Key answer: cash received, invoices raised and revenue earned are different measures
For a company applying Accounting Standards rather than Ind AS, examine service performance and collectability under AS 9 and assess software expenditure under AS 26. An annual subscription received in advance is not automatically earned on the receipt date. A development payroll cost does not automatically create an intangible asset. Reconcile the contracts, performance evidence, invoices, cash and project-cost records before preparing Schedule III.
This article addresses ordinary IT/service and SaaS arrangements of an Indian Division I company. It does not apply the Ind AS 115 five-step model to an AS entity. Complex licences, construction-type contracts and other arrangements can require separate analysis. The examples state simplified assumptions; GST and tax computation are outside their numerical scope. Sources were checked on 22 October 2026.
Support the service-recognition basis with the actual work
AS 9 addresses service revenue by reference to performance and the appropriate service-completion approach, together with measurement and collection uncertainty. For a uniform stand-ready service, a time-based measure may represent performance. A milestone or implementation contract needs its own evidence. Do not use an annual invoice, a payment schedule or a sales target as a substitute for that assessment.
Maintain a contract roll-forward showing opening unearned amounts, new billings/receipts, earned revenue, closing unearned amounts and separately supported unbilled income. Keep revenue and tax on invoices distinguishable. Explain whether an unbilled amount is an established right for services already performed or remains subject to substantive acceptance, uncertainty or further performance. The label unbilled does not itself establish recognition.
A setup charge needs a substantive analysis
Read what the setup work actually delivers and how the entire arrangement is performed. A separate line on the invoice does not by itself establish separately earned revenue. Where a fee only forms part of an ongoing service, use a supported accounting conclusion for that arrangement. Conversely, do not defer a genuinely completed distinct service merely because another service continues. Document the facts rather than borrowing an Ind AS term without applying its framework.
Separate software research from a qualifying development asset
AS 26 distinguishes research expenditure from development that meets its recognition conditions. Document the date the conditions first become demonstrable, the controlled asset, expected benefits, available resources and reliable attributable costs. Earlier expense is not restored to an asset simply because the project later succeeds. Retain the appropriate useful-life, available-for-use and amortisation assessment.
Use project records and staff time to identify eligible amounts. Customer-specific development may create a service deliverable rather than software controlled by the company. Maintenance, support, selling activity and general business-building expenditure need their own treatment. The same payroll cannot remain fully expensed and also be capitalised without the corresponding supported reclassification.
Present the reconciled results under Division I
Use the statutory headings and applicable notes in Schedule III, reproduced in Annexure A of the ICAI Division I publication. Distinguish earned receivables, advances/unearned amounts, intangible assets and development in progress by their actual nature and status. Keep the revenue working, cost working and final notes consistent. A service-sector trial balance alone will not supply all contractual or qualitative disclosures.
Worked illustrations
The following cases use fictional figures and stated assumptions. Amounts are Indian rupees unless a different unit is expressly shown. They illustrate preparation controls and do not represent real client results.
Illustrative example 1: an annual service is paid in advance
A customer pays ₹12,00,000 for a uniform twelve-month service running from 1 January to 31 December 2026. Assume a time-based performance measure is appropriate and collection is reasonably supported. By 31 March, three months have been provided: revenue is ₹3,00,000 and the remaining ₹9,00,000 is unearned. Receipt of all ₹12,00,000 does not change the service period.
Illustrative example 2: earned services exceed billings
A ₹6,00,000 service contract is demonstrably 40% performed at year-end under a supported recognition basis, with no material collection or acceptance uncertainty. Earned revenue is ₹2,40,000. Only ₹1,80,000 has been billed, leaving ₹60,000 to reconcile as earned but unbilled. The example assumes the underlying facts support recognition; it is not a rule to recognise every unbilled milestone.
Illustrative example 3: a setup fee belongs to the ongoing service under the stated facts
An arrangement charges ₹30,000 for setup and ₹1,20,000 for twelve months of service beginning 1 March. Assume the setup produces no separately earned service and the entire ₹1,50,000 is earned evenly over the service period. One month to 31 March gives revenue ₹12,500 and an unearned balance ₹1,37,500. A different substantive setup deliverable can require a different conclusion.
Illustrative example 4: recognition conditions are met partway through development
A controlled software project incurs ₹90,000 research expense, ₹2,10,000 development expenditure before the recognition conditions are demonstrable, and ₹3,00,000 of qualifying directly attributable development costs afterwards. Total spending is ₹6,00,000. Under the stated evidence, ₹3,00,000 is expensed and ₹3,00,000 enters the qualifying asset cost. Later success does not restore the earlier ₹3,00,000 as an asset.
Illustrative example 5: time records support only part of payroll
A development team costs ₹8,00,000. Reliable records show 60% relates to qualifying post-recognition development of the company's asset; the remaining 40% is ordinary maintenance/support assumed to be period expense. The supported split is ₹4,80,000 asset cost and ₹3,20,000 expense, before other applicable costs or adjustments. The 60% is an illustrative evidenced allocation, not a statutory percentage.
Illustrative example 6: amortisation begins when the asset is available for use
Assume recognised software cost ₹6,00,000, no residual value, a supported three-year useful life and straight-line amortisation. It becomes available for use on 1 October. The annual charge is ₹2,00,000; six months to 31 March gives ₹1,00,000 and carrying value ₹5,00,000, ignoring impairment and other movements. The three-year life is an assumption, not a universal AS 26 rule.
Ten-step verification table
| Step | Verification | Evidence to retain |
|---|---|---|
| 1 | Confirm the AS framework and Division I applicability. | Recorded framework and entity scope. |
| 2 | Identify contracts, performance periods and substantive deliverables. | Executed terms and service evidence. |
| 3 | Reconcile invoices, collections and earned revenue. | Contract-level roll-forward. |
| 4 | Support unbilled rights and collection assumptions. | Work acceptance and collectability evidence. |
| 5 | Assess setup and implementation fees on their facts. | Documented recognition conclusion. |
| 6 | Separate research and development stages. | Project-stage and recognition-date record. |
| 7 | Trace eligible development costs and controlled asset rights. | Time records, invoices and ownership/control evidence. |
| 8 | Establish available-for-use dates and amortisation. | Deployment evidence and useful-life assessment. |
| 9 | Reconcile the closing balances and notes. | Revenue, liability and intangible movement schedules. |
| 10 | Check comparatives and final statutory presentation. | Signed prior-year reconciliation and reviewed output. |
Sixteen practitioner FAQs
1. Does collecting an annual subscription create immediate annual revenue?
No. Assess the services performed and the appropriate recognition basis. Cash timing and earning are distinct.
2. Is straight-line recognition compulsory for every SaaS arrangement?
No. Time can be a suitable measure for a uniform service, but the actual performance and contractual facts determine the supported basis.
3. Does issuing an invoice prove the amount is earned?
No. Reconcile the invoice to performance and any unearned element.
4. Can unbilled work always be recognised?
No. Support performance, measurement and collectability, including any material acceptance condition. A spreadsheet estimate alone is insufficient.
5. Should AS entities automatically use Ind AS 115 terminology?
Apply the applicable framework first. This article uses AS 9; it does not substitute the Ind AS model for it.
6. Does a separate setup invoice guarantee separate revenue?
No. Determine what was delivered and whether the charge is substantively earned on completion or part of the ongoing service.
7. Are all software developers' salaries asset costs?
No. Identify qualifying attributable expenditure after recognition conditions are met and distinguish maintenance, research and other activities.
8. Can earlier research expenditure be capitalised after launch?
Do not restore earlier expensed expenditure simply because the project later succeeds. Trace when the recognition conditions were first met.
9. What if the customer owns the software being built?
Assess whether the company controls any asset at all. Customer-service costs and the company's own development asset are different questions.
10. Does a successful prototype prove every development condition?
No. Document all relevant recognition conditions, resources, benefits and reliable attributable cost, not only technical feasibility.
11. Can an unsupported fixed percentage allocate development payroll?
Use reliable evidence of the work performed. The percentage in the illustration is an assumption supported by its stated time records.
12. Is three years a mandatory software life?
No. It is the worked example's supported assumption. Establish the actual useful life and applicable amortisation requirements.
13. Does amortisation start on the first customer sale?
Establish when the asset is available for use under the applicable standard. A first sale and availability may occur on different dates.
14. Can capitalised payroll remain fully expensed as well?
Avoid double recognition. Reconcile any supported asset-cost reclassification to the payroll ledger and final P&L.
15. Are tax and GST recognition automatically identical to accounting?
No. Prepare their separate applicable-law reconciliations. The numerical examples here exclude those computations.
16. What should the final reviewer receive?
Provide contract revenue roll-forwards, unbilled/advance support, development-stage evidence, asset movements and the matching statutory notes.
Organising the supporting working
Keep the underlying records, calculation and conclusion linked to the same entity and period. When organising work with assureFinancials and the assureOffice tools, retain these supporting schedules alongside the final output and use only the features confirmed for the version available to you.
Conclusion
Close service contracts and development projects through separate evidence-backed workings. Reconcile the earned revenue, unearned balance, supported asset cost and amortisation to the same final reporting period.