Introduction
This assignment features the recognition and measurement of revenue depending on the source of revenue in accordance with the provisions of International Accounting Standards (IAS) 18 Revenue.
I researched the topic and defined the special purposes of the assignment: first of all, it is important to know the main concepts of IAS 18, also to learn the rules by using this particular regulatory framework, and to get knowledge about writing the report at all.
The Report
To: Managing Director
From: Student A
Regarding: IAS 18
Date: 3/11/2011
Introduction to the Report
The Conference on International Accounting Standard (IAS) 18 Revenue was
…show more content…
Rendering of services
When the outcome of a transaction involving the rendering of services can be reliably estimated, revenue from the sale of services is based on the level of completion of the transaction at the balance sheet date. The outcome of a transaction can be measured reliably when: * The amount of the transaction can be reliably assessed; * There will be probability to get economic benefits for the enterprise as a result of this operation; * Level of completion of the transaction at the balance sheet date can be assessed; * Costs that should be suffered relating to a transaction can be measured reliably.
Revenue from the provision of goods and all services is only recognized when the amounts to be recognized are fixed or determinable, and collectability is reasonably assured (Elliot B., Elliot J., 2007)
Interest, royalties and dividends
IAS 18 considers the accounting procedure of potential components of revenue organization primarily from transactions involving the sale of goods, rendering of services, as well as through other organizations or individuals property of the reporting organization, giving interest, dividends or royalties. If the probability of the economic
Once the item meets this criteria and the company determines that the item should be recognized, the company must determine when to recognize it. The recognition of revenue depends on two factors: being realized or realizable and being earned. Revenues are realized when a company exchanges assets for cash or claims to cash. Revenues are realizable when assets received can be readily convertible to known amounts of cash or claims to cash. Companies view revenues as earned when the entity has met all of its obligations to the corresponding benefits.
The source of revenue comes from net income, which comes from a sale of goods or services in
Being earned. Paragraph 83(b) of FASB Concepts Statement No. 5, Recognition and Measurement in Financial Statements of Business Enterprises, states that revenue is
accounting? Be sure to identify any other issues that must be resolved to determine how revenue
Due to the highly-detailed rules implemented by FASB in the area of revenue recognition, many transactions that are very similar often are not the same between different industries, resulting in multiple accounting methods for different industries. FASB has explained
during the remainder of the contract year. See the example provided in Appendix A for an
1. For a company, this is the total amount of money received by the company for goods sold or services provided during a certain time period. It also includes all net sales, exchange of assets; interest and any other increase in owner 's equity and is calculated before any expenses are subtracted. Net income can be calculated by subtracting expenses from revenue. In terms of reporting revenue in a company 's financial statements, different companies consider revenue to be received, or "recognized", different ways. For example, revenue could be recognized when a deal is signed, when the money is received, when the services are provided, or at other times. There are rules specifying when revenue should be recognized in different
The monthly fee should be recognized as revenue upon billing, as long as adequate provision is made for possible uncollectible amounts.
IASB. 2010, "The Conceptual Framework for Financial Reporting" IFRS, pp. A21- A38, viewed 23 April 2014,
A customer walks into her local Wal-Mart Supercenter to purchase a few necessities and Christmas gifts. Once the customer has found everything on her list, she goes to the nearest register to pay for her items. Her groceries totaled $102.50, her pet food cost $21.60, the videogame she picked out for her nephew is $80.00, and finally she purchased two Wal-Mart gift cards totaling $50.00. Even though the customer’s total sale is $279.10, Wal-Mart cannot recognize any of the revenue unless the transaction meets all of the criteria listed in IAS-18. IAS-18 is an accounting regulation that mandates how companies are to determine whether or not a transaction constitutes the recognition of revenue. Revenue regularly comes from the sale of goods or prepayment for services to be rendered, however, it can only be recognized if there is an economic benefit on behalf of the seller and the reliability of the revenue is provable. Wal-Mart is in the business to sell goods to customers, so they can only recognize revenues from completed transactions that are reliable in nature (IAS-18 Revenue 2009).
Yeaton (2015) research titled “A New World of Revenue Recognition” about the discussion of the new revenue recognition standard, jointly issued by FASB and IASB, which is effective after December 15, 2016 for public companies and after December 15, 2017 for private companies and non-profit organizations (p.50). Yeaton identified that the new revenue recognition standard will supersede most, if not all existing revenue standards (p.50). Yeaton summarized the purpose of the GAAP and IFRS converged standards on revenue recognition to provide consistent guidance to replace or remove the transaction and industry or geographic specific guidelines, to simplify or streamline current revenue criterion, and to enhance disclosure statement to demonstrate the nature, timing, amount and uncertainty of cash flow and revenue (p.50). Yeaton implied that the new standard of recognizing revenue will have significant impact on real estate and telecommunications companies, however it will provide variable impact on all companies, and in order to capture, to align and to justify business decision on revenue measurement, it could potentially require substantial changes on its existing process, policies and frameworks (p.50). Yeaton recognized the need of additional or frequent use of judgement and estimation to comply with the new requirements under the new principles of revenue recognition (p.50).
Financial statements of RAGA are prepared in conformity with U.S. generally accepted accounting principles (GAAP). Estimations were made in several cases. Though those estimations and assumptions were periodically reviewed, however, the true result may vary because of the assumptions. Transactions are recorded on the accrual basis of accounting which allows recognizing revenue when it is earned and expenses to be recognized when goods or services are received, without regard to the receipt or payment of cash. Assumptions were made regarding all the expected receipt, with keeps the provision of reasonable default. Supportive reserve for both payment and taxes had been kept also on the basis of calculative assumption.
The issues raised by Isoft elucidate the importance of recording an accurate picture of its earnings. The joint project of the FASB and the IASB is trying to converge the two sets of standards and offer a single revenue recognition model that can be applied consistently to various transactions – which would address these issues of lack of guidance.
The revenue recognition principle is a foundation of accrual accounting and one of the main principles of GAAP. The revenue recognition principle is a set of guidelines that helps accountants to identify when a revenue event has taken place and how to appropriately record cash exchanges before, during, and after the revenue event. According to the revenue recognition principal, revenue must (1) be realized or realizable and (2) earned, in order to be recognized. According to the SEC revenue is realized when (1) Persuasive evidence of an arrangement exists, (2) Delivery has occurred or services have been rendered, (3) The seller’s price to the buyer is fixed or determinable, and (4) Collectability is reasonably assured. It is essential
This version includes amendments resulting from IFRSs issued up to 31 December 2008. IAS 18 Revenue was issued by the International Accounting Standards Committee in December 1993. It replaced IAS 18 Revenue Recognition (issued in December 1982). Limited amendments to IAS 18 were made as a consequence of IAS 39 (in 1998), IAS 10 (in 1999) and IAS 41 (in January 2001). In April 2001 the International Accounting Standards Board resolved that all Standards and Interpretations issued under previous Constitutions continued to be applicable unless and until they were amended or withdrawn. Since then IAS 18 and its Appendix have been amended by the following IFRSs: • • • • • • • • • • •