Start with the customer's control, not the invoice date
Under Ind AS 115 B79–B81, a supplier may recognise product revenue before physical delivery only if the customer has obtained control. In addition to assessing the paragraph 38 indicators, all four B81 conditions must be met: a substantive reason for the arrangement, separate identification of the customer's product, readiness for physical transfer, and no ability for the supplier to use or redirect it. A payment, warehouse tag or invoice alone cannot establish the conclusion.
Read the applicable text: MCA Ind AS 115, paragraphs 22–30, 38, 73–86, 105–108 and B79–B86.
Make the evidence specific to the unit
Record why the goods remain with the seller, who requested or agreed the hold, the relevant serial or lot, completion and release evidence, and who can change the stock allocation. Match the approval to the exact product and reporting date. A finished good that is still awaiting essential calibration or a substantive acceptance condition calls for separate analysis. Under B83–B86, distinguish an acceptance formality from uncertainty about whether agreed specifications have been met.
Separate custody from product delivery
B82 requires an assessment of remaining performance obligations, for example custody. Assess whether the custody promise is distinct under paragraphs 22–30. If it is a remaining performance obligation, allocate the transaction price to it under paragraphs 73–86, as applicable. In a simple fixed-price contract without a special allocation exception, use relative stand-alone selling prices. Recognise the storage component when or as the custody obligation is satisfied, based on the facts. The illustration with a monthly service assumes an even transfer pattern.
Protect cut-off from warehouse substitutions
For each lot, obtain a segregation map, validate locked serials in the dispatch system and inspect substitutions after year-end. Later dispatch may corroborate the original allocation, but does not create control retrospectively if the original criteria failed. Once control transfers, reconcile the inventory relief and distinguish stock held for the customer from the supplier's own stock.
Use exception reporting to focus the close
Review goods billed but not shipped, unusual late credit notes, holds initiated by sales and items still in production. Reconcile recognised product amounts, deferred product amounts, custody allocation and subsequent release. Keep GST invoicing and return analysis separate from the financial reporting conclusion.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: All conditions supported
A customer requests a hold for a finished machine sold for ₹9 lakh. The tagged unit is ready and locked against redirection; assume the control indicators also support transfer. If its carrying amount is ₹6 lakh and there is no remaining obligation, product revenue is ₹9 lakh, cost ₹6 lakh and gross margin ₹3 lakh.
Illustrative example 2: Redirectable equipment
Goods billed for ₹14 lakh remain fungible and can be sent to another customer. With no transfer of control, product revenue is zero at close, so ₹14 lakh of billed product value remains outside revenue at that date.
Illustrative example 3: Calibration pending for part of an order
Assume two distinct units with ₹4 lakh and ₹5 lakh of the transaction price allocated to them respectively. The first meets all criteria. Essential calibration is outstanding on the second, and control has not passed. Recognise ₹4 lakh product revenue and keep ₹5 lakh outside revenue.
Illustrative example 4: Distinct custody allocation
The fixed price is ₹12 lakh. Stand-alone prices are ₹12 lakh for equipment and ₹3 lakh for three months of distinct custody. Allocate ₹9.6 lakh to equipment and ₹2.4 lakh to custody. If product control has passed and one of three equal service months is complete, cumulative revenue is ₹10.4 lakh, leaving ₹1.6 lakh of allocated custody revenue.
Illustrative example 5: Customer cash before control
The buyer pays ₹3 lakh of a ₹10 lakh purchase price before a qualifying transfer. Assume a valid contract and that the remaining ₹7 lakh is not yet due or otherwise unconditional. The payment gives rise to a ₹3 lakh contract liability and zero product revenue at close. If a further amount becomes unconditionally due before transfer, assess both the receivable and contract liability under paragraphs 105–108.
Illustrative example 6: Serials tested by batch
Of 60 separately transferable units at ₹25,000 each, only 42 meet the conditions at close. Recognised product revenue is ₹10.5 lakh and the 18 remaining units represent ₹4.5 lakh of product value awaiting transfer.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Identify the unshipped billing population | Sales invoices and dispatch exception report |
| 2 | Read delivery and acceptance terms | Executed contract and acceptance requirements |
| 3 | Establish the substantive hold reason | Customer correspondence and approved date |
| 4 | Check control indicators | Payment rights, title, risks and acceptance evidence |
| 5 | Match identified units | Serial list and customer allocation |
| 6 | Confirm physical readiness | Production, test and release records |
| 7 | Prevent and inspect redirection | Dispatch locks and substitution history |
| 8 | Assess any custody promise | Storage terms and distinct-service analysis |
| 9 | Allocate price and post cut-off | Stand-alone price file and revenue bridge |
| 10 | Review subsequent evidence | Shipment records and sign-off on unresolved items |
Sixteen practitioner FAQs
1. Does a year-end invoice establish control?
No. Assess paragraph 38 and all B81 conditions.
2. Must goods leave the seller's premises?
Not if the supported arrangement transfers control while the seller retains custody.
3. Is lack of space a substantive reason?
It can be when supported by the customer's circumstances.
4. Can sales request a hold for its own target?
An internal target does not establish a substantive customer arrangement.
5. Does a warehouse label prove the unit is identified?
It helps, but trace the exact unit to the contract and inventory controls.
6. What if an equivalent unit can be substituted?
Test whether that discretion shows the seller retains use or redirection ability.
7. Are goods ready while essential testing remains?
Determine whether they can currently be physically transferred as the promised product.
8. Can customer acceptance be only a formality?
It can be when compliance with agreed specifications is objectively determinable under the standard.
9. Does an advance create revenue?
For an existing contract, a payment before transfer generally creates a contract liability. Paragraph 106 also applies if payment becomes due before the related goods or services transfer.
10. Is custody necessarily a separate obligation?
Apply the distinct-service analysis to the contract.
11. What allocation applies to simple fixed-price obligations?
Generally relative stand-alone prices, subject to applicable exceptions.
12. When does storage revenue arise?
When or as the storage obligation is satisfied.
13. Can different units in one order have different outcomes?
Assess the actual units or performance obligations and associated evidence.
14. Does later shipping cure failed criteria at year-end?
It can evidence prior facts, but cannot retrospectively create control.
15. What should inventory reporting show after control passes?
Reconcile the removal from owned inventory and track goods still physically held for the customer.
16. Does accounting determine the GST invoice date?
Apply GST rules separately.
Official sources
MCA Ind AS 115, paragraphs 22–30, 38, 73–86, 105–108 and B79–B86