Revenue from Contracts with Customers (Ind AS 115)

Ind AS 115, effective for Indian companies from April 2018, replaced the older Ind AS 11 and Ind AS 18, which separately addressed construction contracts and revenue from services/goods. The unified five-step framework brought Indian standards to parity with IFRS 15, significantly changing revenue recognition patterns particularly for the Indian IT services sector.

The five steps: (1) Identify the contract — a legally enforceable agreement creating rights and obligations. (2) Identify performance obligations — distinct goods or services promised in the contract. (3) Determine the transaction price — including variable consideration (bonuses, penalties, volume discounts) estimated using expected value or most likely amount methods. (4) Allocate the transaction price — to each performance obligation based on standalone selling prices. (5) Recognise revenue — when or as each performance obligation is satisfied (either at a point in time or over time).

For the Indian IT sector — TCS, Infosys, Wipro, HCL Technologies — Ind AS 115 changed how multi-year fixed-price software development contracts were accounted. Under the old standard, revenue was recognised based on the percentage of completion (cost-based). Under Ind AS 115, assessment of whether performance obligations are satisfied over time or at a point requires careful analysis of whether the customer simultaneously receives and consumes the benefits. For managed services and application maintenance contracts, revenue continued to be recognised over time, while for certain product deliveries, a point-in-time recognition became appropriate.

Variable consideration — onshore-offshore mixes, SLA penalties, volume-linked pricing in IT contracts — required careful probability-weighting estimation. Infosys and TCS both published detailed accounting policy notes explaining their treatment of variable consideration, significant financing components (where payments were received substantially in advance or arrears), and contract modification accounting.

Real estate developers faced the most significant impact. Pre-Ind AS 115, many Indian real estate companies recognised revenue on the percentage of completion of construction. Post-Ind AS 115, the analysis of when customers obtain control of property led many developers to shift to point-in-time recognition (at handover of possession), deferring revenue recognition to project completion and creating timing mismatches with cash collections from homebuyers. DLF, Prestige Estates, and Godrej Properties all reported transition adjustments and restated opening reserves upon Ind AS 115 adoption.