Wip in software industries

This query is : Resolved

Rupesh (Querist)
Follow

11 May 2012 Dear Sir,

one of my client is making software.they are paying salaries to software engineers.At the end of the year they are still working on software.Do we need to show the salary paid to Engineers as WIP ?

Client is making its own Portal like "JUSTDIAL".they are going to launch the portal after one year.But the salary is paid to their engineers for making portal.Do we need to show the salary paid to Engineers as WIP ?

pls reply urgently.

Thanks

Rupesh shah

CA Ghanshyam Joshi

CA Ghanshyam Joshi (Expert)
Follow

11 May 2012 refer the below link on ICAI web site -
http://220.227.161.86/23626research4.pdf

http://220.227.161.86/251as9new.pdf

7. Rendering of Services
7.1 Revenue from service transactions is usually recognised as the service
is performed, either by the proportionate completion method or by the
completed service contract method.
(i) Proportionate completion method—Performance consists of
the execution of more than one act. Revenue is recognised
proportionately by reference to the performance of each act. The
revenue recognised under this method would be determined on
the basis of contract value, associated costs, number of acts or
other suitable basis. For practical purposes, when services are
provided by an indeterminate number of acts over a specific period
of time, revenue is recognised on a straight line basis over the
specific period unless there is evidence that some other method
better represents the pattern of performance.

Revenue Recognition 133
(ii) Completed service contract method—Performance consists of
the execution of a single act.Alternatively, services are performed
in more than a single act, and the services yet to be performed
are so significant in relation to the transaction taken as a whole
that performance cannot be deemed to have been completed until
the execution of those acts. The completed service contract
method is relevant to these patterns of performance and
accordingly revenue is recognised when the sole or final act takes
place and the service becomes chargeable.

CA Ghanshyam Joshi

CA Ghanshyam Joshi (Expert)
Follow

11 May 2012 Accounting Standard
10. Revenue from sales or service transactions should be recognised
when the requirements as to performance set out in paragraphs 11 and
12 are satisfied, provided that at the time of performance it is not
unreasonable to expect ultimate collection. If at the time of raising of
any claim it is unreasonable to expect ultimate collection, revenue
recognition should be postponed.
11. In a transaction involving the sale of goods, performance should
be regarded as being achieved when the following conditions have been
fulfilled:
(i) the seller of goods has transferred to the buyer the property
in the goods for a price or all significant risks and rewards of
ownership have been transferred to the buyer and the seller
retains no effective control of the goods transferred to a degree
usually associated with ownership; and
(ii) no significant uncertainty exists regarding the amount of the
consideration that will be derived from the sale of the goods.
12. In a transaction involving the rendering of services, performance
should be measured either under the completed service contract method
or under the proportionate completion method, whichever relates the
revenue to the work accomplished. Such performance should be
regarded as being achieved when no significant uncertainty
exists regarding the amount of the consideration that will be
derived from rendering the service.
13. Revenue arising from the use by others of enterprise resources
yielding interest, royalties and dividends should only be recognised when
no significant uncertainty as to measurability or collectability exists.
These revenues are recognised on the following bases:
(i) Interest : on a time proportion basis taking into
account the amount outstanding and the
rate applicable.
(ii) Royalties : on an accrual basis in accordance with
the terms of the relevant agreement.
(iii) Dividends from : when the owner’s right to receive payment
investments in is established.
shares
Disclosure
14. In addition to the disclosures required by Accounting Standard 1
on ‘Disclosure of Accounting Policies’ (AS 1), an enterprise should also
disclose the circumstances in which revenue recognition has been
postponed pending the resolution of significant uncertainties.

Upgrade to CAclubindia Pro. Subscribe Now!