DDP sales - date of booking revenue

[Raam Srinivasan Swaminathan Kalpathi]

An automotive ancillary is exporting goods to USA. The customer to avoid 'Trump's tantrum tariff' has contracted with the supplier in India that goods will have to be delivered on his factory/ store gate on 'Delivered Duty Paid' inco terms. I seek the opinion of experts as to the time of recognition of revenue under Ind AS 115 by the supplier company located in India. If possible, a specific mention of the para no. would greatly help.

[YAGAY andSUN]

In a DDP (Delivered Duty Paid) export contract, the answer under Ind AS 115 is not determined by shipment from India, but by when control of the goods transfers to the customer. The Incoterm is highly relevant because it helps determine when control passes, but it is not automatically conclusive.

Relevant Ind AS 115 Guidance

Paragraph 31 is the starting point:

Revenue is recognized when (or as) the entity satisfies a performance obligation by transferring a promised asset to the customer, i.e., when the customer obtains control of that asset.

Paragraph 32 then requires an entity to determine whether the performance obligation is satisfied:

• Over time (paras 35-37), or
• At a point in time (para 38).

For a normal sale of manufactured automotive components, the performance obligation is usually satisfied at a point in time, not over time.

Paragraph 38 - Indicators of Transfer of Control

When a performance obligation is satisfied at a point in time, Ind AS 115 para 38 requires consideration of indicators such as:

• Present right to payment,
• Legal title,
• Physical possession,
• Significant risks and rewards of ownership,
• Customer acceptance.

No single indicator is decisive; the overall assessment is whether control has transferred.

Application to DDP Exports to USA

Under DDP, the Indian supplier is responsible for:

• International freight,
• Insurance (if contracted),
• Import customs clearance,
• Import duties/tariffs (including any applicable US tariffs),
• Delivery to the buyer's named destination.

Commercially, the seller continues to bear substantial obligations and risks until delivery at the agreed destination.

Therefore, in many DDP contracts, control does not transfer when:

• Goods leave the Indian factory, or
• Goods are loaded on the vessel, or
• Goods reach the US port.

Instead, control often transfers only when the goods are delivered to the customer's specified location (factory/store/warehouse) and the customer can direct their use. This would generally support revenue recognition upon delivery at destination.

[YAGAY andSUN]

Important Caveat

Do not assume:

DDP = Revenue only on delivery

or

Shipment = Revenue recognition.

Ind AS 115 requires analysis of the contract terms, not merely the Incoterm.

For example, if the contract explicitly states that:

• legal title transfers earlier,
• the customer bears inventory risk in transit,
• the customer has an unconditional obligation to pay once goods are shipped,

then control could potentially transfer before final delivery, notwithstanding the DDP term. The contractual substance must be examined against the para 38 indicators.

Practical View for Your Fact Pattern

You stated:

"Goods will have to be delivered on the customer's factory/store gate on DDP terms.”

In that fact pattern, and assuming there are no unusual clauses transferring control earlier, the strongest Ind AS 115 view is:

Revenue should generally be recognized when the goods are delivered at the customer's designated premises in the USA and control passes to the customer, not when the goods are shipped from India. This conclusion is based primarily on:

• Para 31 (transfer of control),
• Para 32 (point-in-time recognition),
• Para 38 (indicators of transfer of control).

Suggested Citation for an Accounting Memo

“In accordance with Ind AS 115 paragraphs 31, 32 and 38, revenue from the sale of goods is recognized when control of the goods transfers to the customer. In a DDP arrangement requiring delivery to the customer's premises, the seller generally retains responsibility for transportation, customs clearance and import duties until delivery. Accordingly, absent contrary contractual provisions indicating earlier transfer of control, revenue would ordinarily be recognized upon delivery of the goods at the customer's designated location.”

[YAGAY andSUN]

. If this is intended for an audit file, accounting position paper, or discussion with statutory auditors, I would add a few important Ind AS 115 nuances that strengthen the conclusion and address likely audit questions.

1. Distinguish "Control" from "Risk and Rewards"

A common mistake is to conclude that because the seller bears risk until delivery under DDP, revenue must be deferred until delivery.

Ind AS 115 moved away from the old Ind AS 18 / AS 9 "risk and rewards" model. Under Ind AS 115, the primary test is transfer of control.

You may therefore state:

Although DDP terms indicate that the seller retains significant risks and responsibilities until delivery, risk and rewards are only one indicator of control under paragraph 38. The assessment must consider all relevant indicators of control and not merely the allocation of transportation and customs risks.

This demonstrates that the conclusion is based on Ind AS 115 principles rather than solely on the Incoterm.

2. Examine Whether Shipping Is a Separate Performance Obligation

Another important consideration is whether the transportation service after shipment is:

• part of the obligation to deliver the goods, or
• a distinct service provided after control of the goods has transferred.

Under your fact pattern ("delivery at customer's factory/store gate"), the stronger view is usually:

The seller's promise is to deliver the goods at the customer's premises; therefore, transportation and customs clearance are activities required to fulfil the promise rather than separate performance obligations.

This supports recognizing revenue at destination.

3. Consider Paragraph 38 Indicators Individually

Auditors often appreciate a tabular assessment:

Indicator (Para 38)	DDP Factory-Gate Delivery
Present right to payment	Usually arises on delivery or acceptance
Legal title	Often transfers on delivery (check contract)
Physical possession	Customer obtains possession at destination
Significant risks and rewards	Largely retained by seller until delivery
Customer acceptance	Often linked to receipt/delivery

Where most indicators point to destination delivery, the conclusion becomes more robust.

[YAGAY andSUN]

4. Reference the Contract Asset / Unbilled Revenue Issue

If goods are shipped before year-end but delivered after year-end:

• Inventory may have physically left India.
• However, revenue may still not be recognized.

The goods may continue to be reflected as inventory (or sometimes as goods in transit, depending on the facts) until control transfers.

This is often the real accounting consequence that auditors focus on.

5. Mention IFRS 15 Illustrative Guidance (Useful Audit Support)

Since Ind AS 115 is substantially converged with IFRS 15, many audit firms refer to IFRS guidance on shipping terms.

The general principle emerging from IFRS 15 implementation guidance is:

Shipping terms and Incoterms are evidence of when control transfers, but they do not by themselves determine the accounting outcome.

This helps counter arguments that "DDP automatically means revenue on delivery" or "shipment automatically means revenue recognition."

Suggested Enhanced Conclusion

Based on Ind AS 115 paragraphs 31, 32 and 38, revenue should be recognized when control of the goods transfers to the customer. In a DDP arrangement requiring delivery to the customer's factory/store gate, the seller remains responsible for transportation, customs clearance, import duties and delivery to the specified destination. While DDP terms are not determinative in themselves, the indicators of control under paragraph 38, particularly physical possession, customer acceptance, retention of significant risks and responsibilities, and contractual delivery obligations, generally support the conclusion that control transfers upon delivery at the customer's premises. Accordingly, absent specific contractual provisions indicating an earlier transfer of control, revenue would ordinarily be recognized only upon delivery of the goods at the customer's designated location in the USA.

One final practical point: if the arrangement has been modified specifically to absorb the new US tariffs, I would also separately assess whether the seller is acting as principal for the import duty/tariff element (Ind AS 115 B34-B38). In most DDP arrangements the seller is the principal and the tariff cost is treated as part of the cost of fulfilling the contract rather than a reduction of revenue, but the contract should be reviewed to confirm this. This is an area auditors may specifically question given the significance of the tariffs.

[YAGAY andSUN]

For a professional accounting or audit note, I'd summarize the position in one sentence as follows:

"Under Ind AS 115, revenue recognition in a DDP export arrangement is driven by the transfer of control (paras 31, 32 and 38) rather than by shipment or transfer of risks alone. Where the seller's contractual obligation is to deliver goods to the customer's premises in the USA and the indicators of control point to delivery at destination, revenue would ordinarily be recognized upon such delivery unless the contract clearly evidences an earlier transfer of control."

A few audit-sensitive areas worth checking before finalizing the position are:

• Title transfer clause - does legal title pass at shipment, port arrival, or destination?

• Payment terms - is payment due on shipment or delivery?

• Customer acceptance provisions - is acceptance deemed on receipt or earlier?

• Insurance and transit risk - who bears the risk of loss during transit?

• Import duty/tariff responsibility - confirm that under DDP the seller remains responsible for import clearance and duties.

• Year-end cut-off - goods shipped before year-end but delivered after year-end often require careful assessment to avoid premature revenue recognition.

If this is for submission to statutory auditors or inclusion in a technical accounting memo, a concise 1-2 page position paper citing the relevant Ind AS 115 paragraphs and applying each para 38 indicator to the facts can be very persuasive and easier for reviewers to sign off.

Glad to help, and that's an interesting real-world application of Ind AS 115 in the context of evolving tariff arrangements.

AI Summary

Revenue recognition under Ind AS 115 in DDP export sales turns on transfer of control and delivery terms. Revenue recognition under Ind AS 115 in a cross-border sale on Delivered Duty Paid (DDP) terms, where an Indian supplier exports goods to the USA and is required to deliver them at the customer's factory or store gate. The operative issue is the timing of booking revenue by the supplier company in India, with reference sought to the relevant paragraph under the accounting standard governing recognition based on transfer of control and performance obligations.