IAS – 18

Revenue
MEMBER NAME
 OBJECTIVE

Income is defined in the Framework for

the Preparation and Presentation of
Financial Statements as:
increases in economic benefits during the
accounting period in the form of inflows
or enhancements of assets
OR
decreases of liabilities that result in
increases in equity, other than those
relating to contributions from equity
participants.
 OBJECTIVE
Revenue is income that arises in the
course of ordinary activities of an
entity and is referred to by a variety
of different names including sales,
fees, interest, dividends and
royalties.

The objective of this Standard is to

prescribe the accounting treatment
of revenue arising from certain types
of transactions and events.
 DEFINITIONS
Revenue includes only the gross inflows of
economic benefits received and receivable
• .
by the entity on its own account.

Fair value is the amount for which an asset

could be exchanged, or a liability settled,
between knowledgeable, willing parties in
an arm’s length transaction
 MEASUREMENT OF REVENUE =Fair vale
consideration received or receviable

DISCOUNT FAIR VALUE OF

CASH
FUTURE GOOD RECEIVED
 MEASUREMENT OF REVENUE
Revenue shall be measured at the fair value of the consideration
received or receivable.

The amount of revenue arising on a transaction is usually determined by

agreement between the entity and the buyer or user of the asset.

In most cases, the consideration is in the form of cash or cash equivalents

and the amount of revenue is the amount of cash or cash equivalents
received or receivable.

When goods or services are exchanged or swapped for goods or services

which are of a similar nature and value, the exchange is not regarded as a
transaction which generates revenue.
 TRANSACTION

The recognition criteria in this standard are

usually applied separately to each transaction . In
certain circumstance , it is necessary to apply to
recognition criteria to the separately identifiable
component of a single transaction in order to
reflect the substance of transaction
 IDENTIFICATIONS OF TRANSACTIONS
• When component of sales has stand-alone value; (it may be sold alone)
• The fair value of that component can be objectively measured

The revenue recognition criteria (below) are assessed for each of the above mentioned component
separately:

Residual Value Method – whereby the fair value of one component is measured, and the other
component is measured at the residual amount of the proceeds (this method is used when fair
value of one component of is not determinable

Relative Value Method – the proceeds is allocated to the components based on their relative fair value
 EXAMPLE OF TRANSACTION
The entity has the primary responsibility for
providing the goods or services to customer or for
fulfilling the order.

The entity has the inventory risk before or after the

customer order, during shipping or on return.

The entity has latitude in establishing prices, either

directly or indirectly.

The entity bears the customer’s credit risk on the

receivable due from the customer of the service.
THE PROCESS AFTER EARNING TO
REVENUE RECOGNITION
 RECOGNIZATION OF REVENUE

INTEREST,
SALES OF RENDERING ROYALITIES
GOOD OF SERVICE AND
DIVIDEND
 SALES OF GOOD
The seller has transferred to the buyer the significant risks
and rewards of ownership
No continuing managerial involvement associate with
ownership

The amount of revenue can be measured reliably

It is probable that the economic benefits associated with

the transaction will flow to the seller

The costs can be measured reliably

 TRANSACTION IN GOOD SALES
Good shipped Sales and Subscription
Bills and Lay away sales
subject to repurchase to publication
hold sale
condition agreement
 RENDERING OF SERVICE
the amount of revenue can be measured
reliably
it is probable that the economic benefits will
flow to the seller

the stage of completion at the balance sheet

date can be measured reliably

the costs incurred can be measured reliably.

EXAMPLE OF RENDERING SERVICE
 INTEREST ROYALITIES DIVIDEND

on an accruals
when the
using the effective basis in
shareholder's
interest method accordance with
right to receive
as set out in IAS the substance of
payment is
39 the relevant
established
agreement

(a) the accounting policies
adopted for the recognition
of revenue, including the
methods adopted to
determine the stage of
completion of transactions
involving the rendering of
services;
DISCLOSURES
(b) the amount of each
significant category of
revenue recognized
during the period, (c) the amount of
including revenue arising revenue arising from
from exchanges of goods
(i) the sale of goods; or services included
(ii) the rendering of in each significant
services; category of revenue
(iii) interest;
(iv) royalties;
(v) dividends;
 GUIDELINES FOR REVENUE
RECOGNITION
The revenue recognition principle provides that revenue is recognized:
◦ when it is earned, and
◦ when it is realized or realizable

Revenue is earned when the earnings process is substantially complete

Revenue is realized when goods and services are exchanged for cash or
claims to cash

Revenue is realizable when assets received are convertible into a

known amount of cash
FOUR TYPES OF REVENUE RECOGNITION
Revenue from selling products is recognized at the date of sale (date of
delivery).

Revenue from services is recognized when services are performed and are
billable.

Revenue from the use of enterprise’s assets by others is recognized as time passes
or as the assets are used up.

Revenue from disposal of assets (other than inventory) is recognized at the

point of sale as gain or loss
REVENUE RECOGNITION CLASSIFIED BY
NATURE OF TRANSACTIONS
THANK U