Management Accounting

Assignment-1

Management Accounting Assignment 1 Revenue Recognition

Industry Choice: Fast Moving Consumer Goods (FMCG)

Group Members:
Ajayendra Pal G16066
Bibekanand Mishra G16078
Biswajeet Chakrabarti G16079
Kunal Panda G16087
Ravi Shrey G16099
Rajarshi Sarkar G16098

Table of Contents

Contents
List of 10 largest companies in the Indian FMCG sector (Sorted largest to smallest in revenue terms) ............................ 2
Rationale for choice: ............................................................................................................................................................ 2
Revenue Recognition Policies (based on each source of revenue) ..................................................................................... 3
Commonalities in Revenue Recognition: ............................................................................................................................. 3
Differences in Revenue Recognition:................................................................................................................................... 3
Implications of the Differences in revenue Recognition Policies: ....................................................................................... 5

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Revenue Recognition FMCG Industry
Group - 11

Management Accounting
Assignment-1

List of 10 largest companies in the Indian FMCG sector (Sorted largest to smallest
in revenue terms)
Company

Revenues (INR) #

Total Assets (INR) # Business

diversified business includes five segments: FMCG,
Hotels, Paperboards & Packaging, Agri Business &
49,518.43
Information Technology
FMCG manufacturer in Home Care, Personal Care,
15,164.65
Foods and Refreshments
Produces milk products, beverages, chocolates and
6,080.46
prepared dishes
Makers of Bakery products, including biscuits, bread,
3,067.26
cakes and rusk, and dairy products
provides consumer products and services in the areas
3,433.33
of Health and Beauty
Health Care, personal care, Oral Care, Food and Home
4,455.01
Care products
Produces soap, hair colourants, toiletries and liquid
5,026.35
detergents

ITC

38,641.13

Hindustan Unilever Ltd

33,591.04

Nestle India

8,175.31

Britannia Industries Ltd

8,046.11

Marico

6,255.41

Dabur

5,946.64

Godrej Consumer Products Ltd

4,854.38

Pidilite Industries Ltd

4,778.30

3,639.42

Colgate-Palmolive Ltd

4,201.89

1,943.67

Emami Ltd
2,424.27
2,503.07
# - Revenue and Total Assets in Crores for year ended March 31, 2016

worldwide presence in adhesives, art material,

construction chemicals and other industrial chemicals
Manufactures products for oral care, personal care
and home care
Engaged in personalcare and healthcare businesses.
Well known for men's fairness cream

Rationale for choice:

Fast moving consumer goods or FMCG by which the industry is popularly known is one of the high growth industries in
India. FMCG majorly includes consumer packaged goods amongst which most common are soaps, detergents,
shampoos, toothpaste, shaving products, toiletries, packaged foodstuff and household accessories etc. These items are
meant for frequent consumption and are sold at relatively lower costs. Though the profit margin on these products is
small, they are sold in large quantities making the profits substantial. Based on a report dated JAN-2016 by india Brand
Equity Foundation (or IBEF), the FMCG market in India grew by annual average rate of 11% through the last decade
and is expected to grow at 14.7% till 2020 when the size of FMCG market would likely become more than $100Bn.
Majority of this growth is expected from the rural market where FMCG sales growth rate has gradually surpassed the
urban market. However the urban market still generates about 2/3rd of the revenues. Choice of companies was based
on our plan to cover the rural and urban markets in a holistic manner. Large companies like HUL, ITC and ColgatePalmolive have very strong rural presence with numerous product offerings like Wheel (low-cost washing powder),
washing soap bars, colgate tooth powder etc. In addition, other smaller packaging options in multiple product categories
were also specifically designed for the rural markets. On the other hand the urban market growth is underpinned by
demand of products in the categories like food & beverages, healthcare products etc. Due to their presence in these
product types Nestle, Britannia and Godrej Consumer Products Ltd have fairly high concentration of sales in urban rather
than rural markets.

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Revenue Recognition FMCG Industry
Group - 11

Management Accounting
Assignment-1

Revenue Recognition Policies (based on each source of revenue)

Under Indian Accounting Standard-18 (Ind AS-18) income is defined as increases in economic benefits during the
accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in
equity, other than those relating to contributions from equity participants. This definition of income encompasses both
Revenue and Gains. The primary issue in accounting is determining when to recognize revenue. It would be the point
in time when future economic benefits are highly likely to flow to the entity and these benefits can be measured
reliably. This standard is applicable in accounting for revenue arising from
(i)
(ii)
(iii)

Sale of goods,
Rendering of services, and
Use of entity assets by others

Based on the above definitions provided by Indian accounting standards, we are going to highlight some of the
commonalities that Indian FMCG industry participants are having. Following this section we would be representing some
of the differences in policies followed by different and try to reason why that specific difference arises.

Commonalities in Revenue Recognition:

1. Revenue from sale of goods Domestic sales are recognized when all the significant risk and rewards of
ownership in the goods has been transferred to the buyer as per the contract terms, the Company retains no
effective control of the goods transferred and no significant uncertainty exists regarding the amount of
consideration anticipated from the sale of goods. These sales are recognized net of trade discounts, rebates,
sales taxes and excise duties. However companies also show the gross revenue which is revenue before payment
of excise duty.
2. Income from dividends on investments are recognized when the right to receive dividend is established.
3. Income from services rendered is recognized based on agreements/arrangements with the customers as the
service is performed using the proportionate completion method and no significant uncertainty should exist
regarding the consideration. The revenue recognized is net of sales tax/value added tax

Differences in Revenue Recognition:

This part covers the differences/non-overlapping parts of revenue earned by the selected companies.
Company
Revenue Recognition Policies
ITC
1. Investment income is recognized on an accrual basis, inclusive of tax deducted

at source
Hindustan
Ltd.

Unilever

1. Income from export incentives such as duty drawback and premium on sale of import
licenses, and lease license fee are recognized on accrual basis.

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Revenue Recognition FMCG Industry
Group - 11

Management Accounting
Assignment-1

Nestle India
Britannia
Ltd

Industries

Marico

Dabur

2. Interest income on investments is recognized on time proportion basis. The income

calculated is based on a rate of interest and the cash equivalents/investments held
by the end of an accounting period
1. Interest on investments is calculated based on a time-proportion basis
1. The revenue from sale of scrap materials is recognized in the same way as revenue
from sale of goods
2. Income from royalty is accounted based on contractual agreements
3. Interest on investments and deposits is booked on a time-proportion basis taking into
account the invested amount at end of year and the rate of interest

1. Export sales are recognized based on the date of bill of lading (i.e a list of cargo
in the form of receipt given to the person consigning the goods), except sales
to Nepal, which are recognized when the goods cross the Indian Territory
2. Interest and other income are recognized on accrual basis. The income is
recognized even if it is not actually received
3. Income from export incentives are recognized on an accrual basis if realization
is reasonably certain. Some examples of export incentives are such as
premium on sale of import licenses, duty drawback etc
1. Sales comprises the price of goods after paying excise duty but before any trade
discount, sales tax or VAT
2. Revenue arising from future trading of commodity has been recognized at the
closing point of contract. Any losses on these contract before the maturity date are
recognized in the income statement but gains are ignored
3. Revenue from other income has been considered as per accrual basis except for
those which require recognition on realization basis

Godrej
Consumer
Products Ltd

1. Income from processing operations is recognised on completion of production /

2.
3.

Pidilite Industries Ltd

1.
2.

3.

Colgate-Palmolive Ltd

4.
1.

dispatch of the goods, as per the terms of contract

Income on assets given on operating lease is recognised on a straight line basis over
the lease term
Interest income is recognized on a time proportion basis
Interest income is recognized on accrual basis
Services performed and not certified by the client, are also recognized as Sales and
are recorded as uncertified and unbilled revenue under Short Term Loans and
Advances.
Claims / Insurance Claim etc. are accounted for when no significant uncertainties are
attached to their subsequent receipt.
Dividend is accounted for when right to receive dividend is established.
Service Income is recognized on cost plus basis, as the service is performed using the
proportionate completion method.

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Revenue Recognition FMCG Industry
Group - 11

Management Accounting
Assignment-1

Emami Ltd

2. Interest Income is recognized on a time proportion basis taking into account the
amount outstanding at the end of accounting period and the applicable rate.
3. Rental income is recognized on a straight-line basis over the term of the lease as per
the terms of the lease agreement.
No significant changes from the common points listed above this table

Implications of the Differences in revenue Recognition Policies:

The accounting principles being followed are similar across industries and the same is applicable in the FMCG market
however, there are few very minute variances in the accounting principle being followed. For example the way of
calculating interest income is accrual basis for some and for some it is on cash basis. Accrual basis is the correct way of
calculating the interest income because it shows the actual interest income of a particular period even if it is not realized.
On a cash basis the income is recognized after receipt of the accumulated interest and because of that the tax charged
might become higher and result in slight inconsistency year-on-year which would not happen in accrual basis case. This
difference is not expected to be material when comparison is done across the largest FMCG companies in India. The
following table shows difference in the level of interest income and dividend income across the industry participants
which varies significantly but on a standalone basis these numbers are immaterial to the overall business.

(INR in Crores)
Revenues
Depreciation Expense
As % of Sales

Hindustan
Britannia
ITC
Unilever Ltd Nestle India Industries Ltd Marico
Dabur
40,975.8
33,591.0
8,175.3
8,778.8
6,255.4
8,454.0
851.63
234.06
75.3
33.8
338.92
165.72
0.02
25.59

Godrej
Consumer Pidilite
ColgateProducts Ltd Industries Ltd Palmolive Ltd Emami Ltd
9,049.8
5,420.4
4,201.9
2,657.6
28
5.72
24.62
1.525

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Revenue Recognition FMCG Industry
Group - 11