Economics · Accounting Standards
An IT services company enters into a contract with a bank to provide a customized software solution, cloud hosting for 5 years, and 24/7 technical support. The total contract value is ₹10 crore. The company wants to recognize the entire ₹10 crore as revenue in the first year because the software delivery is completed then. As a financial controller, how would you evaluate this based on Ind AS 115?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Capitalize the entire amount as an asset and amortize it over the 5-year period to match the hosting term.
- 2Recognize revenue only when the cash is received from the bank to follow the conservative approach.
- 3Reject the treatment because the contract contains distinct performance obligations; revenue must be allocated to each and recognized as and when each is satisfied.✓
- 4Approve the recognition as the software delivery signifies the major risk transfer.
Correct answer
Reject the treatment because the contract contains distinct performance obligations; revenue must be allocated to each and recognized as and when each is satisfied.
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