Accounting of Significant Financing Component Under Ind AS 115 When Customer Pays Consideration in Advance
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- Last Updated on 26 September, 2023
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Para 61 of Ind AS 115, Revenue from Contracts with Customers, provides that in determining the transaction price, an entity shall adjust the promised amount of consideration for the effects of the time value of money if the timing of payments agreed to by the parties to the contract (either explicitly or implicitly) provides the customer or the entity with a significant benefit of financing the transfer of goods or services to the customer.
In those circumstances, the contract contains a significant financing component. A significant financing component may exist regardless of whether the promise of financing is explicitly stated in the contract or implied by the payment terms agreed to by the parties to the contract.
This discussion will take you through a case study on how to account for revenue in books where under a contract a customer pays consideration in advance thereby involving a significant finance component and accounting policy for the same.
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