As per Ind AS 115, an entity is required to consider all relevant facts and circumstances, such as the purpose of the activities undertaken by the counterparty, to determine whether the counterparty is a customer. The identification of the performance obligations in a contract can also have a significant effect on the determination of which party is the entity’s customer. An entity shall apply Ind AS 115 to a contract only if the counterparty to the contract is a customer. A customer is a party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration.
In the given case, the company is engaged in providing advertising services to other companies. The company approaches the publishers based on the following two methods-
(a) The Company pre-purchases the advertisement space from the publishers before it finds advertisers for that space (Principal to Principal basis)
(b) The Company provides the service of matching the advertisers with the publishers (Intermediation services as agent/broker)
This case study discusses which party will be identified as the customer under Ind AS 115 in each of the above two cases.
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