IAS - 18 REVENUE

MAIN OBJECTIVES OF THIS STANDARD:

MAIN OBJECTIVE OF THE STANDARD

TO DEAL WITH: THE RECOGNITION OF REVENUE IN THE

STATEMENT OF COMPEHENSIVE INCOME. THE MEASUREMENT OF REVENUE IN THE STATEMENT OF COMPREHENSIVE INCOME. THE DISCLOSURE OF REVENUE IN THE STATEMENT OF COMPREHENSIVE INCOME. TO DEAL WITH DIFFERENT TYPE OF REVENUE, THAT ARISING FROM THE SALES OF GOODS, THE RENDERING OF SERVICES, AND OTHER FORMS OF INCOME

OBJECTIVES, SCOPE AND DEFINITION

THE IASB FRAMEWORK DEFINED INCOME AS

INCREASES IN ECONOMIC BENEFITS IN THE FORM OF INFLOWS OR ENHANCEMENT OF ASSETS OR DECREASES OF LIABILITIES THAT RESULT IN INCREASES IN EQUITY REVENUE IS AN INCOME THAT ARISES IN THE COURSE OF ORDINARY ACTIVITIES OF THE ENTITY AND IS OFTEN KNOWN BY DIFFERENT NAMES,SUCH AS: SALES, TURNOVER, FEES, INTEREST, DIVIDENDS AND ROYALTIES.

OBJECTIVES
THE PRIMARY ISSUE IN ACCOUNTING FOR

REVENUE IS ONE OF TIMING. WHEN SHOULD AN ENTITY RECOGNISE REVENUE? THE TIMING OF THE RECOGNITION IS CRITICAL TO THE TIMING OF PROFITS. FINANCIAL STATEMENTS ARE PREPARED ON THE UNDERLYING ASSUMPTION OF THE ACCRUAL BASIS OF ACCOUNTING. UNDER THIS BASIS, THE EFFECTS OF TRANSACTIONS OR EVENTS ARE RECOGNISED WHEN THEY OCCUR RATHER THAN WHEN THE CASH IS RECEIVED OR PAID.

OBJECTIVES CONTD.
IAS 18 STATES THAT REVENUE SHOULD BE

RECOGNISED WHEN IT IS PROBABLE THAT THE ECONOMIC BENEFITS ASSOCIATED WITH THE TRANSACTION WILL FLOW TO THE ENTITY AND THAT THE BENEFIT CAN BE MEASURED REALIABLY.

IAS 18 APPLICATION:
THIS STANDARD SHALL BE APPLIED IN

ACCOUNTING FOR REVENUE ARISING FROM THE FOLLOWING TRASACTIONS AND EVENTS: SALES OF GOODS; THE RENDERING OF SERVICES; AND THE USE BY OTHERS OF ENTITY ASSETS YIELDING INTEREST, ROYALTIES AND DIVIDENDS.

IAS 18 ON REVENUE DOES NOT INCLUDE THE FOLLOWING:

SALES TAXES

ALLOWANCES FOR IRRECOVERABLE DEBTS

ALLOWANCES FOR RETURNS. GOODS AND SERVICES TAXES VALUE ADDED TAXES

MEASUREMENT OF REVENUE
REVENUE SHALL BE MEASURED AT THE FAIR

VALUE OF THE CONSIDERATION RECEIVED OR RECEIVABLE. HOWEVER, WHEN THE INFLOW OF CASH OR CASH EQUIVALENT IS DEFFERED, THE FAIR VALUE OF THE CONSIDERATION MAY BE LESS THAN THE NOMINAL AMOUNT OF CASH RECEIVED OR RECEIVABLE.

RECOGNITION OF THE SALE OF GOODS:

IAS 18 SETS OUT FIVE CRITERIA THAT NEED

TO BE MET BEFORE REVENUE FROM THE SALES OF GOODS SHOULD BE RECOGNISED. THEY ARE: THE SIGNIFICANT RISKS AND REWARDS OF OWNERSHIP HAVE BEEN TRANSFERRED FROM THE SELLER TO THE BUYER. THE SELLER NO LONGER HAS EFFCTIVE CONTROL OR MANAGERIAL INVOLVEMENT OVER THE GOODS,

CONTD.
THE AMOUNT OF REVENUE CAN BE

MEASURED RELIABLY, IT IS PROBABLE THAT PAYMENT FOR THE GOODS WILL BE RECEIVED BY THE ENTITY THAT THE COST INCURRED CAN BE MEASURED RELIABLY

RECOGNITION CRITERIA FOR REVENUE FROM RENDERING OF SERVICES:

THE CRITERIA FOR THE RECOGNITION OF

REVENUE IN RELATION TO THE RENDERING OF SERVICES ARE SIMILAR TO THOSE FOR THE SALE OF GOODS. HOWEVER, THE CRITERIA WHICH REFER TO OWNERSHIP ARE CLEARLY NOT RELEVANT WHERE SERVICES ARE BEING PROVIDED. THE RELEVANT CRITERIA ARE; REVENUE CAN BE MEASURED RELIABLY ECONOMIC BENEFITS WILL PROBABLY FLOW TO THE PROVIDER. THE COSTS CAN BE MEASURED RELIABLY THE STAGE OF COMPLETION AT THE RPORTING DATE CANBE MEASURED RELIABLY

RECOGNITION CRITERIA FOR INTEREST, ROYALTIES AND DIVIENDS:

REVENUE ARISING FROM THE USE OF OTHERS OF

ENTITY ASSETS YIELDING INTEREST, ROYALTIES AND DIVIDENDS SHALL BE RECOGNISED ON THE BASES SET OUT BELOW WHEN: IT IS PROBABLE THAT THE ECONOMIC BENEFITS ASSOCIATED WITH THE TRANSACTION WILL FLOW TO THE ENTITY, AND THE AMOUNT OF THE REVENUE CAN BE MEASURED RELIABLY. REVENUE SHALL BE RECOGNISED ON THE FOLLOWING BASIS: (a) INTEREST SHALL BE RECOGNISED USING THE EFFECTIVE INTEREST METHOD AS SET OUT IN IAS 39 (b) ROYALTIES SHALL BE RECONISED ON THE ACCRUAL BASIS IN ACCORDANCE WITH THE SUBSTANCE OF THE RELEVANT AGREEMENT, AND DIVIDENDS SHALL BE RECOGNISED WHEN THE SHAREHOLDERSS RIGHT TO RECEIVE PAYMENT IS

SPECIFIC SCENARIOS:
INSTALLMENT PAYMENT: WHEN SIGNIFICANT RISK AND

REWARD HAVE BEEN TRANSFERRED USUALLY ON DELIVERY. DISCOUNTING WILL BE NECESSARY IF TIME VALUE OF MONEY IS MATERIAL. ADVANCE PAYMENT FOR GOODS: TREAT RECEIPTS AS DEFERRED INCOME UNTIL DELIVERY, BILL AND HOLD SALES: IN WHICH DELIVERY IS DELAYED AT THE BUYERS REQUEST BUT THE BUYER TAKES TITLE AND ACCEPTS BILLING. REVENUE IS RECOGNISED WHEN THE BUYER TAKES TITLE,PROVIDED: (a) IT IS PROBABLE THAT DELIVERY WILL BE MADE, (b) THE ITEM IS ON HAND, IDENTIFIED AND READY FOR DELIVERY TO THE BUYER AT THE TIME THE SALE IS RECOGNISED. THE BUYER SPECIFICALLY ACKNOWLDEGES THE DEFERRED DELIVERY INSTRUCTIONS, AND (d) THE USUAL PAYMENT TERMS APPLY.

SPECIFIC SCENARIOS CONTD.

SALE OR RETURN BASIS: CAN AN ESTIMATE OF RETURNS BE MADE WITH CERTAINTY?

(a) IF YES, RECOGNISED REVENUE WHEN GOODS ARE DELIVERED AND MAKE APPRORIATE ESTIMATE OF RETURNS.
(b) IF THERE IS UNCERTAINTY ABOUT THE POSSIBILITY OF RETURN, REVENUE IS RECOGNISED WHEN THE SHIPPMENT HAS BEEN FORMALLY ACCEPTED BY THE BUYER OR THE GOODS HAVE BEEN DELIVERED AND THE TIME PERIOD FOR REJECTION HAS ELAPSED. PRINCIPAL AND AGENT RELATIONSHIP: IF THE PRINCIPAL IS EXPOSED TO THE RISK AND REWARD THE TRANSACTION, HE WOULD RECOGNISED THE GROSS AMOUNT RECEIVED WHILE THE AGENT RECOGNISES THE COMMISSION RECEIVED AS REVENUE. SERVICING FEES INCLUDED IN THE PRICE OF THE PRODUCTS: WHEN THE SELLING PRICE OF A PRODUCT INCLUDES AN IDENTIFIABLE AMOUNT FOR SUBSEQUENT SERVICING (FOR EXAMPLE,AFTER SALES SUPPORT AND PRODUCTS ENHANCEMENT ON THE SALEOF SOFTWARE), THAT AMOUNT IS DEFERRED AND RECOGNISED AS REVENUE OVER THE PERIOD DURING WHICH THE SERVICEIS PREFFORMED. THE AMOUNT DEFERRED IS THAT WHICH WILL COVER THE EXPECTED COSTS OF THE SERVICES UNDER THE ARRANGEMENT, TOGETHER WITH A REASONABLE PROFIT ON THOSE SERVICES,

MEASURING SWAP TRANSACTION:

SWAP:

WHEN GOODS OR SERVICES ARE EXCHANGED OR SWAPPED FOR GOODS OR SERVICES WHICH ARE OF A SIMILAR NATURE AND VALUE, THE EXCHNGE IS NOT REGARDED AS A TRASACTION WHICH GENERATES REVENUE. SWAP OF DISSIMILAR GOODS AND SERVICES: WHEN GOODS ARE SOLD OR SERVICES ARE RENDERED IN EXCHANGE FOR DISSIMILAR GOODS OR SERVICES, THE EXCHANGE IS REGARDED AS A TRANSACTION WHICH GENERATES REVENUE. THE REVENUE IS MEASURED AT THE FAIR VALUE OF THE GOODS OR SERVICES RECEIVED, ADJUSTED BY THE AMOUNT OF ANY CASH OR CASH EQUIVALENTS TRANSFERRED. WHEN THE FAIR VALUE OF GOODS OR SERVICES REVEIVED CANNOT BE MEASURED RELIABLY, THE REVENUE IS MEASURED TAT THE FAIR VALUE OF THE GOODS OR SERVICES GIVEN UP, ADJUSTED BY THE AMOUNT OF ANY CASH OR CASH EQUIVALENTS TRANSFERRED.

DISCLOSURE REQUIREMENTS:
The entity should clearly set out its accounting

policy for the recognition of revenue in the notes to the financial statement. The revenue should be analyzed into a number of different categories where the amount recognized is significant. The categories include, for example, the sale of goods, the rendering of services, interest, dividends, and royalty payments.

END OF IAS 18