2633737
Description
Mind Map by Meera Mistry, updated more than 1 year ago
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Created by Meera Mistry
over 9 years ago
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REVENUE RECOGNITION - IAS 18
- Revenue is a SUBSET of income:
- INCOME
- REVENUE
- arising from ordinary activities
- arising from ordinary activities
- GAINS
- usually not arising from
ordinary activities
- usually not arising from
ordinary activities
- REVENUE
- INCOME
- General revenue recognition
- probably FEBs
- measured reliably
- sale of goods
- rendering of services
- use by others of entity assets yielding
interest, royalties and dividends
- use by others of entity assets yielding
interest, royalties and dividends
- rendering of services
- probably FEBs
- specifically excluded from IAS 18:
- constructions contracts = IAS 11
- insurance contracts = IFRS 4
- leases = IAS 17
- leases = IAS 17
- insurance contracts = IFRS 4
- constructions contracts = IAS 11
- 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
- CFW = B/S view - match A/L
- trying to match costs with revenues
- costs incurred in
measuring reliably
- probably EBs
- C
- measured reliably
- P
- involvement
- seller does not retain continuing
managerial involvement or
effective control over goods sold
- M
- risks and rewards
- I
- R
- Revenue
from
services
- M
- P
- C
- IGNORE risks/rewards
+ involvement
- use percentage complete method
- = total costs incurred to date /
total estimated costs
- = total costs incurred to date /
total estimated costs
- use percentage complete method
- IGNORE risks/rewards
+ involvement
- C
- P
- M
- 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"
- sales revenue = discounted PV of the future
payment = "imputing interest"
- IAS 18 requires the seller to
recognise BOTH sales revenue +
interest income
- deferred payment = financing transaction
- discount to PV to get consideration receivable
- Multiple delivery contracts
- IAS 18 requires separation of
transactions into components
- IAS 18 requires separation of
transactions into components
- future payment
- Sale of goods
- 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
- eliminate weaknesses + inconsistencies
in existing concepts and standards
- develop a model based on
changes in specific A/L
- "Revenue from Contracts with Customers
- effective 1st Jan 2017
- effective 1st Jan 2017
- to provide a single rev. recog'n model
applicable to a range of industries
- ISSUES WITH REV RECOG'N
- Buy/hold
- when does legal title + possession transfer?
- invoice? delivery?
- invoice? delivery?
- Inspection conditions
- minor = upon delivery
- major = inspected
- 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?
- when to recognise sale?
- right to return?
- when is it an asset of Carcraft?
- e.g. Audi -> Carcraft -> person
- 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
- 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
- £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 contract
- e.g. mobile phone handset
- defer service and release over time
as service is delivered
- Tuition fees
- recognised over period over which services are delivered i.e. amount per year
- recognised over period over which services are delivered i.e. amount per year
- recognise immediate revenue now
- recognise FV of consideration i.e. PV
- = LOAN
- recognise income over
period upon delivery
- true sale? OR loan?
- on delivery
- legal title not passed on until
inventory sold on to 3rd party
- minor = upon delivery
- when does legal title + possession transfer?
- JUDGEMENT IS REQUIRED
- Buy/hold
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