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A customer pays non-refundable consideration to an entity for services to be delivered later. Before any service is performed, the customer terminates the contract; the entity has no remaining obligation. Under Ind AS 115, the non-refundable consideration is recognised as revenue:
AOnly when refunded in full to the customer, with the difference taken to revenue
BIndefinitely as a contract liability — never as revenue if performance has not occurred
CImmediately when received by the entity, irrespective of the contract status
DUpon the earlier of: the entity having no remaining obligations and substantially all the consideration being non-refundable, or the contract being terminated with non-refundable consideration
Answer & Solution
Correct answer: D. Upon the earlier of: the entity having no remaining obligations and substantially all the consideration being non-refundable, or the contract being terminated with non-refundable consideration
Para 15 of Ind AS 115 allows revenue recognition for non-refundable consideration when one of two events occurs: (a) the entity has no remaining obligations and substantially all consideration has been received and is non-refundable, or (b) the contract is terminated and the consideration is non-refundable. Either trigger releases the contract liability to revenue.
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