Revenue is the starting point of profit. If revenue is recognized at the wrong time:
- Profits get overstated or understated
- Financial statements lose reliability
AS 9 ensures that revenue is recognized only when it is earned and measurable, not merely when cash is received.
In simple words:
AS 9 answers one key question — “When should income be recorded?”
Objective of AS 9
To prescribe the basis of recognition of revenue arising from:
- Sale of Goods
- Rendering of Services
- Use of enterprise resources yielding:
- Interest
- Royalties
- Dividends
Meaning of Revenue
Revenue is the gross inflow of cash, receivables, or other consideration arising in the ordinary activities of an enterprise.
It excludes:
- GST / Sales tax collected
- Amounts collected on behalf of third parties
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Revenue from Sale of Goods
When is revenue recognized?
Revenue from sale of goods is recognized when:
- Property in goods is transferred to the buyer
- Significant risks and rewards of ownership are transferred
- No significant uncertainty exists regarding:
- Collection of consideration
- Amount of revenue
Examples
Recognized as Revenue:
- Goods delivered to customer
- Risk passes on delivery as per contract
Not Recognized as Revenue:
- Goods sent on approval
- Consignment sales
- Advance received before delivery
Special Cases – Sale of Goods
- Sale on Approval - Revenue recognized only when approval is received or approval period expires.
- Consignment Sales - Revenue recognized only when consignee sells the goods.
- Installment Sales - Revenue recognized at sale value, not cash received.
Revenue from Rendering of Services
Two Methods Allowed:
Completed Service Contract Method
- Revenue recognized when service is fully completed
- Suitable for short-term services
Proportionate Completion Method
- Revenue recognized based on stage of completion
- Similar to AS 7 logic
Preferred when outcome can be reliably estimated.
Example – Service Revenue
A firm charges ₹1,00,000 for a service contract.
50% service completed by year-end.
Revenue recognized = ₹50,000
Revenue from Interest, Royalty & Dividend
- Source- Recognition Basis
- Interest- Time proportion basis
- Royalty - As per terms of agreement
- Dividend - When right to receive is established
Dividend is recognized when declared, not when received.
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Uncertainty in Revenue Recognition
If there is significant uncertainty regarding:
- Ultimate collection, or
- Measurement of revenue
Revenue recognition should be postponed.
If uncertainty arises after recognition → Create a provision, not reverse revenue.
Items Not Covered under AS 9
AS 9 does not apply to:
- Construction contracts (AS 7)
- Lease agreements (AS 19)
- Government grants (AS 12)
- Insurance contracts
Common Exam Mistakes
- Recognizing revenue on receipt of advance
- Recording GST as income
- Recognizing consignment sales immediately
- Confusing AS 7 and AS 9
- Recognizing dividend on receipt instead of declaration
Exam Tip
If the question asks:
“When should revenue be recognized as per AS 9?”
Write:
- Conditions
- Type of transaction
- Example
This fetches full conceptual marks.
Motivational Note
“Revenue is not about how much you charge, it’s about when you truly earn it.” – CA Rohit Sethi
