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Revenues and Fair Values - Assignment Example

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IAS 18 prescribes the accounting treatment for revenue arising from certain types of transactions and events. It defines revenue as the gross inflow of economic benefits, such as cash, receivables, and other assets, arising from the ordinary operating activities of an enterprise,…
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Revenues and Fair Values
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Download file to see previous pages Question 1, Part I: Outline the key requirements of IAS 18 Revenues
IAS 18 prescribes the accounting treatment for revenue arising from certain types of transactions and events. It defines revenue as the gross inflow of economic benefits, such as cash, receivables, and other assets, arising from the ordinary operating activities of an enterprise, such as sales of goods or services, interest, royalties, and dividends (IAS 18 §7).
Revenues are different from gains, a type of income which also represent increases in economic benefits but may not arise in the course of the ordinary activities of an enterprise.
The key requirements of IAS 18 are reliability, recognition, and measurement of revenue. Revenue should be measured at the fair value of the consideration receivable (IAS 18 §9). An exchange for goods or services of a similar nature and value is not regarded as a transaction that generates revenue, which only applies to exchanges of dissimilar items (IAS 18 §12).
IAS 18 has the following basic principles to guide accountants on the timing of revenue recognition:
 Significant risks and/or rewards of ownership are transferred to the buyer;
 No continuing involvement nor control associated with ownership;
 Amount of revenue can be measured reliably;
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