Accounting of Sale of Fertilizers and Related Subsidy

Rourkela Core Fertilizers Ltd (RCF), a fertilizer manufacturing company, sells fertilizers to dealers, who in turn sell to farmers. Under the Direct Benefit Transfer (DBT) scheme, the Government of India provides a fertilizer subsidy to RCF. This subsidy is disbursed based on actual sales made by dealers to the end-users—the farmers, for whom the subsidy is actually directed towards. These transactions are validated using Point-of-Sale (POS) devices at dealer location and authenticated through farmer identification, such as Aadhaar, Voter ID, or Kisan Credit Card.

The subsidy rates are notified by the government and are subject to periodic revisions, either retroactively or prospectively. RCF receives the subsidy upon submission of a valid claim supported by appropriate evidence.

There exists an inherent time lag between the sale of fertilizers by RCF to dealers and the subsequent sale by dealers to farmers. Subsidy entitlement is governed by the law in force at the time the dealer sells the fertilizers to the farmer. RCF recognizes revenue from sales when control of goods is transferred to dealers in accordance with Ind AS 115 – Revenue from Contracts with Customers. Based on the contractual terms and interpretation of Ind AS 115, RCF considers the point of dispatch to dealers as the moment of transfer of control and hence a trigger for revenue recognition. According