To recognize ticket sales from the flights KG Airlines operates, you are required to answer the following questions: (a) DETERMINE the transaction…

(a) 8 (a) Revenue recognition for KG Airlines will be based on Ind AS 115 "Revenue from Contracts with Customers". Paragraph 47 of Ind AS 115, inter alia states that an entity shall consider the terms of the contract and its customary business practices to determine the transaction price. The transaction price is the amount of consideration which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties. Amounts collected on behalf of third parties are not economic benefits which flow to the entity. Therefore, they are excluded from revenue. As per Ind AS 115, each booking is a contract that the passenger enters into with KG Airlines. Passenger revenue should be recognized on flown basis i.e., when KG Airlines provides the transportation to the passenger. This is when service is rendered to the passenger. Revenue should be recognized on net of discounts given to the passengers, amount collected on behalf of third parties, applicable taxes, and airport levies such as passenger service fee, user development fee, etc., if any. Fees charged for cancellation of flight tickets are recognised as revenue on rendering of the said service. Here, the revenue from sale of ticket that should be reflected in the Statement of profit and loss of KG Airlines would be - 9,500 which would be the airfare charges of 10,000 per passenger less 5% discount given to the passenger which is 500. Particulars Amount (₹) Airfare charges 10,000 Less: Discount @5% 500 Net ticket fare (revenue) 9,500 Add: GST @5% on net ticket fare 475 Add: Aviation security fee 500 Add: User development fee 250 Total amount collected from passenger 10,725 Note: Since, Goods and Service Tax (GST) @5% is payable to the government, it does not form part of revenue. Similarly, aviation security fee and user development fee are payable to the government and airport operator respectively. Here, the airline acts only as an agent to collect the money from the passenger and pass it on to the government or the airport operator. No service is rendered by the airline to the passenger on this behalf. Therefore, no revenue should be recognized for aviation security fee or user development fee by KG Airlines. However, since the airport operator on whose behalf the user development fee is collected, compensates KG Airlines for 5per passenger flown, it would be recognised as revenue in the books of KG Airlines. Hence, the total revenue of 9,505 would be reflected in the Statement of profit and loss separately as 'revenue from sale of tickets' and 'other operating revenue'. Revenue from sale of tickets that relate to scheduled future flights will be recognised as "unearned revenue", forming part of current liabilities. Depending on the facts and circumstances relating to the contract, the liability recognised represents the entity's obligation to either transfer goods or services in the future or refund the consideration received. In either case, the liability shall be measured at the amount of consideration received from the customer. (b) Services provided by an airport operator to passengers against consideration in the form of UDF and PSF are liable to GST. PSF and UDF are levied by the airport operators but are collected by the airlines. These charges are collected by the airline as an agent of passengers and is not a consideration for any service provided by the airlines. Thus, the amount so recovered by airlines will be excluded from the value of supplies made by the airline to its passengers. In other words, the airline shall not be liable to pay GST on the PSF and UDF (for airport services provided by airport operator), provided the airline satisfies the conditions prescribed for a pure agent under Rule 33 of the CGST Rules, 2017. It is the airport operator which is liable to pay GST on UDF and PSF. The airline should separately indicate actual amount of PSF and UDF and GST payable on such PSF and UDF by the airport operator, in the invoice issued by airlines to its passengers. Thus, KG Airlines is not liable to pay GST on airport levies like user development fee, passenger service fee, etc. collected from the passengers. (c) Yes, KG Airlines is liable to pay GST on the collection charges of 5charged for the collection service provided by the airline to the airport operators. The collection charges paid by airport operator to airlines are a consideration for the services provided by the airlines to the airport operator and KG Airlines shall be liable to pay GST on the same.