Chapter 18 - Revenue Flashcards
Recognition of Interest, Royalties and Dividends
Interest: using the effective interests method
Royalties: an accruals basis
Dividends: when the shareholders’ right to receive payment is established
Disclosures in the accounts according IAS 37
A provision must be recognized in the financial statements
Contingent liabilities and Contingent Assets are not recognized but are disclosed in the notes
Creation of deferred tax
Deferred tax arises because of timing or temporary differences
These differences arise in one period and are capable of reversal in future periods
Deferred tax does not arise because of permanent differences
IAS 18 Revenue Definition
Gross inflow of economic benefits
IAS 18 Revenue does not include
> Proceeds from sale of Non-current assets
Anything besides commissions in an agency relationship
Amounts collected for others
IAS 18 Revenue recognition criteria
Revenue should only be recognized when:
> it is probable that future economic benefits will flow to the entity
> these benefits can be measured reliably
IAS 18 Revenue types
> Sale of Goods
Rendering of Services
Interest, Royalties and Dividends
Sale of Goods recognition
> significant risks and rewards of ownership have been transferred
seller retains no control over the goods
it is probable that future economic benefits will flow to the entity
these benefits can be measured reliably
Rendering of Services
> Revenue can be measured reliably
it is probable that future economic benefits will flow to the entity
stage of completion of the transaction can be measured reliably
Cost to the seller can be measured reliably
Interest, Royalties and Dividends
> Revenue can be measured reliably
it is probable that future economic benefits will flow to the entity
interest and Royalties should be recognized on an accrual basis
IAS 18 Measurement of Revenue
> Amount of cash received or receivable
> discounted present value if time value is material
IAS 18 Revenue - Substance of transaction
> Legal title vs Risks and Benefits of the asset
an individual transaction vs all other linked transactions
options included in a transaction
IAS 18 Revenue - Substance of transaction
Do assets and liabilities arise subsequent to a transaction
