ICAI clarifies on Ind AS 115 regarding real estate sector
Coming out with a clarification on Ind AS (Indian Accounting Standard) 115 in the context of real estate sector, chartered accountants' apex body ICAI today said recognition of revenue as construction progresses is possible considering the circumstances of individual case.
The Ind AS 115 pertaining to revenue recognition came into effect from April 1.
"... the ICAI would like to clarify that the Ind AS 115 does allow recognition of revenue using Percentage of Completion Method (POCM) and has explicit and specific requirements to recognise revenue, where performance obligation is satisfied over a period of time," the institute said in a release.
The ICAI said an entity transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognises revenue over time, in case the customer simultaneously receives and consumes the benefits provided by the entity's performance.
The performance obligation is satisfied and revenue is recognised also when the entity's performance creates or enhances an asset, including when work is in progress, that the customer controls as the asset is created or enhanced.
Also, if the entity's performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date, performance obligation is satisfied.
According to a notification issued by the Corporate Affairs Ministry, the objective of Ind AS 115 is to establish the principles that an entity should apply to report useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer.
"... recognition of revenue as the construction progresses is possible considering the prevalent long established legal system/ jurisprudence in India, and facts and circumstances of individual case/ contract," the Institute of Chartered Accountants of India (ICAI) said.
The clarification from ICAI has come after it came to the institute's attention that there have been misleading and confusing media reports that Ind AS 115, Revenue from Contracts with Customers, permits only Completed Contract Method of accounting for real estate companies.
(This article has not been edited by Zeebiz editorial team and is auto-generated from an agency feed.)
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