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NKT Ltd. sells a product for ₹1,21,000 payable 24 months after delivery. Control passes at contract inception. The cash selling price for an immediate-payment customer is ₹1,00,000 — implying an implicit interest rate of about 10% p.a. compounded over 24 months. Under Ind AS 115, at delivery, NKT should recognise:
ARevenue ₹1,21,000 — the full contractually promised consideration
BDeferred revenue of ₹1,21,000 amortised straight-line over 24 months
CRevenue ₹1,00,000 (cash selling price), with the ₹21,000 difference recognised as interest income over the 24-month financing period using Ind AS 109
DRevenue ₹1,21,000 less a finance reserve of ₹21,000 in equity
Answer & Solution
Correct answer: C. Revenue ₹1,00,000 (cash selling price), with the ₹21,000 difference recognised as interest income over the 24-month financing period using Ind AS 109
Where a contract contains a SIGNIFICANT FINANCING COMPONENT, the transaction price is the cash-equivalent selling price at delivery (₹1,00,000). The difference (₹21,000) is interest income recognised over the financing period using the effective interest method under Ind AS 109. Revenue must be presented separately from interest income (Para 65).
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