ASSIGNMENT

ON

REVENUE RECOGNITION AND MEASUREMENT

(ACCOUNTING)
Submitted

In partial fulfillment of the requirement of the degree of

MASTERS OF BUSINESS ADMINISTRATION

SESSION 2018-2020

SUBMITTED TO: SUBMITTED BY:

MR. ABHISHEK SHIVESH KUTHIALA
DAV COLLEGE, SECTOR 10, ROLL No. 1013
CHANDIGARH MBA - 1st Sem.

INSTITUTE OF MANAGEMENT
D.A.V COLLEGE, CHANDIGARH
 ACKNOWLEDGEMENT

The successful completion of any task would be incomplete without mentioning the
names of persons who helped to make it possible. I take this opportunity to express my gratitude
in few words and respect to all those who helped me for the completion of this summer project

I express a deep sense of gratitude to my guide Mr. Abhishek Mishra, Faculty,

Department of Management studies, for his encouragement, support and guidance to complete
this project work successfully.

Finally, I express our sincere thanks and deep sense of gratitude to my parents and friends
for giving timely advice in all the ways and in all aspects for doing the project.

Shivesh Kuthiala
 REVENUE RECOGNITION AND MEASUREMENT

The revenue recognition principle is a cornerstone of accrual accounting together with the

matching principle. They both determine the accounting period, in which revenues and expenses

are recognized. According to the principle, revenues are recognized when they are realized or

realizable, and are earned (usually when goods are transferred or services rendered), no matter

when cash is received. In cash accounting – in contrast – revenues are recognized when cash is

received no matter when goods or services are sold.

Cash can be received in an earlier or later period than obligations are met (when goods or

services are delivered) and related revenues are recognized that results in the following two types

of accounts:

 Accrued revenue: Revenue is recognized before cash is received.

 Deferred revenue: Revenue is recognized after cash is received.

Revenue realized during an accounting period is included in the income.

International Financial Reporting Standards criteria[edit]

The Critical-Event Approach: IFRS provides five criteria for identifying the critical event for

recognizing revenue on the sale of goods:[1]

1. Risks and rewards have been transferred from the seller to the buyer

2. The seller has no control over the goods sold

3. Collection of payment is reasonably assured

4. The amount of revenue can be reasonably measured

5. Costs of earning the revenue can be reasonably measured

The first two criteria mentioned above are referred to as Performance. Performance occurs

when the seller has done most or all of what it is supposed to do to be entitled for the payment.
E.g.: A company has sold the good and the customer walks out of the store with no warranty on

the product. The seller has completed its performance since the buyer now owns good and also

all the risks and rewards associated with it. The third criterion is referred to as Collectability.

The seller must have a reasonable expectation of being paid. An allowance account must be

created if the seller is not fully assured to receive the payment. The fourth and fifth criteria are

referred to as Measurability. Due to Matching Principle, the seller must be able to match

expenses to the revenues they helped in earning. Therefore, the amount of Revenues and

Expenses should both be reasonably measurable

General rule[edit]

Received advances are not recognized as revenues, but as liabilities (deferred income), until the

conditions (1.) and (2.) are met.

1. Revenues are realized when cash or claims to cash (receivable) are received in exchange

for goods or services. Revenues are realizable when assets received in such exchange are

readily convertible to cash or claim to cash.

2. Revenues are earned when such goods/services are transferred/rendered. Both such

payment assurance and final delivery completion (with a provision for returns, warranty

claims, etc.), are required for revenue recognition.

Recognition of revenue from four types of transactions:

1. Revenues from selling inventory are recognized at the date of sale often interpreted as the

date of delivery.

2. Revenues from rendering services are recognized when services are completed and billed.
 3. Revenue from permission to use company's assets (e.g. interests for using money, rent for

using fixed assets, and royalties for using intangible assets) is recognized as time passes

or as assets are used.

4. Revenue from selling an asset other than inventory is recognized at the point of sale,

when it takes place.

Revenue versus cash timing[edit]

If you want this assignment please contact: Chauhan Brothers, 9855017625, 9217825228