Ind AS 115 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Ind AS 115 prescribes a single, five-step model for recognising revenue from customer contracts, based on the transfer of control rather than risks and rewards. It replaced Ind AS 18 and Ind AS 11, and applies to nearly all revenue arrangements with customers.
Overview
Ind AS 115, Revenue from Contracts with Customers, notified under the Companies (Indian Accounting Standards) Rules, 2015, established a comprehensive framework applicable to all contracts with customers, with limited exceptions (leases, insurance contracts and financial instruments). Its central idea is that revenue is recognised when control of a good or service passes to the customer.
Scope and Applicability
The standard applies to contracts with customers except leases (Ind AS 116), insurance contracts (Ind AS 104/117), financial instruments (Ind AS 109) and certain non-monetary exchanges. It applies across sectors — real estate, telecom, software, manufacturing and services — and has materially changed the timing of revenue for many of them.
The Five-Step Model
| Step | Requirement |
|---|---|
| 1 | Identify the contract with a customer |
| 2 | Identify the distinct performance obligations |
| 3 | Determine the transaction price |
| 4 | Allocate the price to the performance obligations |
| 5 | Recognise revenue as each obligation is satisfied |
Recognition and Measurement
Revenue is recognised when a performance obligation is satisfied — either over time (if the over-time criteria are met, using an input or output method of progress) or at a point in time (when control transfers). The transaction price includes variable consideration, constrained so that a significant revenue reversal is highly improbable, and reflects any significant financing component and non-cash consideration.
Worked Example
A software company sells a licence bundled with two years of support for ₹12,00,000. The licence (₹9,00,000 standalone) and support (₹3,00,000 standalone) are distinct performance obligations. The transaction price is allocated in that 9:3 ratio. The licence, a right to use existing IP, is recognised at a point in time (₹9,00,000 on delivery), while the support is recognised over the two-year period (₹1,50,000 per year). This split contrasts with recognising the entire ₹12,00,000 upfront.
Contract Costs and Disclosure
Incremental costs of obtaining a contract (such as sales commissions) are capitalised if expected to be recovered, and amortised as the goods or services transfer. Disclosures include disaggregated revenue, information about performance obligations, contract balances (contract assets and liabilities), and significant judgements — for example, the method used to measure progress over time.
Key Differences from Ind AS 18 and 11
The earlier standards recognised revenue on the transfer of risks and rewards and offered less guidance on multiple-element arrangements. Ind AS 115 uses control as the trigger, requires unbundling of distinct obligations, and imposes discipline on variable consideration and financing components — significantly affecting sectors like real estate and telecom.