CA Varun Sethi IndAS 115 - Revenue from contracts with customers - sale or return: Indian Financial Reporting India has decided to converge EARLY with IFRS 15 - Revenue from Contracts with Customers. Accordingly, MCA hasn't notified any IndAS 11 and IndAS 18 which are converged to IAS 18 on Revenue recognition. Ind AS 115 (converged with IFRS 15) - Revenue from Contracts with Customers deals with reveue recognition. Accounting Standard (AS) 9 - Revenue Recognition prescribes accounting for revenue. The presentations deals specifically with the accounting for Revenue for sale of goods with right of return. It compares the accounting under IAS 18 with IFRS 15/ IndAS 115 with example and summarizes the net impact. Sector impacted: 1. FMCD/FMCG companies, 2. B2B/ B2C Businesses 3. Ecommerce/ Distributor/retail & consumer companies with 'No questions asked return/refund policies'

1. Revenue from Contracts with Customers
IndAS 115
Revenue from Contracts with Customers
CA Varun
Sethi
09899766487
Presentation by : CA Varun Sethi1
Practical application issues: Sale with a right of return

2. 20152 Presentation by : CA Varun Sethi
1. Revenue should NOT be
recognized for goods
expected to be returned,
and a liability should be
recognized for expected
refunds to customers.
2. An asset & corresponding
adjustment to cost of sales
should be recognized for
the right to recover goods
from customers on settling
the refund liability.
1.Revenue is typically
recognized at the gross
amount (in full) with a
provision recorded against
revenue for the expected
level of returns, provided
that the seller can reliably
estimate the level of returns
based on an established
historical record and other
relevant evidence
2.Current IAS 18 does not
specify the balance sheet
accounting for expected
returns.
1. Revenue is recognized at
the time of sale.(price is fixed
or determinable, buyer is
obligated to pay, etc.).
2. If future returns can be
reasonably estimated.
3. Returns are estimated
based on historical
experience with an
allowance recorded against
sales.
4. Revenue is Not recognized
until the return right lapses
if an entity is unable to
estimate potential returns.
ASC 605 - US GAAP
(Pre ASC 606)
IAS 18 IFRS 15
IndAS 115
Revenue from contracts with customers
CA Varun
Sethi
09899766487
Sale with a
right of return

3. 20153 Presentation by : CA Varun Sethi
1. The accounting for product returns under the revenue standard will be
largely unchanged from current guidance under U.S. GAAP and IFRS.
2. There might be some retail and consumer entities that are deferring
revenue today because they are unable to reliably estimate returns.
3. Companies will use a probability-weighted or most likely outcome approach,
whichever is most predictive, to determine the likelihood of a sales return
under the new standard. Consideration received is included in revenue to
the extent that it is probable (highly probable) that there will be no significant
reversal when the uncertainty is resolved. This could result in revenue being
recognized earlier than under today's guidance.
4. A right of return affects the transaction price and accordingly NOT adjusted
through a provision for sales return
IndAS 115
Revenue from contracts with customers
CA Varun
Sethi
09899766487
Sale with a
right of return
Incomestatementimpact
Largely
unchanged
Adjustmentof
transactionprice
ratherthanprovision
adjustmentagainst
revenue
Revenue
recognition
acceleratedIF

4. 20154 Presentation by : CA Varun Sethi
IndAS 115
Revenue from contracts with customers
CA Varun
Sethi
09899766487
Sale with a
right of return
1. There is diversity in existing practice in the balance sheet presentation of
expected returns (No guidance under IAS 18/ Pre ASC 605).
2. The New revenue standard (IFRS 15/IndAS 115) specifies that the balance
sheet should reflect both the refund obligation and the asset for the right to
the returned goods on a GROSS basis.
Balancesheetimpact
Separate
reporting
of refund
obligation
Separate
reporting
of asset
from
inventory
GROSS
reporting
of asset &
refund
obligation
1. Under today’s (Pre IFRS 15/IndAS 15) guidance, the carrying value
associated with any product expected to be returned typically remains in
inventory.
2. But the new guidance requires the asset to be recorded separately from
inventory to provide greater transparency.

5. 20155 Presentation by : CA Varun Sethi
IndAS 115 (Para 55, B20-27)
Revenue from contracts with customers
CA Varun
Sethi
09899766487
Sale with a
right of return
Revenue
for the
transferre
d products
A refund liability
(B23, Para 55)
Para B21:
Revenue for the transferred products
in the amount of consideration to
which the entity expects to be
entitled (therefore, revenue would
NOT be recognized for the products
expected to be returned)
(requirements in para 47–72)
1
Para 55, B23
1. An entity shall recognize a refund
liability if the entity receives
consideration from a customer and
expects to REFUND some or all of
that consideration to the customer.
2. A refund liability is measured at the
amount of consideration received
(or receivable) for which the entity
does not expect to be entitled
2
*Assuming other a/c entries (incl. opening entries)
for consumption/ COGS/ stocks have been already
passed.
**Assuming $1 is the cost of the products
transferred on sale or return basis of which selling
price is $10.
1. Dr. Revenue $ 10
2. Cr. Refund liabilities $ 10
(Assuming 10% refund rate historically)
3. Dr. Asset ** $ 1
4. Cr. Cost of sales $ 1
(Asset recognized since CONTROL NOT transferred)
* At the time
of book
closure for
Yearly/ Qtrly/
monthly
reporting
1. Dr. Debtors $ 100
2. Cr. Revenue $ 100
A/c entries:
At the time of
invoicing/
dispatch
ReportingperiodI

6. 20156 Presentation by : CA Varun Sethi
IndAS 115 (Para 55, B20-27)
Revenue from contracts with customers
CA Varun
Sethi
09899766487
Sale with a
right of return
1. Dr. Refund liabilities $ 10
2. Cr. Revenue $ 5
Cr. Debtors $ 5
3. Dr. Asset (separate from inventory) $ 0.5
4. Cr. Cost of sales $ 0.5
Case B
(assuming NO
additional sale
to the dealer
since the last
reporting period
1. Dr. Refund liabilities $ 5
2. Cr. Revenue $ 5
3. Dr. Asset (separate from inventory) $ 0.5
(since half the refund liability is released to revenue)
4. Cr. Cost of sales $ 0.5
Case A*
(assuming NO
additional sale
to the dealer
since the last
reporting period
ReportingperiodII
Update
measurem
ent of the
asset
Initial measurement of the asset
Para B21:
At the end of each reporting period, an
entity shall update the measurement
of the asset arising from changes in
expectations about products to be
returned.
3
&
4
Refer reporting period I: Entry 3/4
Para B25
An asset recognized for an entity’s
right to recover products from a
customer on settling a refund liability
shall initially be measured by
reference to the former carrying
amount of the product (for example,
inventory) less any expected costs to
recover those products (including
potential decreases in the value to the
entity of returned products)
A
*Case A: Assuming the right of sale or return is continuous.
** Case B: Assuming the right of sale or return has expired during the reporting period and goods were returned.
Update
measureme
nt of the
refund
liability
Para 55, B24
1. An entity shall update the measurement of the refund liability at the end of each
reporting period for changes in expectations about the amount of refunds. An entity
shall recognize corresponding adjustments as revenue (or reductions of revenue).
1

7. 20157 Presentation by : CA Varun Sethi
IndAS 115 Vs AS 9/ IAS 18
Revenue from contracts with customers
CA Varun
Sethi
09899766487
Sale with a
right of return
1. Dr. Revenue $ 10
2. Cr. Refund liabilities $ 10
(Assuming 10% refund rate historically)
3. Dr. Asset **(separate from inventory) $ 1
4. Cr. Cost of sales $ 1
(Asset recognized since CONTROL not transferred)
* At the time
of book
closure for
Yearly/ Qtrly/
monthly
reporting
1. Dr. Debtors $ 100
2. Cr. Revenue $ 100
A/c entries:
At the time of
invoicing/
dispatch
ReportingperiodI
1. Dr. P&L $ 10
2. Cr. Provision for sales returns $ 10
(Assuming 10% refund rate historically)
3. Dr. Inventory $ 1
4. Cr. Cost of sales $ 1
1. Dr. Debtors $ 100
2. Cr. Revenue $ 100
AS 9 (India GAAP) / IAS 18 (IFRS)IndAS 115 (India GAAP) / IFRS 15
1. Revenue is recognized at the same
amt as under IFRS 15 but using a
provision rather than as
adjustment to the transaction price.
2. A suitable provision (per IAS
37/Para 36) for returns based on
previous experience is made.
AS 9/ IAS 18
Vs
IndAS 115
1. Revenue is recognized at amount
which the entity is entitled to.
2. A refund liability is recognized for
amounts refundable.
3. An asset/inventory is recognized at
cost less expenses separately from
Inventory and refund liability

8. 20158 Presentation by : CA Varun Sethi
IndAS 115 Vs AS 9/ IAS 18
Revenue from contracts with customers
CA Varun
Sethi
09899766487
Sale with a
right of return
1. Dr. Refund liabilities $ 5
2. Cr. Revenue $ 5
3. Dr. Asset (separate from inventory) $ 0.5
(since half the refund liability is released to revenue)
4. Cr. Cost of sales $ 0.5
Case A*
(assuming NO
additional sale
to the dealer
since the last
reporting
period
ReportingperiodII
1. Nil entry
2. Neither recognition nor update of
1. Revenue entitlement
2. Refund liabilities
3. Asset (re-measurement)
1. Dr. Refund liabilities $ 10
2. Cr. Revenue $ 5
Cr. Debtors $ 5
3. Dr. Asset (separate from inventory) $ 0.5
4. Cr. Cost of sales $ 0.5
Case B
(assuming NO
additional sale
to the dealer
since the last
reporting period
1. Dr. Sales return $ 5
Cr. Debtors $ 5
3. Dr. Inventory $ 0.5
4. Cr. Cost of sales $ 0.5
AS 9 (India GAAP) / IAS 18 (IFRS)IndAS 115 (India GAAP) / IFRS 15
No update of
1. Revenue entitlement
2. Refund liabilities
3. Asset (re-measurement)
AS 9/ IAS 18
Vs
IndAS 115
1. Refund liability Is updated/ adjusted
from revenue to update amount
which the entity is entitled to.
2. An asset/inventory measurement is
updated arising from changes in
expectations about products to be
returned.