IAS-18 Revenue

Question 1

Definition

Answer 1

Gross inflow of economic benefits arising from ordinary activites

Question 2

How do we measure revenue?

Answer 2

At FV of consideration received or receviable

Question 3

When do we recognise

Answer 3

• Can be reliably measured
• Associated costs can be reliably measured
• Probably inflow of economic benefits

Question 4

Current issue: Issues with Revenue (3)

Answer 4

1) It doesn’t adopt SOFP approach of framework
2) Revenue IAS is too simplistic for modern day transactions
3) Revenue and contruction contracts IAS conflict. Inconsitent treatment of similar itmes.

Question 5

Current issue: 5 Steps (5)

Answer 5

1) Identify the contract with the customer
2) Identify the separate performance obligations within the contract. (i.e. can be sold separately).
3) Determine the transaction price (i.e amount receivable)
4) Allocate the transaction between separate obligations
5) Recognise revenue as each performance obligation is satisfied.

Question 6

Example of 5 steps: Loyalty programme

• 10 points for every $1 spent.
• 100 points = $1 discount
• In the year, $500 sales to customer
• @ YE, customer has used 2,000 points

Answer 6

Customer has a total of 5,000 points ($50010)
1) Deliver goods now and in future when points redeemed
2) as above.
3) Transaction price is $500
The total 5,000 points racked up that they’re entitled to is equal to $50 worth of sales. Actual sales to customer is therefore $550.
4) ($500/$550)$500 = $455 revenue to recognise now
($50/$550)*$500 = $45 revenue to recognise later
5) At year end, can recognise $455 now plus 2,000/5,000 of the $45 (i.e. $18).