Ind AS 115 Revenue Recognition
Ind AS 115 revenue recognition is the Indian Accounting Standard that decides how much revenue a company records and when. It replaces older rules with a single five-step model built on the transfer of control to the customer. It appears on the face of the income statement and matters because it stops revenue being booked before the promise to the customer is actually satisfied.
What Is Ind AS 115 Revenue Recognition?
Ind AS 115, Revenue from Contracts with Customers, sets one principle for almost every industry: recognise revenue to depict the transfer of promised goods or services in the amount the entity expects to be entitled to. It works through a five-step model — identify the contract, identify the performance obligations, determine the transaction price, allocate that price to the obligations, and recognise revenue as each obligation is satisfied. Control, not the raising of an invoice, is the trigger.
An Indian company on the Ind AS framework meets the standard on every non-trivial contract: bundled software and support, construction and project work, licences with updates, or goods sold with a right of return. A Pune engineering firm delivering a machine plus a two-year service plan must split the price between the two and recognise each as control passes. The standard is where advance billing, deferred revenue and unbilled revenue all get their timing.
Key terms
- Monthly Recurring Revenue (MRR) — Subscription revenue that Ind AS 115 spreads over the service period.
- Monthly Burn Rate — Cash burn read against properly recognised revenue.
- Cash Runway Calculation — How long funds last once revenue is recognised realistically.
How Ind AS 115 Revenue Recognition Works
The five-step model runs from contract to recognised revenue:
- 1Identify the contract
Finance confirms an enforceable contract with a customer exists, with commercial substance and identified payment terms — the starting artefact.
- 2Identify performance obligations
Each distinct promise — a licence, a service, an upgrade — is separated, because each may earn revenue on its own timeline.
- 3Determine the transaction price
The total consideration is fixed, adjusted for discounts, variable amounts and any financing component.
- 4Allocate the price
The price is split across the obligations by their standalone selling prices, producing the amount attached to each promise.
- 5Recognise as obligations are satisfied
Revenue is booked at a point in time or over time as control transfers, and the entry flows into the income statement.
Where Ind AS 115 Revenue Recognition Applies — SaaS Businesses
The standard bites hardest where a single contract carries several promises or a long service period:
- Bundled subscriptions — Software plus onboarding plus support must be split into distinct obligations and recognised separately.
- Multi-year and usage contracts — Term licences and consumption-based deals recognise revenue over time as access or usage is delivered.
- Project and milestone billing — Service firms billing on milestones recognise over time using a measure of progress, not on invoice dates.
- Rights of return and credits — Variable consideration and refund rights reduce the revenue recognised up front.
- Companies raising funds or audited — Any Ind AS entity facing an audit or diligence must show revenue recognised on this model.
See also: SaaS Accounting Services (IT & SaaS) Service Sector Accounting (Project Billing)
Statutory Position on Ind AS 115 Revenue Recognition
Ind AS 115, Revenue from Contracts with Customers, was notified under the Companies (Indian Accounting Standards) Rules and is mandatory for accounting periods beginning on or after 1 April 2018. It superseded Ind AS 11 (Construction Contracts) and Ind AS 18 (Revenue). Companies on the older Accounting Standards apply the corresponding AS 9 (Revenue Recognition) and AS 7 (Construction Contracts) instead, but the Ind AS 115 five-step model is the current position for entities within the Ind AS roadmap.
- Standard — Ind AS 115, Revenue from Contracts with Customers. Law stated as at 22 July 2026.
- Effective date — Accounting periods beginning on or after 1 April 2018.
- Replaced — Ind AS 11 (Construction Contracts) and Ind AS 18 (Revenue).
- Where it lands — Revenue on the face of the statement of profit and loss, with contract-asset and contract-liability disclosures.
Ind AS 115 Revenue Recognition: A Practical Example
| Particulars | Amount (INR) | Treatment |
|---|---|---|
| Contract: machine + 2-year service | 12,00,000 | Two performance obligations |
| Allocated to machine (control on delivery) | 9,00,000 | Recognised at a point in time |
| Allocated to 2-year service | 3,00,000 | Recognised over time |
| Service revenue per year | 1,50,000 | Spread across 24 months |
A Pune engineering company signs a ₹12,00,000 contract for a machine plus two years of servicing. Under Ind AS 115 it allocates ₹9,00,000 to the machine, recognised when control passes on delivery, and ₹3,00,000 to the service obligation, recognised at ₹1,50,000 a year over 24 months. Booking the full ₹12,00,000 on delivery would overstate the first year and understate the next two.
Not unbundling obligations: Recognising a bundled deal as one lump on delivery front-loads revenue → identify each distinct performance obligation and allocate the price.
Common Mistakes With Ind AS 115 Revenue Recognition
Most errors come from treating a bundled contract as a single sale:
- Not unbundling obligations — Recognising a bundled deal as one lump on delivery front-loads revenue → identify each distinct performance obligation and allocate the price.
- Recognising on invoice, not control — Booking revenue when the invoice is raised ignores the control test → recognise as control transfers, over time or at a point in time.
- Ignoring variable consideration — Booking full price despite discounts or return rights overstates revenue → estimate and constrain variable amounts.
- Missing contract-asset disclosures — Failing to show contract assets and liabilities breaches the standard → present unbilled and deferred amounts separately.
Ind AS 115 revenue recognition is the Indian Accounting Standard that decides how much revenue a company records and when. It replaces older rules with a single five-step model built on the transfer of control to the customer. It appears on the face of the income statement and matters because it stops revenue being booked before the promise to the customer is actually satisfied.
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Applicable framework: Ind AS 115 (Revenue from Contracts with Customers), Companies (Indian Accounting Standards) Rules. For general information only, not professional advice. Verify the current position for your entity before acting.