In the different business organisation there are different types of income/revenue are

generated. All this income should be properly recorded in books of accounts of the business
enterprise or organisation. For the purpose of proper treatment of recognition of income in
books of account and uniformity accounting system ICAI (TheInstitute of Chartered
Accountants of India) has issued Accounting Standard 9 which Revenue Recognition. All
the business enterprise is required to follow thisaccounting standard for recognition of its
income or revenue in books of accounts except following.


Applicability

This Accounting Standard is not applicable to following concern or situations. It is also
important to know that whenever ICAI has issued separate Accounting Standardfor special
transaction or organisation, common Accounting Standard will not be applicable.

Income or revenue from hire purchase transaction & lease agreement (because there is
separate AS-19 Accounting for Leases).

Income or revenue from construction contract (because there is separate AS-7 Construction
Contract).

Income or revenue from Government grant and subsidies (because there is separate AS-12
Accounting for Government Grants).

Income or revenue of Insurance Company arising from insurance contract.

Realised or unrealised profit on sale of fixed assets (because there is separate AS-10
Accounting of Fixed Assets).


Objective of AS-9

This Accounting Standard explains how to recognise income or revenue in the profit & loss
account. It also gives circumstances when recognition of revenue can be
postponed. Revenue or income includes any cash or consideration received by the business
enterprise in the normal course of its business operation and from the other source. It also
can be said that it is chage made on customer/client for providing services or supplying
goods. These ordinary activities of business includes followingrevenue of enterprise.

Any revenue generated from sale of goods in which company is dealing.

Any services provided or to be provided by enterprise and in respect of such service any
income is arise.

Income from use of resources of business that are dividend, interest, compensation &
royalties.


Revenue from sale of goods

In the business enterprise when revenue of sale of good should be recognised it is depends
up on satisfying following conditions. All these conditions must be satisfied to recognise
income in books of accounts.

Seller should have transferred the ownership of goods to purchaser for the consideration or all
significant risk & rewards of ownership should have transferred to buyer.

There should not be any kind of uncertainty for collection or receipt of cash, consideration or
receivable etc.

Seller does not retain any direct or effective control on such goods transferred.


Revenue from providing services

Generally revenue or income from the services is recognised on the bases of services
actually rendered to receiver but the performance is measured by following two methods.


Completed service contract method

According to this method whole amount of revenue on service is recognised on completion
of performance. It should be noted that full amount of revenue shall recognise only when
performance is about to complete and on significant uncertainties about collection of
amount of service charges.


Proportionate completion method

According to this method revenue is recognised on the completion of each work or act of
services. As per this method proportionate revenue is recognised on the bases of
total contract price, numbers of separate works or acts in such contract, time duration &
cost required to be incurred in contract etc. Further it also should be considered that no
significant uncertainty for collection or receipt of such amount of services.


Other revenues of business enterprise


Dividend income

In the business organisation it is common act of all the enterprise to reinvest its income in
beneficial investment plans, operations and in share of other companies. Any income arises
on amount of such investment that is called divided. This dividend should be recognised in
the year in which it is declared by the company irrespective of the fact that whether it is
received in the same year itself or not.


Interest income

Company may purchase debentures of other company, give loan to outsider or employees
or other parties. Any interest on such loan or debentures should be recognised in the year
for which it relates that means interest on loan for the year of 2011-12 should be
recognised in the year of 2011-12 itself only.


Royalty

Royalty should be recognised on the accrual bases according to the terms and conditions of
agreement.