IAS 18 Revenue Last updated: March 2017

SCOPE MEASUREMENT
Applied to revenue = Does not deal with revenue Measure @ FV of consideration Imputed rate of interest = more When uncertainty arises about Revenue & expenses
gross inflow of economic arising from: received/receivable (excluding trade clearly determinable of EITHER: collectability of amount already related to same transaction
benefits during period  Lease agreements (IAS 17). discounts & volume rebates)  Prevailing rate for similar instrument recognized in revenue → recognized simultaneously
arising in course of  Dividends arising from  When payment is deferred →determine of issuer with similar credit rating OR recognize uncollectible (“matching”). If expenses
ordinary activities of an investments accounted for FV by discounting all future cash flows  Rate of interest that discounts amount/amount for which cannot be reliably
entity when those under equity method using an imputed rate of interest. nominal amount of instrument to recovery ceased to be probable, as measured → recognize
inflows result in ↑in (IAS 28). Difference in FV & nominal amount current cash sales price of expense in period identified liability for consideration
equity, OTHER THAN ↑  Insurance contracts →recognize as interest revenue. goods/services. instead of adjustment of revenue. already received.
relating to contributions (IFRS 4).
from equity participants.  Δs in FV/disposal of Goods/services exchanged/swapped for: Identification of the transaction
financial assets & liabilities/  Those of similar nature & value (e.g., oil  Standard usually applied separately to each transaction. Sometimes necessary to apply recognition
 Amounts collected on (IAS 39). suppliers swapping inventories in various criteria to separately identifiable components of single transaction to reflect substance.
behalf of third parties  Δs in value of other current locations to fulfill demand) → NOT Example: if selling price of product includes identifiable amount for subsequent servicing, that amount
(e.g., taxes) → NOT assets. transaction that generates revenue. is deferred & recognised over period service performed.
revenue as no inflow of  Initial recognition & from  Those of dissimilar nature & value →  Recognition criteria are applied to 2 or more transactions together when they are linked in such a way
economic benefits. Δs in FV of biological assets generates revenue measured @ FV of that the commercial effect cannot be understood without reference to transaction series as a whole.
 Agency relationships → and initial recognition of goods received adjusted for cash & cash Example: Entity may sell goods & enter into separate agreement to repurchase goods @ later date →
revenue = commission agricultural produce equivalents transferred. negates substantive effect of transaction and accordingly the transactions are dealt with together.
NOT amounts collected (IAS 41).
for principal.  Extraction of mineral ores. RECOGNITION OF REVENUE ARISING FROM THESE EVENTS:

RENDERING OF SERVICES SALE OF GOODS INTEREST, ROYALTIES &

DIVIDENDS (arising from use by
Outcome of transaction can be estimated reliably →associated revenue Outcome CANNOT be Recognize when ALL the following conditions satisfied: others of entity’s assets)
recognized by reference to stage of completion @ end of reporting period. estimated reliably →  Significant risks & rewards of ownership transferred (e.g., transfer
Outcome can be estimated reliably when ALL of the following satisfied: recognize only to of title/possession). Recognize when:
 Amount of revenue reliably measureable. extent (recoverable)  Entity retains neither continuing managerial involvement to degree  Probable that associated
 Probable that associated economic benefits will flow to entity. expenses are usually associated with ownership nor effective control over goods economic benefits will flow to
 Stage of completion @ end of reporting period reliably measureable. recognized. sold. entity AND
 Costs incurred/ to complete the transaction reliably measureable.  Amount of revenue reliably measureable.  Amount of revenue reliably
Indeterminate number
 Probable that associated economic benefits will flow to entity measureable.
Reliable estimates generally Stage of completion can be of service acts over
(sometimes only when amount received/uncertainty removed).
available after ALL the following are determined through methods specified period:
 Costs incurred/to be incurred reliably measureable.  Interest → use effective
agreed upon: including:  Revenue recognized interest method in IAS 39.
on straight-line basis Examples of when significant risk Examples of when insignificant
 Each party’s enforceable rights  Surveys of work.  Dividends → recognize when
UNLESS evidence of ownership retained: risk of ownership is retained &
regarding service to be provided &  Services performed to date as shareholder’s right to receive
that other method  Obligation retained for revenue may still be recognized:
received by parties. percentage of total services to be payment is established (i.e.,
better represents unsatisfactory performance not  Seller retains legal title solely
 Consideration to be exchanged. performed. declaration).
stage of completion. covered by normal warranty to protect collectability of
 Manner & terms of settlement.  Proportion that costs incurred to
 When specific act is provisions. amounts due.  Royalties → use accrual basis
date bear to estimated total
Usually necessary to have effective more significant than  Revenue contingent on  Refund offered if customer not in accordance with substance
internal financial budgeting & costs of transaction.
any others→ derivation of revenue by the satisfied → revenue recognised of relevant agreement UNLESS
reporting system. Entity reviews, & if Progress payments/advances often
postpone recognition buyer from its sale of the goods. at time of sale IF returns can be based on substance of
necessary revises estimates. do NOT reflect services performed.
of revenue until  Goods shipped subject to estimated. Liability is agreement, some other
Revisions do NOT necessarily indicate (Stage/percentage of completion significant act installation & installation is a recognized for future returns
method also required under IAS systematic/rational basis is
that outcome cannot be reliably executed. significant part of the contract based on previous experience
11). more appropriate.
estimated. not yet completed. & other relevant factors.
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