Home › CA Final › financialreporting › revenuerecognition › New Way Ltd. enters a ₹12.5 lakh networking-prod…
New Way Ltd. enters a ₹12.5 lakh networking-product contract with a customer in a region facing economic difficulty. At inception, New Way expects the customer may not pay the full ₹12.5 lakh but believes the customer can and intends to pay ₹8 lakh. Under Ind AS 115, the correct treatment is:
ARecognise revenue of ₹12.5 lakh and a corresponding bad-debt provision
BRecognise revenue only as cash is actually received from the customer
CApply Ind AS 115 and assess whether collection of the ESTIMATED TRANSACTION PRICE (which may be lower than the stated contract price) is probable
DSkip Ind AS 115 entirely — collection is not probable at the contract price
Answer & Solution
Correct answer: C. Apply Ind AS 115 and assess whether collection of the ESTIMATED TRANSACTION PRICE (which may be lower than the stated contract price) is probable
Para 9(e) requires that the entity assess collectability of the "consideration to which the entity will be entitled" — the estimated transaction price (post any implicit price concession), not necessarily the stated contract price. If collection of the estimated ₹8 lakh is probable, Step 1 is satisfied at that transaction price; recognising ₹12.5 lakh with a separate bad-debt allowance would inflate revenue.
Related questions
A four-year service contract allows the customer to cancel without cause at the end of eacA contract has the customer's UNILATERAL right to terminate a wholly unperformed contract Step 1 of Ind AS 115 requires the entity to conclude that it is PROBABLE it will collect sA manufacturer enters two separate contracts to sell the same security system to governmenSoftware Company S licenses CRM software to Customer B on Day 1 and, three days later in aAn entity enters a contract for 200 hours of customisation work at ₹150/hour (single perfoAn entity has transferred 60 products out of a 120-product contract at ₹1,000 each. The coA contract modification that adds DISTINCT goods or services at a price reflecting the sta