Start with the relationship and what the supplier receives
Ind AS 115 paragraphs 70–72 generally reduce the transaction price for consideration payable to a customer, including cash and credits. The analysis can also reach payments to parties that buy the supplier's goods or services from that customer. Account for payment in exchange for a distinct good or service transferred to the supplier under the purchase rules in paragraph 71. Any excess above reliably estimable fair value reduces the transaction price; where fair value cannot reasonably be estimated, the entire payment reduces it. A retailer invoice headed marketing fee does not itself prove a distinct service.
Read the applicable text: MCA Ind AS 115, paragraphs 26–30, 50–58 and 70–72.
Separate a promised deliverable from a sales concession
Review the contract, side letters, deliverables, ability to benefit and whether the promise is separately identifiable. Apply the paragraph 26–30 distinct criteria as referenced in paragraph 70: the supplier can benefit from the good or service on its own or with readily available resources, and it is separately identifiable in the arrangement. Obtain evidence that a campaign, analysis or other service was actually delivered. A payment to obtain or maintain ordinary shelf access should be assessed on its real terms and rights, not a blanket rule based on its label.
Measure the purchase and any excess
Under paragraph 71, account for a distinct good or service as for other purchases from suppliers. If the payment exceeds its fair value, reduce the transaction price by the excess. If fair value cannot reasonably be estimated, reduce the transaction price by the entire amount. An unsupported allocation to advertising expense understates the sales concession.
Apply the timing rule to the reduction
Paragraph 72 recognises the revenue reduction when or as the later of recognising revenue for the related goods or services and paying or promising the consideration. A promise can arise from customary business practice and may exist before cash payment. For variable payments apply the estimation and constraint requirements referenced in paragraph 70. Map the reduction to the related sales and document the period allocation.
Close the customer and supplier ledgers together
Match cash, settlement offsets and credit instruments against the same programme identifier. Record any purchase component separately and apply normal recognition requirements to it; the purchase component is not necessarily an immediate expense. Check for duplicated netting in revenue and marketing accruals. GST credit-note and valuation rules require their own analysis.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Listing payment without a distinct deliverable
Gross related revenue is ₹20 lakh and a fixed ₹2 lakh payment provides no distinct service. Assuming the timing conditions are met, reduce revenue to ₹18 lakh.
Illustrative example 2: Distinct campaign at supported fair value
A retailer delivers a distinct campaign for ₹1.5 lakh, supported by fair value of ₹1.5 lakh. On the assumptions the purchase component is ₹1.5 lakh and the reduction of revenue is zero.
Illustrative example 3: Excess over fair value
A supplier pays ₹3 lakh for a distinct service with fair value ₹1.8 lakh. Account for ₹1.8 lakh as a purchase and reduce the transaction price by ₹1.2 lakh. For ₹15 lakh related revenue the result is ₹13.8 lakh when recognition conditions are met.
Illustrative example 4: Fair value cannot be reasonably estimated
A customer delivers a distinct item but its fair value cannot reasonably be estimated. A ₹75,000 payment reduces ₹6 lakh related revenue to ₹5.25 lakh, assuming the timing condition is met.
Illustrative example 5: Promise before related sales
A ₹90,000 fixed concession is promised in February; assume the related goods transfer and the related revenue is first recognised in March. If the March related revenue is ₹9 lakh, the reduction is recognised in March on these assumptions, leaving ₹8.1 lakh.
Illustrative example 6: Cash and credit settle one obligation
A single ₹1.2 lakh non-distinct programme is settled with ₹70,000 cash and ₹50,000 credit. The total revenue reduction is ₹1.2 lakh once, not ₹1.7 lakh from also deducting the credit again.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Identify payments to customers and downstream parties | Customer and vendor ledger match |
| 2 | Collect commercial terms | Contract, side letter and approved programme |
| 3 | Identify promised deliverables | Scope and delivery evidence |
| 4 | Apply the distinct test | Benefit and separately identifiable analysis |
| 5 | Support fair value | Comparable prices and valuation working |
| 6 | Split purchase and excess | Approved allocation and basis |
| 7 | Identify the promise date | Authorisation and customary practice evidence |
| 8 | Map related revenue timing | Sales cohort and recognition record |
| 9 | Check offsets and duplicate entries | Cash, credit and ledger reconciliation |
| 10 | Approve presentation | Revenue bridge and purchase recognition evidence |
Sixteen practitioner FAQs
1. Does a retailer invoice establish a purchase?
It is evidence of a claim; test the distinct deliverable.
2. Do credits and vouchers count?
Paragraph 70 includes relevant credits usable against amounts owed.
3. Can downstream customer payments be covered?
Yes, assess whether the payee purchases the goods or services from the entity's customer.
4. What if a payment is simply a sales incentive?
If no distinct good or service is received, it generally reduces transaction price.
5. Does a campaign always qualify as distinct?
Assess the facts under paragraphs 26–30 and obtain delivery evidence.
6. What if payment exceeds fair value?
The excess reduces the transaction price.
7. What if fair value cannot reasonably be estimated?
The entire payment reduces the transaction price.
8. Is the purchase component immediately expensed?
Apply the normal accounting for the purchase and its recognition timing.
9. When does a fixed revenue reduction arise?
Apply the later-of rule in paragraph 72.
10. Can past practice constitute a promise?
Yes, paragraph 72 recognises that possibility.
11. Can the payment date be later than the promise?
Yes; distinguish the promise from settlement when applying the rule.
12. What if a rebate is variable?
Apply the variable-consideration requirements referenced in paragraph 70.
13. Should cash and a credit note be netted separately from the same accrual?
Reconcile them as settlements of one obligation where that is the fact.
14. Does a tax credit note determine Ind AS presentation?
No. Review each framework separately.
15. How should shared marketing amounts be supported?
Identify the specific deliverables, fair value and related sales.
16. Which records help a reviewer reproduce the adjustment?
Terms, deliverables, valuation, related sales and settlement evidence.