REPORT

TOPIC: REVENUE
REALISATION
CONCEPT

What is Accounting?
In a layman language Accounting is the
language of business. Language is a mean for
communication with each other. To make any
language effective, powerful and understandable
it needs a script and style. In this sense
accounting is a language having script in the
form of books of account and style in the form
of Debit and Credit.
According to American Institute of Accounting
“ Accounting is an art of identifying, recording ,
classifying, summarising, interpreting the results
and communicating financial data to the users.

Meaning of Accounting Principles:

Accounting statements disclose the profitability
and solvency of the business to the various
parties. It is therefore necessary that such
statements should be prepared according to
some standard language and set of rules. These
rules are called GAAP i.e. generally accepted
accounting principles.

Need of Accounting principles:

In order to make accounting information
meaningful to its external and internal users it is
significant that such information is reliable as
well as comparable. The comparability of
information is required to see how a firm has
performed as compared to other firms and how
it has perfomed compared to previous years.

REVENUE REALISATION
CONCEPT:
Revenue means the amount which is added to
the capital as a result of business operation.
Revenue is earned by sale of goods and by
providing service. Principle of revenue
realization determines the point at which the
revenue is realized.
Revenue realization deals with identification of
revenue in the state of profit and loss of an
enterprise. It is concerned with the recognition
of revenue arising in the course of ordinary
activities of an enterprise from
  Sale of goods
 Rendering of services
 The use of by others of enterprise resources
yielding interest, royalty and dividends.

Bases which may be used to determine the time

of revenue realization.
 On the basis of Sales
 On the basis of Cash
 On the basis of Production

 On the basis of Sales:

Sales is supposed to be completed when title
of goods is passed to the buyer and when he
has legally become liable to pay the amount. It
is not concerned with the receipt of cash.
 On the basis of Cash:
Revenue is supposed to have been realized
when actual payment is received. This base is
adopted when the goods have been sold on
credit and there is a doubt regarding
realization of the payment.
 On the basis of Production:
The base of ascertaining revenue is adopted
when all other methods explained above fails
to identify revenue. In construction works one
cannot wait till the construction is completed.

Importance of revenue
realization concept:
Application of realization principle ensures
that the performance of entity, reflects the true
extent of revenue earned during a period
rather than the cash inflows generated during a
financial year.
 Exception:
 Revenue which arises from constructions.
 Revenue which arises from Govt. grants and
other similar subsidies.
 Revenue of insurance companies which arises
from insurance contracts.

EXAMPLE OF REVENUE
REALISATION CONCEPT:
 HYPOTHETICAL
EXAMPLE:
 Advance payments:
Kabir a customer pays Rs.6000 in advance for a
product. The seller does not realize the Rs.6000
of revenue until it’s work on the product is
complete. Consequently the Rs.6000 is initially
recorded as a liability which is then shifted to
revenue only after the product has shipped.
 Delayed Payments:
Ramesh a seller ships goods to a customer on
credit and bills the customer Rs.5500 as soon as
the shipment has been completed, since there
are no additional earning activities to complete.
 Multiple Deliveries:
XY Ltd. (A seller) enters into a sale contract
under which it sells airplane components to the
airline, plus one year of engine maintenance and
initial pilot training, for Rs.5 Lakhs. In this case,
the seller must allocate the price among the
three components of the sale, and realizes
revenue as each one is completed. Thus, XY
Ltd. Probably realizes all of the revenue
associated with the airplane upon delivery,
while realization of the training and
maintenance components will be delayed until
earned.
 PRACTICAL EXAMPLE OF
FIRMS:

FIRM NAME- ASC 606

ASC 606 replaces most existing revenue
recognition guidance and brings
unprecedented challenges for private
companies in 2019. This authoritative guide
will help preparers and auditors unravel the
complexities of the new standard and avoid
areas of concern.

PRODUCT INFORMATION:
Revenue Recognition: Audit and Accounting
Guide
AICPA Member:
 $159.00
Nonmember:
$199.00
Availability:
In Stock
Product Number:
AAGREV19P

Revenue recognition as you

know it is over.
ASC 606, Revenue from Contracts with
Customers, replaces almost all previously
existing revenue recognition guidance,
including industry-specific guidance. That
means unprecedented changes, affecting
virtually all industries and all size organizations.
This authoritative guide will help preparers and
auditors unravel the complexities of the new
standard and avoid areas of concern.
For preparers, this guide provides the
comprehensive reliable accounting
implementation guidance you need to unravel
the complexities of this new standard.
For practitioners, it provides in-depth coverage
of audit considerations, including controls,
fraud, risk assessment, and planning and
execution of the audit. Recent audit challenges
are spotlighted to allow for advance planning in
avoiding these new concern.

This guide includes 16 industry-

specific of the following industries:
Updates
 FASB ASC 606 (FASB ASU No. 2014-09)
 FASB ASU No. 2016-08
 FASB ASU No. 2016-10
 FASB ASU No. 2016-11
 FASB ASU No. 2016-12
 FASB ASU No. 2016-20
 FASB ASU No. 2017-13
 FASB ASU No. 2018-18
WHO WILL BENEFIT
 Accountants and auditors who need to
understand the latest guidance on revenue
recognition.

BATRA STUDY CIRCLE:

Batra study circle is a firm located in
Panipat established in 1994 by Vikas Batra
is actually practicing Revenue recognition
on the basis of cash. Actually what happens
when cash comes in this firm it is recorded
as a revenue in the books of accounts and
this practice is adopted by all the service
sector.
 TATA GROUP:
Tata group is an Indian multinational
conglomerate having company headquarters
in Mumbai and was established in 1868 by
Tata Sons. This company is actually
practicing Revenue recognition on the basis
of sales actually what happens when sales is
completed the revenue is recorded and it is
not concerned with cash.

References:
 Batra Study Circle
 Cleartax.in
 Accounting-simplified.com

Made By:
 Aaditya Aggarwal 19212001
Aman Rao 19212011
Angela Bathla 19212014
Esha Sharma 19212027
Evis Elizabeth Reji 19212028
Ishita Chatterjee 19212033