Control determines whether a contribution is consideration
Ind AS 115 paragraph 69 requires an entity to assess control when the customer contributes goods or services to help fulfil the contract. If the supplier obtains control, account for the contributed goods or services as non-cash consideration. Mere possession, tracking in a factory or temporary use subject to customer directions does not settle control. Apply the analysis to the precise materials, equipment or labour contributed.
Read the applicable text: MCA Ind AS 115, paragraphs 31–33, 56–58, 66–69 and 73–86.
Read rights and obligations before measuring
Apply the control concept in paragraph 33: assess who can direct use and obtain substantially all remaining benefits, including the ability to prevent others from doing so. Review substitution and redirection rights and any duty to return unused units. Reconcile contract terms to stock records and observed practice. A label such as free issue is not a conclusion. Keep goods in custody separately identified so the control assessment is not driven by the way the warehouse system books receipts.
Measure the controlled contribution within the transaction price
Paragraph 66 uses fair value for non-cash consideration. If the entity cannot reasonably estimate it, paragraph 67 measures consideration indirectly by reference to the stand-alone selling price of the promised goods or services exchanged for that consideration. Where a contract mixes cash and non-cash consideration, reconcile the reference pricing to the overall exchange and avoid adding the cash component twice.
Distinguish variability and timing
Paragraph 68 directs the entity to paragraphs 56–58 when the promised non-cash consideration varies for reasons other than only its form, such as the entity's performance. Preserve the valuation assumptions and assess the variable consideration constraint where applicable. This article does not prescribe a universal valuation date or subsequent accounting for every type of non-cash asset.
Reconcile performance, contributions and inventory separately
The transaction price is not automatically revenue at receipt of the contribution. Allocate to performance obligations and recognise revenue when or as they are satisfied. For items controlled by the supplier, assess the appropriate asset, expense or other accounting treatment separately. For custody stock, preserve quantity and return reconciliations without adding customer-owned material value to transaction price solely because it passes through the factory.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Customer retains control
A job uses materials valued at ₹4 lakh that the supplier must hold for the customer and cannot redirect. Assuming no other consideration and a ₹6 lakh cash fee, transaction price on these facts is ₹6 lakh, with the materials excluded.
Illustrative example 2: Supplier controls a contribution
Cash consideration is ₹7 lakh and the supplier controls contributed inputs with supportable fair value of ₹2 lakh. Transaction price is ₹9 lakh, before any other adjustments.
Illustrative example 3: Two populations within one contract
Of ₹3 lakh of customer material value, ₹1.2 lakh relates to inputs controlled by the supplier and ₹1.8 lakh remains under customer control. With ₹5 lakh cash consideration the transaction price is ₹6.2 lakh on the assumptions.
Illustrative example 4: Indirect measurement
A service is exchanged solely for an item whose fair value cannot reasonably be estimated. The service's observable stand-alone price is ₹4.5 lakh. Assuming the paragraph 67 condition is met, use ₹4.5 lakh to measure consideration indirectly.
Illustrative example 5: Performance-linked additional goods
Assume fixed cash of ₹8 lakh and a controlled contribution with fair value of ₹1 lakh included in consideration. An additional ₹0.6 lakh contribution depends on performance and is wholly constrained. The current transaction price is ₹9 lakh; reassess the excluded ₹0.6 lakh when facts change.
Illustrative example 6: Allocate controlled value across obligations
A ₹12 lakh transaction price, including qualifying contributed material, is allocated between obligations with stand-alone prices ₹9 lakh and ₹6 lakh. Assume no specific-allocation exception. Relative allocations are ₹7.2 lakh and ₹4.8 lakh. If only the first is satisfied, recognise ₹7.2 lakh at that stage on the assumed facts.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Identify each contribution | Contract and customer issue documents |
| 2 | Trace rights over use | Ownership, direction and return clauses |
| 3 | Check physical and contractual segregation | Stock IDs and custodian records |
| 4 | Evaluate control separately by population | Control assessment and contrary evidence |
| 5 | Obtain fair-value support | Comparable prices or valuation file |
| 6 | Support any indirect measurement | Stand-alone selling price evidence |
| 7 | Assess variability and constraint | Performance terms and reversal-risk analysis |
| 8 | Allocate consideration | Obligation and pricing matrix |
| 9 | Recognise only satisfied performance | Completion and accounting records |
| 10 | Reconcile physical and financial balances | Usage, return and ledger trail |
Sixteen practitioner FAQs
1. Is receipt of material proof of control?
No. Evaluate the substantive rights.
2. Does legal title always decide the outcome?
It is evidence, but assess control under the standard.
3. Can one contract have two material populations?
Yes. Apply the control test to each identifiable population.
4. Is equipment treated the same as materials?
Paragraph 69 covers contributed goods or services; examine the equipment rights on their facts.
5. What about customer-provided labour?
Apply the control assessment to the contributed service.
6. Does restricted use always rule out control?
Evaluate the specific restriction and whether the supplier directs use and obtains benefits.
7. How is controlled consideration generally measured?
At fair value under paragraph 66.
8. Can invoice cost automatically substitute for fair value?
Use a supportable measurement, not an untested cost label.
9. When is indirect measurement used?
When fair value of non-cash consideration cannot reasonably be estimated under paragraph 67.
10. What is used for that indirect estimate?
Stand-alone selling price of the goods or services promised in exchange.
11. What if additional materials depend on a performance target?
Apply paragraphs 56–58 when paragraph 68 requires it.
12. Is a market price movement itself a performance condition?
No. Distinguish variability caused by the form from other causes.
13. Can receipt alone trigger product revenue?
Recognise revenue according to satisfaction of the relevant obligation.
14. Does the contributed item's asset accounting follow automatically from paragraph 69?
Review the applicable recognition and classification requirements separately.
15. How should unused customer-owned stock be tracked?
Maintain quantity, custody and return evidence.
16. Does the accounting result set the GST value?
Assess GST valuation independently.