Veteran Auditor Dolphy D’Souza’s Riveting Exposition on “Revenue Recognition in Complex Business Models”!

Episode Duration:
20 minutes

Episode  Background:
The revenue number in the P&L is very critical because the valuation of an entity is largely dependent upon it. One aspect of revenue recognition is the “gross vs net revenue recognition”, whereby the analysis of gross v/s net revenue recognition under Ind AS 115 - Revenue from Contracts with Customers can be a highly complex and judgmental exercise. This analysis particularly impacts new-age digital, internet-based companies, across several sectors.

What shall the episode cover?
In this context, Veteran Auditor & Ind-AS Expert Mr. Dolphy D'Souza records an exclusive 20 minutes video for Greentick Readers on the highly vexed theme of “Accounting in Complex Business Models.” Over the course of the detailed presentation, the expert basis his discussion by taking a particular business model that is highly convoluted, (viz. an entity that provides an online wallet facility to wallet users for paying merchants) and then evaluates the outcomes under different scenarios for that business model, from an Ind-AS perspective.

Outlining the five-step approach as enumerated under Ind-AS 115, the veteran raises pertinent questions vis-à-vis the aforesaid business model, (i) Who is the Customer – The Merchant or Waller User?; (ii) Whether the transactions with merchant and wallet user are distinct? & (iii) Whether the incentives credited to wallet users should be charged as a marketing expense or netted off from the commission earned from the merchant?. In order to arrive at a conclusion, the expert first quotes several relevant provisions of Ind-AS 115 such as the definition of a customer & revenue, the consideration payable to a customer etc., and then goes on to culminate all the said knowledge (vide a table) to determine the accounting outcome [gross vs net] in five different scenarios.