In this special session of Voices on Reporting webinar, we covered some accounting issued for certain start-up companies.

Some of the issues that were discussed are as follows:

  • Gross vs net presentation of revenues (consideration payable to end user): Many start-up companies enter into contractual arrangements with third-parties that use their services (such as payment gateway, delivery services, etc.). These arrangements often require such start-up companies to make payment to end users in the form of cashback offers, vouchers and coupons, etc. in order to provide incentives to use their services. These payments may or may not be funded by these third parties. This kind of scenario may give rise to a number of issues such as:
    • ­ Would third party or the end user both be customers,
    • ­ Principal versus agent considerations, and
    • ­ Whether incentives should be accounted for as a reduction in revenue (net basis) or as an expense (gross basis) 
This is a complex area for which there is limited guidance in Ind AS 115, Revenue from Contracts with Customers leading to diversity in practice. In the webinar, we discussed some key considerations with respect to incentives payable to an end user.
  • Accounting for Compulsorily Convertible Preference Shares (CCPS): CCPS is the most common method of raising funds by a start-up company. The underlying investment agreement may have several exit clauses for the investor which need careful analysis to classify this instrument as equity or debt.  Accounting of such instruments is complex and requires careful analysis and judgement. In the webinar, we discussed key matters relating to accounting of CCPS under Ind AS as liability or equity while considering features like anti-dilution or buy-back rights.