Professional Documents
Culture Documents
Scope
This Standard shall be applied in accounting for revenue
arising from the following transactions and events:
(a) the sale of goods;
(b) the rendering of services; and
(c) the use by others of entity assets yielding interest,
royalties and dividends.
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Scope out
This Standard does not deal with revenue arising from:
(a) lease agreements (IAS 17);
(b) dividends arising from investments which are
accounted for under the equity method (IAS 28);
c)
insurance contracts within the scope of IFRS 4,
Insurance Contracts;
(d) changes in the fair value of financial assets and
financial liabilities or their disposal (IAS 39)
(e) changes in the value of other current assets;
(f)
initial recognition and from changes in the fair value of
biological assets related to agricultural activity
(g) initial recognition of agricultural produce (IAS 41); and
(h) the extraction of mineral ores.
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Effective Dates
This Standard becomes operative for financial statements
covering periods beginning on or after 1 January 1995.
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Definition
Revenue :
gross inflow of economic benefits during the period
arising in the course of the ordinary activities of an entity
when those inflows result in increases in equity...
measured at the fair value of the consideration received
or receivable
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Measurement of Revenue
Financing component of revenue :
When the arrangement effectively constitutes a financing transaction,
(e.g. an entity may provide interest free credit to the buyer or accept a note receivable
bearing a below-market interest rate from the buyer), the fair value of the consideration is
180 days
To be paid in 180
Sales date
days
market rate
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Sale of Goods
Revenue from the sale of goods shall be recognised when
all the following conditions have been satisfied:
(a)
the entity has transferred to the buyer the significant risks and
rewards of ownership of the goods;
(b)
(c)
(d)
(e)
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Rendering of Services
When the outcome of services rendered can be estimated
reliably, revenue shall be recognised by reference to the
stage of completion at the balance sheet date.
The outcome of a transaction can be estimated reliably
when all the following conditions are satisfied:
(a) the amount of revenue can be measured reliably;
(b) it is probable that the economic benefits associated with the
transaction will flow to the entity;
(c) the stage of completion of the transaction at the balance sheet
date can be measured reliably; and
(d) the costs incurred for the transaction and the costs to complete the
transaction can be measured reliably.
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INDICATORS OF AGENT
The supplier (and not the seller) is the primary obligor in the arrangement.
The seller earns a fixed or determinable amount.
The supplier (and not the seller) has credit risk.
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UP-FRONT FEES
Upfront fee is recognised as revenue over the life of the agreement if :
Slide 14
Company A
May Company A recognise revenue once its products have been shipped?
No. While title has passed, Company A has retained a significant risk of
ownership. The fact that Company A's insurance would cover a
substantial loss is evidence that it has managed its risk, but Company A
has still retained the risk.
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Company A
FOB Destination
May Company A recognise revenue once its products have been shipped?
No. While Company A has managed its risk, it has not transferred tisk to
the buyer.
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A: The entity has transferred to the buyer the significant risks and rewards of
ownership. Revenue should be recognised on initial delivery of the goods in an
amount that reflects a reduction for the estimated amount to be returned.
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RETENTION OF TITLE
Non-cancellable purchase order
Title is witheld
until payment
Company A
Customer
May Company A recognise revenue once its products have been shipped?
A : If a seller retains legal title solely to protect the collectibility of the amount due,
revenue recognition is not precluded.
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Delivery
Production
Customer Acceptance
Collection
OR?
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Company A
Company Z's lay away policy requires that customers put down at least
25 per cent of the sales price as an up-front, non-refundable deposit.
Once a deposit is received, Z identifies the product to be sold and
segregates it in its warehouse.
Company Z's experience with lay away sales is that most sales are
consummated with an average six-month lay away period before the
customer pays the entire sale amount.
How should Company Z account for the deposit received?
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If the revenue recognition criteria in IAS 18.14 for sales of goods are
met, the revenue should be recognised. Revenue is recorded net of the
expected returns. Therefore, management must estimate the amount of
product to be returned.
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Customer
Company A
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Title is transferred at
delivery
Company A
A : No. Company A has not transferred to the buyer the significant risk and
reward of ownership. Transaction is in the nature of a financing arrangement.
Slide 24
Company A is
A : a) Company A retains benefit of ownership (ability to profit from price
difference). If significant, revenue should not be recognised until expiration.
b) If A had the right to buy back at market price and the goods are readily
available in the market, revenue is recognized at the time of delivery.
Slide 25
How should Company account for the 240 TL received from the customers
of this campaign?
A: IAS 18 paragraph 13 requires to apply the recognition criteria to the separately
identifiable components of a single transaction in order to reflect the substance of
the transaction.
As a result, Company Z would have to divide this pack to separately identified
components and recognise revenue separately for every component by applying
appropriate recognition criteria.
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