA & 126AA), and a short Ind AS-vs-IFRS note, with India-focused examples

Objective

The primary objective is to report useful information about the nature, amount, timing and uncertainty of revenue and cash flows that arise from contracts with customers. (Reference: Ind AS 115, Para 1)

To meet the objective, entities apply the Standard’s principles on scope, recognition, measurement, presentation and disclosure to each contract (portfolio expedient permitted). (Reference: Ind AS 115, Para 2)

Example: When a large IT services company reports quarterly results, Ind AS 115 helps investors understand how much revenue came from different service lines (e.g., application development vs maintenance), when it was earned (over time vs at a point in time), and what may affect future earnings (renewals, performance bonuses or penalties).

Scope

Ind AS 115 applies to all contracts with customers. (Reference: Ind AS 115, Paras 5–8)

It does not apply to leases, insurance, most financial instruments, or non‑monetary exchanges between entities in the same line of business. A collaborator who shares the risks and benefits of developing an asset is not a “customer” for this Standard.

Example: A pharma co‑development with shared IP risk is out of scope. A sale of finished tablets to a distributor is in scope.

Recognition

Recognition under Ind AS 115 follows a comprehensive five-step model that must be applied to all contracts with customers. As per IND AS 115, an entity should apply the following 5 step model to achieve the objective of this standard.

Step 1 — Identify the contract: Apply the five gates — approval, rights, payment terms, commercial substance, and probable collection. (Paras 9; 13–16)

Step 2 — Identify performance obligations: List promises and separate distinct goods/services (or a series). Distinct = capable of being distinct and separately identifiable. (Paras 22–30)

Step 3 — Determine the transaction price: Start with stated consideration; adjust for variable amounts, significant financing, non‑cash consideration, and consideration payable; include variable amounts only if highly probable not to reverse. (Paras 47–58)

Step 4 — Allocate the price to POs: Allocate using stand‑alone selling prices (estimate if not observable). Allocate discounts to all POs unless specific‑PO criteria are met. (Paras 73–86)

Step 5 — Recognise revenue: Over time if criteria in Para 35 are met; otherwise at a point in time using control indicators in Para 38. (Paras 31; 35–38)

In short, Entity should recognise revenue when (or as) control of promised goods or services transfers to the customer, in an amount that reflects the consideration expected. (Reference: Ind AS 115, Paras 31 and 35–38)

Women studying the IFRS 15 and IND AS 115 in her computer screen.

Identifying the Contract

A contract exists when all of the following conditions are met: (i) approval and commitment; (ii) each party’s rights can be identified; (iii) payment terms can be identified; (iv) commercial substance; and (v) probable collection. Cash received before these are met is a contract liability; recognise revenue only when no obligations remain and the cash is non‑refundable, or the contract is terminated and the cash is non‑refundable. (Reference: Ind AS 115, Para 9; 13–16)

A contract is an agreement between two or more parties that creates enforceable rights and obligations under law. It may be written, oral, or implied by an entity’s customary business practices.

Example (advance; condition not met): A manufacturer receives ₹20,00,000 upfront for a custom press while specifications and financing are unresolved. Until Para 9 is met, recognise a contract liability — no revenue. (Paras 15–16)

Example (wholly unperformed & cancellable): If both parties can walk away from a wholly unperformed contract without compensation, it is not yet a contract for Ind AS 115; reassess when enforceable rights arise. (Para 13)

Combination of Contracts

Combine contracts entered into at or near the same time with the same customer when they were negotiated as a package, the consideration depends on each other, or the goods/services form a single performance obligation. (Reference: Ind AS 115, Para 17)

Example: Two contracts — custom software and under‑priced maintenance — with the same customer indicate a single commercial objective. Combine and allocate the total consideration based on stand‑alone selling prices.

Contract Modifications

A contract modification is an approved change in scope or price. It is accounted for as: (i) a separate contract when the added goods/services are distinct and priced at their stand‑alone selling prices; (ii) a termination of the existing and creation of a new contract when the remaining goods/services are distinct; or (iii) a continuation of the existing contract when the remaining goods/services are not distinct. (Reference: Ind AS 115, Paras 18–21)

Example: An IT services contract is modified to add a distinct database migration at a market price — account for it as a separate contract.

Identifying Performance Obligations

A performance obligation is a promise to transfer distinct goods or services to a customer. “Distinct” means the customer can benefit from the item on its own or with available resources, and the promise is separately identifiable in the context of the contract. (Reference: Ind AS 115, Paras 22–30)

Example (separate POs): Software licence, standard implementation and AMC are three performance obligations.

Example (single PO): A highly customised machine with specialised installation is one performance obligation due to significant integration — the customer’s benefit arises only from the combined output.

Satisfaction of Performance Obligations

Recognise revenue when (or as) performance obligations are satisfied by transferring control. Recognise over time if the customer receives/consumes benefits as you perform, controls the asset as created, or the asset has no alternative use and you have an enforceable right to payment for work‑to‑date. Otherwise, recognise at a point in time using control indicators (delivery, acceptance, possession, title). (Reference: Ind AS 115, Paras 31 and 35–38)

Example (over time): A bespoke production line built on the customer’s site with an enforceable right to payment — recognise revenue over time using a cost‑to‑complete input method.

Example (point in time): A vehicle sale where title, possession and risks transfer on delivery — recognise revenue at delivery.

Example (consignment): Goods sent to a dealer on consignment — recognise revenue only when the dealer sells to end customers. (Appendix B, Consignment)

Bill‑and‑hold (Appendix B): specified goods are identified and ready; request is substantive; normal payment terms apply.

Point‑in‑time indicators (Para 38): present right to payment; legal title; physical possession; acceptance; transfer of risks/rewards.

Measurement

Measurement involves determining and allocating the transaction price to performance obligations. (Reference: Ind AS 115, Para 46)

Determining the Transaction Price

Transaction price is the amount of consideration expected in exchange for transferring promised goods or services. Consider fixed amounts, variable consideration (discounts, bonuses, penalties, returns), significant financing, non‑cash consideration, and consideration payable to the customer. Include variable amounts only if it is highly probable that a significant reversal will not occur when uncertainty is resolved. (Paras 47–58)

Penalty by substance (Para 51AA): If the pricing is ₹1,00,000 on time or ₹95,000 if late, and late delivery is more likely at inception, start with ₹95,000. If delivered on time, recognise the ₹5,000 uplift then.

Example (returns & refund liability): A retailer sells ₹10,00,000 of goods; expected returns 5%; cost per unit ₹7,500. Recognise revenue on ₹9,50,000 (95%); set a refund liability of ₹50,000 and a right‑to‑recover asset of ₹37,500.

JEs at shipment: • Dr Trade receivable 10,00,000; Cr Revenue 9,50,000; Cr Refund liability 50,000 • Dr Right‑to‑recover asset 37,500; Cr Cost of sales 37,500

Example (consideration payable): A manufacturer pays ₹4,00,000 for in‑store displays without gaining a distinct service — reduce the transaction price and recognise the reduction when related revenue is recognised or when promised/paid, whichever is later.

Example (royalty on licences): Recognise sales/usage‑based royalties only when subsequent sales/usage occur — the “later of” rule. (Appendix B63)

Significant Financing Component

Adjust for time value of money when payment timing provides a financing benefit to either party. Use the expedient not to adjust when the transfer‑to‑cash gap is 1 year or less. Present the interest effect separately from revenue so revenue reflects the cash‑selling price at transfer. (Paras 60–65; expedient 63)

Example (prepayment): Customer prepays ₹12,00,000 for a 24‑month service. Outside the 12‑month expedient, split recognition into service revenue over time and finance income.

Example (18‑month credit sale): Goods delivered today; cash in 18 months. Recognise revenue at present value on delivery and finance income over the credit period.

Allocating the Transaction Price

Allocate the transaction price to performance obligations based on relative stand‑alone selling prices (SSPs). If SSPs are not observable, estimate using adjusted market assessment, expected cost plus margin, or a limited residual approach. (Paras 73–86)

Example (SSP allocation): Contract ₹10,00,000; SSPs — Licence ₹8,00,000; Implementation ₹3,00,000; AMC ₹1,00,000 (total ₹12,00,000). Allocation 8:3:1 → ₹6,66,667 / ₹2,50,000 / ₹83,333.

Changes in the Transaction Price

Allocate changes in the transaction price on the same basis as the original allocation, unless the variable amount relates specifically to a single performance obligation and the allocation reflects the amount expected for that obligation. (Paras 87–90)

Example: A ₹2,00,000 performance bonus for early delivery — allocate proportionally across all obligations unless it relates only to the development obligation, in which case allocate it entirely there.

Principal vs Agent (Appendix B) — gross vs net

Rule: If you control the specified goods/services before transfer, recognise revenue gross (principal). If you arrange for another party to provide them, recognise net (agent).

Indicators: inventory risk, pricing discretion, and primary responsibility for fulfilment.

Contract Costs

Ind AS 115 provides guidance for costs to obtain and costs to fulfil a contract. (Reference: Paras 91–104)

Incremental Costs of Obtaining a Contract

Recognise as an asset if the costs would not have been incurred if the contract had not been obtained and they are expected to be recovered. Expense immediately when the amortisation period would be one year or less. (Paras 91 and 94)

Example: Contract value ₹50 lakhs over 4 years; sales commission ₹1 lakh. Capitalise ₹1 lakh and amortise over 4 years (₹25,000 annually) to match the revenue pattern.

Costs to Fulfil a Contract

Capitalize if the costs relate directly to a contract, generate or enhance resources that will be used to satisfy performance obligations, and are recoverable (unless another Ind AS applies). (Para 95)

Capitalize examples: contract‑specific labour and materials; costs explicitly chargeable to the customer; other costs incurred only because of the contract.

Expense examples: general and administrative costs; wasted materials/labour; costs of obligations already satisfied; costs that cannot be distinguished between completed and remaining work.

Example: In a construction project, capitalise project‑specific steel (₹10 lakhs) and site engineer salary (₹2 lakhs); expense head‑office administration (₹1 lakh). Amortise capitalised costs as milestones are met.

Amortisation and Impairment

Amortise capitalised contract costs on a systematic basis consistent with the transfer of goods or services. Test for impairment when indicators exist. Compare the carrying amount of the asset with the expected consideration for remaining goods/services, less the costs to complete. (Paras 99–104)

Example (impairment check): If remaining expected consideration is ₹3.5 lakhs and remaining costs are ₹3.0 lakhs, the net recoverable amount is ₹0.5 lakhs. If the carrying amount of the contract cost asset is ₹0.75 lakhs, recognise an impairment loss of ₹0.25 lakhs. If the net recoverable amount is above the carrying amount, no impairment is required.

Presentation ( Ind AS 115 , Para 105–109,109AA)

What to show (separately):

Receivables: right to consideration is unconditional (only time must pass).
Contract assets: revenue earned but right is conditional (e.g., acceptance/milestone pending).
Contract liabilities: consideration received or due before you perform (advances/over-billing).

Fast classification:

Note: Amounts collected on behalf of third parties (e.g., GST) are not revenue; present them as liabilities.

Invoice issued but performance still due → Contract liability (you owe service/goods).
Performance complete; only time must pass → Receivable (even if unbilled).
Performance ahead of billing → Contract asset (becomes receivable on sign-off).

Reclassify when:

Contract asset → Receivable once the right becomes unconditional.
Contract liability → Revenue as you perform.
Receivable stays receivable until collected/impairment (ECL under Ind AS 109 also applies to contract assets).

Netting & presentation level:

Net by contract (show a single contract asset or contract liability per contract).
Do not net across contracts unless a legal right of set-off exists.
Show receivables separately from contract assets/liabilities.

Current vs non-current (Ind AS 1):
Classify by expected timing of settlement/transfer (short-cycle = current; long EPC/SaaS may be mixed).

Para 109AA — Excise included in revenue: If excise duty is included in revenue, present the included amount separately on the face of the Statement of Profit and Loss.
Example: Invoice ₹1,18,000 = base ₹1,00,000 + excise ₹18,000 → show Revenue ₹1,18,000 and a separate line “Excise duty included in revenue: ₹18,000.”
(Note: GST-type taxes are generally excluded from revenue and shown as payables.)

Disclosure

Ind AS 115 requires extensive disclosures to help users understand the nature, amount, timing and uncertainty of revenue and cash flows. (Reference: Paras 110–129)

Disaggregate revenue into meaningful categories such as type of good/service, geography, customer type, contract duration, and timing of transfer. (Para 114)

Provide opening and closing balances for contract assets, contract liabilities and receivables, and explain significant movements, including revenue recognised from opening contract liabilities. (Paras 116–118)

Explain the nature of promises, significant payment terms, variable consideration, return/refund/warranty policies, and when revenue will be recognised for unsatisfied performance obligations. (Paras 119–122)

Disclose key judgements and estimates: timing of satisfaction, methods for measuring progress, determining and allocating transaction price, and application of the constraint. (Paras 123–125)

Illustrative Disclosure

Para 126AA reconciliation — Contracted price → Revenue recognised	₹ million
Contracted price (gross list)	2,150
Less: Volume rebates (variable consideration)	(60)
Less: Expected returns (refund liability impact)	(15)
Less: Consideration payable to customers	(5)
Less: Amounts collected for third parties (e.g., taxes)	(70)

Revenue recognised (P&L): 2,000

Key Differences: Ind AS 115 vs IFRS 15 (2025)

Bottom line: recognition and measurement are substantively converged. You apply the same five steps, the constraint on variable consideration, significant financing rules, SSP allocation and over‑time vs point‑in‑time tests.

Additional paragraphs unique to Ind AS 115:

• Para 51AA — Penalties by substance: Day‑one price reflects likely outcome when penalties are embedded in pricing.

• Para 109AA — Excise included in revenue: If included, show the included amount separately on the face of the P&L.

• Para 126AA — Contracted price → revenue bridge: A numerical reconciliation with each adjustment shown separately.

• Appendix B20AA — Unconditional right of return: Explicit pointer to consignment (no revenue on shipment) vs the standard returns model.

Common Challenges and Best Practices

Identifying performance obligations can be judgement‑heavy. Build decision trees and document the rationale.

Estimating variable consideration needs data discipline. Use history plus current forecasts, and update regularly.

Systems and processes must capture contract assets/liabilities and disclosure data. Invest early and test controls.

Train commercial teams so deal terms (penalties, credit periods, returns) are documented clearly — accounting follows economics.

Conclusion

IND AS 115 shifts the focus to control. The five‑step model is structured, but judgmental. When you work the steps, measure the consideration carefully, and maintain strong documentation, your revenue story becomes consistent and defensible. India’s inserts — penalties by substance, the excise line, the contracted‑price bridge, and the consignment pointer — add clarity without changing the economics.

FAQ — Ind AS 115 / IFRS 15

Q1) Does Ind AS 115 apply to my contract?

A: Yes, if the counterparty is a customer for your ordinary goods/services. It excludes leases, insurance, most financial instruments, and non-monetary exchanges in the same line of business. Collaboration deals that share risks/benefits (e.g., co-development) are typically out of scope.

Q2) When do I start accounting for a contract?

A: Only when all five gates are met: approved & committed, rights identified, payment terms identified, commercial substance, and probable collection. If you received cash before that, park it as a contract liability until criteria are met or cash becomes non-refundable.

Q3) Can I apply the standard to a portfolio of similar contracts?

A: Yes—the portfolio expedient is allowed when it wouldn’t materially differ from contract-by-contract accounting. Document the similarity and your materiality assessment.

Q4) How do I identify performance obligations (POs)?

A: List the promises and split into distinct goods/services (or a series). “Distinct” means: (a) the customer can benefit on its own/with available resources; and (b) the promise is separately identifiable in context (no significant integration or interdependence).

Q5) Over time or point in time—what’s the test?

A: Over time if the customer simultaneously receives/consumes benefits, controls the asset as it’s created, or the asset has no alternative use and you have an enforceable right to payment for work-to-date. Otherwise, recognise at a point in time (look to control indicators).

Q6) What are the bill-and-hold conditions?

A: For revenue before delivery, all must hold: (1) reason is substantive (customer requested), (2) goods are identified to the customer, (3) goods are ready for transfer, (4) you cannot redirect them elsewhere. Consider if any custodial service remains.

Q7) Is consignment revenue recognised on shipment?

A: No. If the dealer/distributor hasn’t obtained control (typical consignment), recognise revenue only when the dealer sells to end customers. India also adds B20AA to point you to consignment vs standard returns model.

Q8) How do I account for right-of-return sales?

A: Recognise revenue net of expected returns, set a refund liability for expected refunds, and recognise a right-to-recover asset (usually at the original carrying amount less expected recovery costs). Update estimates each reporting period.

Q9) Variable consideration—what method and what constraint?

A: Estimate using expected value (many similar contracts) or most likely amount (binary outcomes). Include only the portion that is highly probable not to reverse when uncertainty resolves; reassess each period.

Q10) Significant financing—when do I adjust for time value?

A: If payment timing provides financing to you or the customer, adjust the transaction price and present the interest effect separately. Practical expedient: don’t adjust if transfer-to-cash gap is 1 year or less.

Q11) Penalty clauses—how do India’s rules work (Para 51AA)?

A: If a penalty is inherent in pricing (e.g., ₹1,00,000 on-time or ₹95,000 if late and late is likely), start with the lower amount. Recognise any uplift if the better outcome occurs. This is an Ind AS-only insert (51AA).

Q12) Consideration payable to a customer—deduct or treat as a service?

A: Generally reduce the transaction price unless you receive a distinct good/service in exchange (then treat as a purchase). Recognise the reduction when you recognise the related revenue or when you promise/pay—whichever is later. (See transaction price guidance.)

Q13) How do I allocate the transaction price to POs?

A: Use stand-alone selling prices at inception. If unobervable, estimate (market assessment / expected-cost-plus / limited residual). Allocate discounts to all POs unless strict criteria show the discount relates to specific POs only.

Q14) Principal vs Agent—gross or net?

A: Recognise gross if you control the specified goods/services before transfer (often evidenced by inventory risk, pricing discretion, and primary responsibility). Recognise net if you merely arrange for another party to provide them.

Q15) Contract asset vs receivable vs contract liability—what’s the difference?

A: Receivable: unconditional right (only time must pass). Contract asset: you’ve performed but the right is conditional (e.g., customer acceptance). Contract liability: you’ve been paid/billed before you perform (advances/over-billing). Assess impairment of contract assets under Ind AS 109.

Q16) Presentation—do I show excise duty inside revenue?

A: If excise duty is included in revenue, present the included amount separately on the face of the Statement of Profit and Loss (Para 109AA, Ind AS-only). (Amounts collected for third parties like GST are generally not revenue.)

Q17) What is the Para 126AA “contracted price → revenue” reconciliation?

A: An Ind AS-specific disclosure: give a numerical bridge from contracted price to revenue recognised, showing each adjustment separately (e.g., rebates, returns, consideration payable, amounts collected for third parties).

Q18) Warranties—PO or provision?

A: If customers can buy the warranty separately, it’s a distinct service (PO). If not, and it simply assures compliance with specs, use Ind AS 37. If additional services are provided beyond assurance, split and account accordingly.

Q19) Licences—right to use or right to access?

A: If your ongoing activities significantly affect the IP and the customer is exposed to those effects, it’s a right to access (over time). Otherwise, it’s a right to use (point in time). Apply the “later-of” rule for sales/usage-based royalties.

Q20) Do I need to disclose remaining performance obligations (RPO)?

A: Yes—disclose the transaction price allocated to unsatisfied (or partially satisfied) POs and when you expect to recognise it, plus key judgements and methods for measuring progress/variable consideration.

Disclaimer

This article is for general information only and is not accounting, tax, legal, or other professional advice. Outcomes under Ind AS 115 depend on specific facts and contract terms—please consult a qualified adviser before acting. While care has been taken, no warranty is given and no liability accepted for reliance. If there is any inconsistency, the MCA-notified Ind AS 115 text prevails. Examples are simplified.

Sources & References:

ICAI Educational Material on Ind AS 115 (Aug 2018) — summary + extensive FAQs. ICAI Resource
ICAI – Ind AS: An Overview (2019/2020) — documents Ind AS-specific inserts 51AA, 109AA, 126AA, B20AA.
IND AS 115- MCA Publication