REVENUE RECOGNITION - IAS 18

Meera Mistry
Mind Map by Meera Mistry, updated more than 1 year ago
Meera Mistry
Created by Meera Mistry over 6 years ago
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Mind Map on REVENUE RECOGNITION - IAS 18, created by Meera Mistry on 05/01/2015.

Resource summary

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