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2633737
REVENUE RECOGNITION - IAS 18
Description
Mind Map on REVENUE RECOGNITION - IAS 18, created by Meera Mistry on 01/05/2015.
Mind Map by
Meera Mistry
, updated more than 1 year ago
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Created by
Meera Mistry
about 9 years ago
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Resource summary
REVENUE RECOGNITION - IAS 18
Revenue is a SUBSET of income:
INCOME
REVENUE
arising from ordinary activities
GAINS
usually not arising from ordinary activities
General revenue recognition
probably FEBs
measured reliably
sale of goods
rendering of services
use by others of entity assets yielding interest, royalties and dividends
specifically excluded from IAS 18:
constructions contracts = IAS 11
insurance contracts = IFRS 4
leases = IAS 17
Recognition criteria
Sale of goods
R
I
M
P
C
costs incurred in measuring reliably
not in line with CFW
trying to match costs with revenues
CFW = B/S view - match A/L
probably EBs
measured reliably
involvement
seller does not retain continuing managerial involvement or effective control over goods sold
risks and rewards
Revenue from services
M
P
C
IGNORE risks/rewards + involvement
use percentage complete method
= total costs incurred to date / total estimated costs
Deferred payment terms
future payment
discount to PV to get consideration receivable
deferred payment = financing transaction
IAS 18 requires the seller to recognise BOTH sales revenue + interest income
sales revenue = discounted PV of the future payment = "imputing interest"
Multiple delivery contracts
IAS 18 requires separation of transactions into components
New developments = IFRS 15
to provide a single rev. recog'n model applicable to a range of industries
develop a model based on changes in specific A/L
eliminate weaknesses + inconsistencies in existing concepts and standards
converge IFRSs and US standards
"Revenue from Contracts with Customers
effective 1st Jan 2017
ISSUES WITH REV RECOG'N
Buy/hold
when does legal title + possession transfer?
invoice? delivery?
Inspection conditions
minor = upon delivery
major = inspected
Consignment stock
legal title not passed on until inventory sold on to 3rd party
e.g. Audi -> Carcraft -> person
risk of slow moving stock?
when is it an asset of Carcraft?
right to return?
when to recognise sale?
Prepaid orders
on delivery
Sale and leaseback
true sale? OR loan?
Subscription
recognise income over period upon delivery
Sale and repurchase
= LOAN
no revenue recognised - not a true sale
Interest free credit
recognise FV of consideration i.e. PV
£100 in 1 year = £90.90 now (at 10%); remaining £9.10 = deferred interest income
Support/service elements
recognise immediate revenue now
defer service and release over time as service is delivered
e.g. mobile phone contract
e.g. mobile phone handset
Tuition fees
recognised over period over which services are delivered i.e. amount per year
JUDGEMENT IS REQUIRED
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