1. What IND AS 115 Covers — The Core Principle
IND AS 115 governs how and when companies recognise revenue from contracts with customers — replacing AS 9 and the old, industry-specific patchwork of guidance for construction contracts, real estate, and software. Everything in the standard flows from one core principle:
Revenue is recognised to depict the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange. Not cash received. Not the invoice raised. What the entity has earned the right to as control passes to the customer.
IND AS 115 applies to contracts with customers to transfer goods or services in the ordinary course of business. It does not apply to lease contracts (IND AS 116), insurance contracts (IND AS 117), financial instruments (IND AS 109), or non-monetary exchanges between entities in the same line of business to facilitate sales to third parties.
2. The 5-Step Model — Overview
Every revenue contract, however complex, is worked through the same five steps in the same order:
Identify the contract with a customer
Does an enforceable agreement exist that meets IND AS 115's five recognition criteria?
Identify the performance obligations
What are the separate, distinct promises to transfer goods or services within that contract?
Determine the transaction price
What consideration does the entity expect to be entitled to, including variable amounts?
Allocate the transaction price
Split that price across each performance obligation, based on relative standalone selling price.
Recognise revenue
Recognise each obligation's allocated price when — or as — control of the good or service transfers.
3. Step 1 — Identify the Contract
A contract exists under IND AS 115 only when all five of these criteria are met:
- The parties have approved the contract and are committed to their obligations (written, oral, or implied by customary business practice)
- Each party's rights regarding the goods or services to be transferred can be identified
- The payment terms can be identified
- The contract has commercial substance — the entity's future cash flows are expected to change as a result
- It is probable the entity will collect the consideration it is entitled to, considering only the customer's ability and intention to pay
If these criteria aren't met, revenue can't be recognised — even if cash has already changed hands. Amounts received are instead recognised as a liability until the criteria are subsequently met, the contract is terminated and the consideration is non-refundable, or the entity has transferred goods/services and stopped its obligation to transfer more, with the consideration received being non-refundable.
Combining Contracts
Two or more contracts entered into at or near the same time with the same customer are combined and accounted for as a single contract if: they are negotiated as a package with a single commercial objective, the consideration in one depends on the price or performance of the other, or the goods/services promised are a single performance obligation. This prevents artificially splitting one commercial deal into several contracts to change the accounting outcome.
4. Step 2 — Identify the Performance Obligations
A performance obligation is a promise to transfer a good or service that is distinct. A promised good or service is distinct only if both conditions are met:
| Condition | What it means |
|---|---|
| Capable of being distinct | The customer can benefit from the good or service on its own, or together with other readily available resources |
| Distinct within the context of the contract | The promise to transfer it is separately identifiable from other promises — not a significant input into a combined output, not significantly modifying/customising another item, and not highly interdependent or highly interrelated with other promised items |
If a good or service is not distinct, it is bundled with other non-distinct items into a single combined performance obligation. A classic example: a highly customised construction or integration contract where individual components (design, procurement, installation) are so interrelated that the customer is really buying one combined output — a single performance obligation, even though multiple activities are performed.
5. Step 3 — Determine the Transaction Price
The transaction price is the amount of consideration the entity expects to be entitled to in exchange for transferring goods or services — excluding amounts collected on behalf of third parties, such as GST. Four factors can complicate a simple fixed price:
Variable Consideration
Discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties, and similar items all make consideration variable. IND AS 115 requires an estimate using one of two methods, applied consistently for similar types of uncertainty:
- Expected value — the probability-weighted sum of possible outcomes. More appropriate when an entity has a large number of contracts with similar characteristics.
- Most likely amount — the single most likely outcome. More appropriate when a contract has only two possible outcomes (e.g. a bonus is either achieved in full or not at all).
That estimate is then subject to the constraint: variable consideration is only included in the transaction price to the extent it is highly probable that a significant revenue reversal will not occur once the uncertainty is resolved. A volume rebate contingent on hitting a sales threshold the customer is unlikely to reach, for instance, should not be assumed away — the constraint exists precisely to stop companies recognising revenue on outcomes they can't yet support.
Significant Financing Component
If the timing of payments agreed by the parties provides the customer or the entity with a significant benefit of financing, the transaction price is adjusted for the time value of money — effectively splitting the arrangement into a revenue component and an interest component. A practical expedient exists: this adjustment is not required if the period between transfer of the good/service and payment is expected to be one year or less.
Non-Cash Consideration
Consideration received in a form other than cash (e.g. shares, or goods received in a barter arrangement) is measured at fair value at contract inception.
Consideration Payable to a Customer
Cash, credits, coupons, or vouchers given to a customer are treated as a reduction of the transaction price — unless the payment is for a distinct good or service the customer provides to the entity in return (e.g. paying a retailer customer for genuine shelf-space marketing services), in which case it's accounted for like any other purchase from a supplier.
6. Step 4 — Allocate the Transaction Price
The transaction price is allocated to each performance obligation in proportion to its standalone selling price (SSP) — the price at which the entity would sell that good or service separately to a customer. The best evidence of SSP is an observable price when the entity sells that item separately. Where SSP isn't directly observable, it must be estimated, using approaches such as:
- Adjusted market assessment — what a customer in that market would be willing to pay, referencing competitor pricing adjusted for the entity's costs and margins
- Expected cost plus a margin — forecast the costs of satisfying the obligation and add an appropriate margin
- Residual approach — total transaction price less the sum of observable SSPs of other items in the contract; only permitted where the SSP is highly variable or uncertain (e.g. never sold separately, or sold to a wide range of customers at a wide range of prices)
Any bundle discount (contract price less than the sum of standalone selling prices) is generally allocated proportionately across all performance obligations, unless observable evidence shows the discount relates entirely to one or a subset of the obligations.
7. Step 5 — Recognise Revenue (Over Time or Point in Time)
For each performance obligation, the entity must determine when control transfers to the customer — and that determines whether revenue is recognised over time or at a single point in time.
Over-Time Recognition — Any One of Three Criteria
- The customer simultaneously receives and consumes the benefits of the entity's performance as the entity performs (e.g. a monthly AMC, cleaning or payroll-processing service)
- The entity's performance creates or enhances an asset that the customer controls as the asset is created (e.g. construction work performed on a customer's own land)
- The asset created has no alternative use to the entity (contractually restricted or practically limited to that customer's specifications) and the entity has an enforceable right to payment for performance completed to date, including a reasonable profit margin — not just cost recovery
Where recognised over time, revenue is measured using an appropriate method — output methods (surveys of performance completed, units delivered, milestones reached) or input methods (costs incurred relative to total expected costs, labour hours expended, machine hours used) — chosen to depict actual progress, not simply a straight-line default.
Point-in-Time Recognition
If none of the three over-time criteria is met, revenue is recognised at the point in time control transfers. Five indicators help pinpoint that moment — none is individually decisive, and they're weighed together:
- The entity has a present right to payment for the asset
- The customer has legal title to the asset
- The entity has transferred physical possession
- The customer has the significant risks and rewards of ownership
- The customer has accepted the asset
8. Worked Example — Equipment, Installation & AMC
Scenario: TechCorp Pvt Ltd sells manufacturing equipment to a customer for a bundled contract price of ₹36,00,000, delivered and installed on 1 April 2026, along with a 1-year Annual Maintenance Contract (AMC) running 1 April 2026 to 31 March 2027. Installation is routine and doesn't significantly customise the equipment — a third-party vendor could perform it — so it is capable of being distinct and separately identifiable.
Step 2 — Identify the Performance Obligations
Three distinct performance obligations: the equipment itself, the installation service, and the AMC.
Step 3 & 4 — Transaction Price and Allocation
| Performance Obligation | Standalone Selling Price (₹) | Allocated Price (₹) |
|---|---|---|
| Equipment | 32,00,000 | 28,80,000 |
| Installation service | 4,00,000 | 3,60,000 |
| AMC (1 year) | 4,00,000 | 3,60,000 |
| Total | 40,00,000 | 36,00,000 |
The ₹4,00,000 bundle discount (₹40,00,000 total SSP − ₹36,00,000 contract price = 10%) is allocated proportionately across all three obligations, since there's no evidence it relates to any one of them specifically.
Step 5 — Recognition Timing
- Equipment (₹28,80,000) — point in time, on delivery and transfer of control (1 April 2026)
- Installation (₹3,60,000) — point in time, on completion of installation (1 April 2026)
- AMC (₹3,60,000) — over time, since the customer simultaneously receives and consumes the maintenance benefit as it's performed. Recognised straight-line over 12 months = ₹30,000/month.
Journal Entries — 1 April 2026 (Delivery, Installation & Contract Inception)
Journal Entry — Each Month of the AMC (e.g. 30 April 2026)
This entry repeats each month through 31 March 2027, by which point the ₹3,60,000 contract liability is fully released to revenue and the AMC performance obligation is completely satisfied.
Note the mechanics: at 1 April 2026, ₹32,40,000 of revenue is recognised immediately (equipment + installation) even though the customer has only paid — or owes — ₹36,00,000 for the whole bundle. The AMC portion sits on the balance sheet as a contract liability, not revenue, until each month of service is actually delivered. Recognising the full ₹36,00,000 upfront would overstate revenue and understate the entity's remaining obligation to perform.
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IND AS 115 also governs certain costs incurred around a contract, not just the revenue itself:
- Incremental costs of obtaining a contract — e.g. sales commissions paid only if the contract is won — are capitalised as an asset if the entity expects to recover them. A practical expedient allows expensing them immediately if the amortisation period would be one year or less.
- Costs to fulfil a contract — capitalised only if they relate directly to an identified contract, generate or enhance resources that will be used to satisfy future performance obligations, and are expected to be recovered. Costs that are outside the scope of another standard (e.g. inventory, PP&E) and don't meet all three conditions are expensed as incurred.
Capitalised contract costs are amortised on a systematic basis consistent with the transfer of the related goods or services, and tested for impairment.
10. Contract Modifications
A contract modification is a change in scope or price (or both) approved by both parties. IND AS 115 sets out a decision sequence:
| Condition | Accounting treatment |
|---|---|
| Adds distinct goods/services and priced at standalone selling price | Accounted for as a separate new contract — no effect on the original contract |
| Not a separate contract, and remaining goods/services are distinct from those already transferred | Treated prospectively — termination of the old contract and creation of a new one for the remaining goods/services |
| Not a separate contract, and remaining goods/services are not distinct | Treated as part of the original contract — revenue adjusted through a cumulative catch-up as at the modification date |
11. Principal vs Agent — Gross or Net Revenue
When another party is involved in providing goods or services to the end customer, the entity must determine whether it is the principal (controls the good or service before transfer, recognises revenue gross) or the agent (arranges for another party to provide it, recognises revenue net of what's passed through — just its fee or commission). This assessment is common — and frequently gets misapplied — in e-commerce marketplaces, food delivery platforms, travel portals and telecom resellers. We cover the three IND AS 115 control indicators and worked Indian examples in a dedicated guide:
→ Principal or Agent — Gross Revenue or Net Commission? Full Guide
12. Licensing and Warranties
Licensing Intellectual Property
A licence of IP is recognised over time or at a point in time depending on its nature:
- Right to access IP as it exists throughout the licence period — recognised over time. Applies when the entity's ongoing activities significantly affect the IP the customer benefits from (e.g. a brand, team logo, or content the licensor actively develops and updates).
- Right to use IP as it exists at a point in time — recognised at that point in time. Applies to functional IP with significant standalone functionality that isn't expected to substantially change during the licence term (e.g. a perpetual software licence, a completed film).
Sales-based or usage-based royalties for a licence of IP are a specific exception: recognised only when (or as) the later of the underlying sale/usage occurring and the performance obligation being satisfied — never estimated upfront like other variable consideration.
Warranties
- Assurance-type warranty — provides assurance the product complies with agreed specifications. Not a separate performance obligation; accounted for as a cost provision under IND AS 37.
- Service-type warranty — provides a service beyond assurance the product works as specified (e.g. an extended coverage period, or coverage for accidental damage). This is a distinct performance obligation — a portion of the transaction price is allocated to it and recognised over the warranty period.
Where a warranty can't be purchased separately, judgement is applied — factors like the length of the coverage period and the nature of the tasks promised help distinguish a service-type warranty from a simple assurance one.
13. IND AS 115 vs Old IGAAP (AS 9) — Key Differences
| Aspect | Old IGAAP (AS 9) | IND AS 115 |
|---|---|---|
| Recognition model | Risk-and-reward transfer, largely at a single point | Control-based 5-step model; can be over time or point in time |
| Multi-element contracts | Limited, inconsistent guidance on splitting bundled arrangements | Mandatory identification of distinct performance obligations, each priced by relative SSP |
| Variable consideration | Generally recognised only when certain / crystallised | Estimated upfront (expected value or most likely amount), subject to a reversal constraint |
| Construction / long-duration contracts | Separate standard (AS 7) — percentage of completion | Folded into the same 5-step model — over-time recognition if criteria met |
| Contract costs | Limited specific guidance | Explicit capitalisation criteria for costs to obtain and fulfil a contract |
| Disclosures | Minimal — revenue by category | Extensive — disaggregation, contract balances, remaining performance obligations, significant judgements |
14. Disclosures Required
IND AS 115 requires disclosures sufficient for users to understand the nature, amount, timing and uncertainty of revenue and cash flows, including:
- Disaggregation of revenue — by category (e.g. type of good/service, geography, market, contract duration, timing of transfer) that depicts how economic factors affect revenue
- Contract balances — opening and closing balances of receivables, contract assets and contract liabilities, with an explanation of significant changes
- Remaining performance obligations — the aggregate transaction price allocated to obligations not yet satisfied, and when the entity expects to recognise that revenue
- Significant judgements — methods and inputs used to determine the timing of satisfaction of performance obligations, and to determine the transaction price and amounts allocated
- Assets recognised for the costs to obtain or fulfil a contract, and the amortisation method used
15. Common Mistakes CAs Make
Error 1 — Recognising 100% of a bundled contract's price upfront. Bundling equipment with an AMC, warranty upgrade, or ongoing service and booking the full amount as revenue on delivery ignores Step 4's allocation requirement and overstates revenue in the period of sale while understating it later.
Error 2 — Treating every performance-linked payment as fully variable and unconstrained. Recognising the maximum possible bonus or ignoring the constraint on variable consideration — including amounts that are not yet highly probable of avoiding a significant reversal — creates revenue that has to be clawed back later.
Error 3 — Defaulting long-duration contracts to straight-line revenue. Over-time recognition must use a method that faithfully depicts actual progress (an appropriate output or input method) — not an automatic straight-line spread over the contract term, which rarely matches the pattern of performance.
Error 4 — Skipping the SSP allocation because the contract "already has line-item prices." Contractually stated prices for each item are not automatically their standalone selling prices, especially where the contract is bundled or discounted — the allocation must still be based on relative SSP, estimated if not observable.
Error 5 — Expensing all incremental contract-acquisition costs regardless of the practical expedient's condition. The one-year expedient to expense sales commissions immediately only applies if the amortisation period actually is one year or less — a 3-year service contract's acquisition commission should be capitalised and amortised, not expensed on day one by default.
16. FAQs
What are the 5 steps of revenue recognition under IND AS 115?
(1) Identify the contract with a customer, (2) identify the distinct performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to each performance obligation based on relative standalone selling price, and (5) recognise revenue when — or as — each performance obligation is satisfied, either over time or at a point in time.
What makes a good or service "distinct" under IND AS 115?
A good or service is distinct if two conditions are both met: the customer can benefit from it either on its own or together with other readily available resources (capable of being distinct), and the entity's promise to transfer it is separately identifiable from other promises in the contract — it is not highly interrelated with, or a significant input into, another promised item (distinct within the context of the contract).
When is revenue recognised over time instead of at a point in time?
Revenue is recognised over time if any one of three criteria is met: the customer simultaneously receives and consumes the benefits as the entity performs (e.g. a monthly AMC or cleaning service); the entity's performance creates or enhances an asset the customer controls as it is created (e.g. construction on the customer's land); or the asset created has no alternative use to the entity and the entity has an enforceable right to payment for performance completed to date (e.g. a customised, made-to-order product). If none of these apply, revenue is recognised at the point in time control transfers.
How is variable consideration estimated and constrained under IND AS 115?
Variable consideration (discounts, rebates, refunds, performance bonuses, penalties) is estimated using either the expected value method (probability-weighted average, better for a large number of similar outcomes) or the most likely amount method (better for a binary or small set of outcomes). The estimate is then constrained — only included in the transaction price to the extent it is highly probable that a significant revenue reversal will not occur when the uncertainty resolves.
Is IND AS 115 the same as IFRS 15?
IND AS 115 is India's converged version of IFRS 15 and follows the same 5-step model, definitions and core principles. The two produce the same revenue outcome in almost all cases; India-specific differences are limited to a small number of transitional and terminology clarifications, not substantive recognition or measurement differences.
How is a contract modification accounted for under IND AS 115?
A modification is treated as a separate new contract only if it adds distinct goods or services priced at their standalone selling price. Otherwise, if the remaining goods or services are distinct from those already transferred, it is accounted for prospectively as a termination of the old contract and creation of a new one. If the remaining goods or services are not distinct, it is treated as part of the original contract, with revenue adjusted through a cumulative catch-up adjustment.