Revenue, Contracts and Non-financial Assets (Ind AS 115, 2, 16, 36, 40, 20, 23, 38, 105)
Ind AS 115 and the non-financial asset standards test whether cost is capitalised, measured and derecognised correctly. Expect five-step revenue, impairment of CGUs, component depreciation and held-for-sale classification.
Core rules
- Ind AS 115: identify the contract, performance obligations and transaction price (variable consideration is constrained), allocate on relative standalone selling prices, and recognise over time or at a point in time.
- Ind AS 2: inventories at lower of cost and net realisable value; cost formulas are FIFO or weighted average.
- Ind AS 16: component accounting, depreciation over useful life, revaluation surplus in OCI; decommissioning costs are added to cost.
- Ind AS 36: recoverable amount is higher of fair value less costs of disposal and value in use; impairment is allocated pro rata to CGU assets, not to goodwill before other assets.
- Ind AS 40: investment property at cost or fair value; transfers only on change of use.
- Ind AS 20: grants recognised when there is reasonable assurance of conditions; income approach.
- Ind AS 23: capitalise borrowing costs on qualifying assets.
- Ind AS 38: research expensed; development capitalised only if technical feasibility, intention, ability, probable benefits, resources and reliable measurement.
- Ind AS 105: held for sale measured at lower of carrying amount and fair value less costs to sell; no depreciation.
Worked example
A contract price is ₹1,00,000 for equipment and installation. Standalone prices are ₹90,000 and ₹30,000, totalling ₹1,20,000. Allocate ₹75,000 to equipment and ₹25,000 to installation.
Traps
- Capitalising research or training costs.
- Testing goodwill before the CGU.
- Depreciating a held-for-sale asset.
- Ignoring the constraint on variable consideration.