Objective: to prescribe the accounting treatment for revenue arising from certain types of transactions and events IAS

18: REVENUE Measurement: fair value of the consideration received or receivable

Definition: the gross inflow of economic benefits (cash, receivables, other assets) arising from the ordinary operating activities of an entity (such as sales of goods, sales of services, interest, royalties, and dividends)

Recognition It is probable that any future economic benefit associated with the item of revenue will flow to the entity The amount of revenue can be measured with reliability

If inflow of cash or cash equivalents is deferred, the fair value is less than the nominal amount of cash and cash equivalents to be received and discounting is appropriate.

the seller has transferred to the buyer the significant risks and rewards of ownership the seller retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold Amount of revenue can be measured reliably it is probable that the economic benefits associated with the transaction will flow to the seller the costs incurred or to be incurred in respect of the transaction can be measured reliably

When these criteria are not met, revenue arising from the rendering of services should be recognized only to the extent of the expenses recognized that are recoverable (a "cost-recovery approach".

Sale of Goods

Rendering of Services

Interest: using the effective interest method

Recognized by reference to the stage of completion of the transaction at the balance sheet date (the percentage-of-completion method) the amount of revenue can be measured reliably it is probable that the economic benefits will flow to the seller the stage of completion at the balance sheet date can be measured reliably the costs incurred, or to be incurred, in respect of the transaction can be measured reliably

Royalties: on an accruals basis in accordance with the substance of the relevant agreement

Dividends: when the shareholder's right to receive payment is established

IAS 18: REVENUE

Disclosures accounting policy for recognising revenue amount of each of the following types of revenue dividends royalties sale of goods interest rendering of services within each of the above categories, the amount of revenue from exchanges of goods or services

Questions: 1. Revenue is defined as: a. Gross inflows that represent other items that do not arise from the ordinary course of business. b. Increase in economic benefits during the accounting period in the form of inflow or decrease in liability that results in increase in equity, other than contribution from equity participants c. Gross inflows that represent other items that arise from the ordinary course of business d. Decrease in economic benefits during the accounting period in the form of an outflow or decrease in asset or increase in liability that results in decrease in equity, other than distribution to equity participants 2. The following must be disclosed except: a. Accounting policy for recognizing revenue b. Amount of each of the types of revenue c. The amount of revenue from exchanges of goods or services received from each type of revenue d. The costs incurred during the sale or exchange of goods or services 3. Revenue is measured at: a. Cost b. fair value of the consideration received or receivable c. fair value of the consideration given d. amortized cost 4. Revenue from sale of goods shall be recognized when all of the following conditions have been satisfied, except a. The entity has transferred to the buyer the significant risks and rewards of ownership b. The amount of revenue can be measured reliably c. The entity retains either continuing managerial involvement to the degree usually associated with ownership or effective control over the goods sold d. The costs incurred or to be incurred in respect to the transaction can be measured reliably 5. Revenue is normally recognized a. When the customers order is received b. When the order is accompanied by a check c. When title to the goods changes d. When the transaction will create an account receivable 6. All of the following are correct in recognizing revenue except, a. Revenue from rendering of services shall be measured by reference to the stage of completion of the transaction at balance sheet date b. Royalty revenue is recognized on an accrual basis in accordance with the substance of a relevant agreement c. Dividend revenue is recognized when they are received d. Interest revenue is recognized using the effective interest method 7. Which of the following conditions does not apply to revenue from the sale of goods? a. The amount of revenue can be measured reliably b. It is probable that economic benefits will flow to the entity c. The costs incurred or to be incurred, in respect of the transaction can be measured reliably d. The stage of completion at the balance sheet date can be measured reliably ANSWER KEY: 1. C, 2. D, 3. B, 4.C, 5. C, 6. C, 7. D