Revenue Recognition according to International Financial Reporting Standards - Case Study Example

Revenue (IAS 18) - IFRS Task Introduction The paper will present the guidelines provided by the International Financial Reporting Standards regarding the recognition, measurement and he disclosure of revenue under the following scenarios: sale of goods; rendering of services; income from interest, royalties and dividends; revenue recognition of software companies; principles of revenue recognition for airline companies; construction contracts; services concession arrangements; customer loyalty programs; agreements for the construction of real estate; agreement for the rendering of services and sale of goods; transfer of assets from customers; exchange of goods and services; telecommunication company selling talk time through scratch cards; magazine subscription; goods sold under “sale or return”; and revenue recognition for media company after advertisements even if the payment is not received or received in advance. The Revenue Recognition The International Financial Reporting Standard (IFRS) further provides detailed regulation in light of revenue recognition. Corporations undertake different activities for the primary purpose of revenue generation. Revenue is defined as the gross inflow of financial advantages amid the period emerging over the span of the conventional exercises of an element when those inflows bring about expansions in value, other than increments identifying with commitments from value members. Reasonable worth is the sum for which an advantage could be traded, or a risk settled, between educated, willing gatherings in an a safe distance exchange (IAS 18: Revenue, 2009). Income incorporates just the gross inflows of monetary advantages got and receivable by the substance all alone record. Sums gathered for the benefit of outsiders, for example, deals duties, merchandise and administrations expenses and quality included assessments are not financial advantages that stream to the substance and dont bring about expansions in value. In this manner, they are rejected from income. Likewise, in an office relationship, the gross inflows of financial advantages incorporate sums gathered for the main and which dont bring about increments in value for the element. The amounts collected for the benefit of the principal are not income. Rather, income is the measure of commission (IAS 18: Revenue, 2009). The recognition of revenue, as characterized in the IASB Framework, means joining an activity that meets the meaning of income (above) in the salary proclamation when it meets the accompanying criteria: first, it is plausible that any future financial advantage connected with the thing of income will stream to the substance. Second, the income can be measured with dependability (IAS 18: Revenue, 2009). The measurement of revenue - Income might be measured at the fair value of the consideration received or receivable. The measure of income emerging on an exchange is dictated by understanding between the entity and the purchaser or client of the benefit. It is measured by the reasonable estimation of the consideration received or receivable considering the measure of any exchange rebates and volume discounts permitted by the entity. By and large, the consideration takes the form of cash or cash equivalent, and the measure of income is the measure of money or money reciprocals got or receivable. Then again, when the inflow of money or money reciprocals is conceded, the reasonable estimation of the thought may be not exactly the ostensible measure of money got or receivable (IAS 18: Revenue, 2009). For instance, an element might provide free premium credit to the purchaser or acknowledge a note receivable bearing a beneath business interest rate from the purchaser as a thought for the offer of products. At the point when the plan successfully constitutes a financing exchange, the reasonable estimation of the thought is dictated by reducing every future receipt utilizing a credited rate of interest. The attributed rate of interest is the all the more unmistakably definite of either the overall rate for a comparative instrument of a guarantor with a comparable credit score; or an interest rate that rebates the ostensible measure of the instrument to the present money deals cost of the products or administrations (IAS 18: Revenue, 2009). The sale of goods - Income is recognized when all the accompanying conditions have been fulfilled: first when the seller has exchanged the noteworthy dangers and prizes of responsibility for merchandise to the purchaser. Second, when the seller does not hold control over the merchandise or administrative inclusion with them to the degree connected with proprietorship. Third, when the measure of income can be done dependably. Fourth, when it is likely that the financial advantages connected with the exchange will stream to the vendor. Last, when the expenses acquired or to be caused by the merchant in appreciation of the exchange can be measured dependably (IAS 18: Revenue, 2009). The provision of services - IAS 18 expresses that where the result of an exchange including the rendering of administrations can be evaluated dependably, related income ought to be perceived by reference to the phase of finish of the exchange toward the end of the reporting period (3). As such, the income is perceived progressively, as opposed to all at one basic point, similar to the case for income from the offer of merchandise. IAS 18 further expresses that the result of an exchange can be assessed dependably when all the accompanying conditions are fulfilled: first when income can be measured dependably. Second, when it is plausible that the monetary advantages connected with the exchange will stream to the seller. Third, when the phase of finish of the exchange toward the end of the reporting period can be measured dependably. Last, when the expenses caused to date for the exchange and the expenses to finish the exchange can be measured dependably (Revenue recognition, 2015). Income from interests, royalties and dividends - IAS 18 expresses that entities ought to recognize income from the utilization of their assets that yield interest, royalties and dividends under the following circumstances: first, when it is plausible that the monetary advantages connected with the exchange will stream to the element. Second, when the income can be measured dependably.The definite premise for the acknowledgment of income from the utilization by others of the seller’s resources relies on upon the kind of exchange as described below: first, interest income ought to be recognized on the effective interest premise. Second, royalties ought to be recognized on an accrual premise as per sums receivable as an aftereffect of the utilization of an asset up to the reporting date. Last, dividend income ought to be recognized when the privilege to get installment is set up. Frequently this does not happen on account of profits until the shareholder gets the profit (Revenue recognition, 2015). Construction contracts - IAS 11 essentially obliges that, where the result of a development contract can be perceived dependably, income on such contracts ought to be perceived by phase of finishing of the agreement, if the following criteria are met: first, when aggregate contract income can be measured dependably. Second, when it is likely that the financial advantages connected with the agreement will stream to the seller. Third, when both the sellers expenses to finish the agreement and the phase of agreement finishing toward the end of the reporting period can be measured dependably. Last, when the sellers expenses to date owing to the agreement can be unmistakably distinguished and measured dependably so that genuine expenses acquired can be contrasted and earlier gauges (Revenue recognition, 2015). Revenue recognition of software companies - SOP 97-2 instruct that the accompanying four criteria must be met before software revenue can be recognized (given that critical generation, change, or customization of the software product is not needed): first, if an influential proof of a plan exists. Second, if the conveyance has happened. Third, if the sellers charge is settled or definable. Last, if collectibility is probable (Software revenue recognition, n.d.). Principles of Revenue Recognition for Airline companies – the revenue from passengers or luggage is recognized after the service is delivered. Revenue from the purchase of tickets are deferred (treated as a liability in the Balance sheet) until the service is delivered. Concerning unredeemed tickets, if customers do not return them within a specific period, their value is recognized (Recognition of revenue in the global airline Industry, n.d.). Service Concession Arrangements- there are two types of concession arrangements (financial and intangible arrangements). Under the financial arrangement, the operator recognizes the financial asset for the degree that it has an unqualified contractual right to get money or another monetary resource from or at the bearing of the grantor for the development administrations. The operator has an unequivocal right to get money if the grantor contractually ensures to pay the administrator: predetermined or definable sums or the setback, if any, between sums, got from clients of people in general administration and determined or definite sums, regardless of the possibility that installment is dependent upon the administrator guaranteeing that the base meets indicated quality or productivity prerequisites. The administrator measures the budgetary resource at fair value (Service concession arrangement, 2011). Under the intangible arrangement, the operator recognizes an elusive advantage to the degree that it gets a right (a permit) to charge clients of general society administration. A privilege to charge clients of the general population administration is not an unrestricted right to get money because the sums are dependent upon the degree that the general population utilizes the administration. The intangible asset is measures at fair value (Service concession arrangement, 2011). Customer Loyalty Programs – the revenue associated with sale of goods or services are recognized immediately whereas, the income related to loyalty credits offered to customers are recognized in the future when the loyalty credits are redeemed by the customers (IFRIC 13: Customer Loyalty Programs, 2015). Agreements for the Construction of Real Estate – the real estate developer can sell houses or a service. Income from sales of houses is typically recognized at conveyance. On the other hand, income from offering services is ordinarily recognized at a rate of-fulfillment basis as development advances (Agreement for the Construction of Real Estate, 2015). Agreement for the Rendering of Services and Sale of Goods – the same accounting treatment described above under the sale of goods and rendering of services apply simultaneously in this case. Transfer of Assets from Customers – revenue is recognized by the entity as long as the service delivery to the customer is commenced. The period for recognizing the revenue is agreed upon by the entity and the customer (Transfer of assets from customers, 2009). Exchange of Goods and Services – the value of the goods is measured at fair market value. The associated revenue is recognized when the market value of the goods or services are determinable (Investopedia, 2015). Telecommunication Company selling talk time through scratch cards – the company does not recognize revenue upon selling the scratch cards to the dealers, but when the customer is making the call (Revenue recognition assignment help, 2015). Magazine subscription – if the subscription is monthly, paid in advance, the company will recognize the revenue at the end of the month (Revenue recognition assignment help, 2015). Goods sold under “Sale or Return” – under the sale or return transaction, the risk and rewards is not transferred to the buyer. Therefore, the sales transaction is not conclusive. The entity will only recognize revenue when the buyer has used or sold the goods (Fazal, 2012). The media Companies – they recognize the revenue whether accrued or paid in advance (Revenue recognition assignment help, 2015). References Agreements for the Construction of Real Estate.(2015). Retrieved from http://www.iasplus.com/en/standards/ifric/ifric15 Fazal, H. (2012). What is revenue recognition and accounting treatment for goods sold or sent on sale or return basis? Retrieved from http://pakaccountants.com/revenue-recognition-sale-of-goods-sale-or-return/ IAS 18. (2009). Retrieved from http://ec.europa.eu/internal_market/accounting/docs/consolidated/ias18_en.pdf IFRIC 13: Customer loyalty programs. (2015). Retrieved from http://www.icaew.com/en/technical/financial-reporting/ifrs/ifrs-standards/ifric-13-customer-loyalty-programme Investopedia. (2015). How and where is revenue recognized from barter transactions? Retrieved from http://www.investopedia.com/ask/answers/101314/how-and-where-revenue-recognized-barter-transactions.asp Recognition of Revenue in the Global Airline Industry. (n.d.). Retrieved from http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/recognition-of-revenue.pdf Revenue Recognition Assignment help. (2015). Retrieved from http://www.myassignmenthelp.net/revenue-recognition-assignment-help.php Revenue Recognition. (2015). Retrieved from http://www.accaglobal.com/za/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-articles/revenue-recognition.html Service Concession arrangements. (2011). Retrieved from http://www.iasplus.com/en/standards/ifric/ifric12 Software Revenue Recognition. (n.d.). Retrieved from http://www.deloitte.com/assets/Dcom-Unitedstates/Local%20Assets/Documents/AERs/us_assur_Roadmap_sOP97-2_2nd_edition_Nov09.pdf Transfer of Assets from Customers. (2009). Retrieved from http://www.iasplus.com/en/standards/ifric/ifric18 Read More