Meaning of 'Revenue' and effect of uncertainties (AS-9)

Meaning of Revenue. Under AS-9, “revenue is the gross inflow of cash, receivables or other consideration arising in the course of the ordinary activities of an enterprise” (AS 9, para 4.1) from:

1. the sale of goods;
2. the rendering of services; and
3. the use by others of enterprise resources yielding interest, royalties and dividends.

It is measured by the charges made to customers (or clients) for goods supplied and services rendered, and by the charges and rewards arising from the use of resources by others. Amounts collected on behalf of third parties (such as GST) are not revenue, as they do not accrue to the enterprise. Revenue is recognised when performance is achieved and it is not unreasonable to expect ultimate collection.

Effect of uncertainties on revenue recognition.

1. Uncertainty existing at the time of performance. Where, at the time of raising a claim, it is unreasonable to expect ultimate collection, revenue recognition is postponed; recognition is deferred until it becomes reasonably certain that the consideration will be received. Similarly, revenue is recognised only when no significant uncertainty exists regarding the amount of the consideration.
2. Uncertainty arising after revenue has been recognised. If an uncertainty about collectability arises later (e.g. a debt subsequently becomes doubtful), the amount already recognised as revenue is not reduced; instead a separate provision (for the doubtful amount / expected loss) is made. The two events, recognising revenue and providing for a later-arising loss, are treated independently.