What is Ind AS 115 and how does it apply to financial reporting? Explain 5 step?

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Accepted Answer

Ind AS 115 is a new revenue recognition standard that impacts how revenue is recognized in financial statements.

Ind AS 115 is based on the core principle that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled.
The standard outlines a 5-step model for recognizing revenue: identify the contract with the customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations, and recognize revenue when (or as) the entity satisfies a performance obligation.
For example, if a software company enters into a contract to provide software licenses and implementation services to a customer, it must separate the software licenses and services as distinct performance obligations and allocate the transaction price accordingly.
Ind AS 115 aims to provide a more consistent and comprehensive framework for revenue recognition across different industries and improve comparability of financial statements.
The standard also requires enhanced disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

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