With respect to information given in Para 2, analyse and state how the revenue should be recognised in respect of sale of T-shirts by RPL to JML.

Paragraph 56 of Ind AS 115 states that an entity shall include in the transaction price some or all of an amount of variable consideration estimated in accordance with paragraph 53 only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Further, paragraph 57 of Ind AS 115 state that in assessing whether it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur once the uncertainty related to the variable consideration is subsequently resolved, an entity shall consider both the likelihood and the magnitude of the revenue reversal. RPL estimates that the consideration in the above contract is variable. Therefore, in accordance with paragraphs 56 and 57 of Ind AS 115, RPL is required to consider the constraints in estimating variable consideration. RPL determines that it has significant experience with this product and with the purchasing pattern of the JML. Thus, if RPL concludes that it is highly probable that a significant reversal in the cumulative amount of revenue recognised (i.e.600 per unit) will not occur when the uncertainty is resolved (i.e. when the total amount of purchases is known), then the RPL will recognise revenue of 1,14,000 (190 T-shirts x 600 per T-shirt) for the half year ended 30th September, 2023. Further, paragraphs 87 and 88 of Ind AS 115 states that after contract inception, the transaction price can change for various reasons, including the resolution of uncertain events or other changes in circumstances that change the amount of consideration to which an entity expects to be entitled in exchange for the promised goods or services. An entity shall allocate to the performance obligations in the contract any subsequent changes in the transaction price on the same basis as at contract inception. Consequently, an entity shall not reallocate the transaction price to reflect changes in stand-alone selling prices after contract inception. Amounts allocated to a satisfied performance obligation shall be recognised as revenue, or as a reduction of revenue, in the period in which the transaction price changes. In accordance with the above, in the month of October 2023, due to change in circumstances on account of JML acquiring DCL and consequential increase in sale of T-shirts to JML, RPL estimates that JML's purchases will exceed the 2,000 T-shirts threshold till March 2024 for the period and therefore, it will be required to retrospectively reduce the price per T-shirt to 540. Consequently, the RPL will recognise revenue of 6,36,600 for the quarter ended December 2023 which is calculated as follows: Particulars Amount in ₹ Sale of 1,200 T-shirts (1,200 T-shirts x 540 per T-shirt) 6,48,000 Change in transaction price (190 T-shirts x 60* price reduction) for the reduction of revenue relating to units sold till September 2023 (11,400) Revenue recognised for the quarter ended December 2023 6,36,600 * 600 -540 = 60