This standard provides guidance on accounting for revenue recognition. It defines revenue as the gross inflow of cash, receivables or other consideration from the sale of goods, rendering of services, and use of enterprise resources by others. Revenue is recognized when specific criteria are met, such as when risks and rewards of ownership are transferred to the buyer or when services are performed. The standard also addresses timing of revenue recognition and disclosures required.
This standard provides guidance on accounting for revenue recognition. It defines revenue as the gross inflow of cash, receivables or other consideration from the sale of goods, rendering of services, and use of enterprise resources by others. Revenue is recognized when specific criteria are met, such as when risks and rewards of ownership are transferred to the buyer or when services are performed. The standard also addresses timing of revenue recognition and disclosures required.
This standard provides guidance on accounting for revenue recognition. It defines revenue as the gross inflow of cash, receivables or other consideration from the sale of goods, rendering of services, and use of enterprise resources by others. Revenue is recognized when specific criteria are met, such as when risks and rewards of ownership are transferred to the buyer or when services are performed. The standard also addresses timing of revenue recognition and disclosures required.
This standard provides guidance on accounting for revenue recognition. It defines revenue as the gross inflow of cash, receivables or other consideration from the sale of goods, rendering of services, and use of enterprise resources by others. Revenue is recognized when specific criteria are met, such as when risks and rewards of ownership are transferred to the buyer or when services are performed. The standard also addresses timing of revenue recognition and disclosures required.
ACCOUNTING STANDARD 9 REVENUE RECOGNITION 1. Revenue: Revenue is the gross inflow of • cash, • receivables or • other consideration Arising in the course of the ordinary activities of an enterprise from the: • Sale of goods, • Rendering of services, and • Use of enterprise resources by others yielding interest, royalties and dividends. Attention: ➢ Trade discounts and volume rebates given should be deducted in determining revenue. ➢ An entity shall exclude from revenue all amounts collected on behalf of third parties such as GST ➢ In an agency relationship, an entity shall include in revenue only the amount of its commission. The amounts collected on behalf of the principal are not revenue of the entity.
2. Objective of Revenue Recognition
Revenue recognition is mainly concerned with the timing of recognition of revenue in the SOPL of an enterprise.
3. Revenue from Sale of Goods
Revenue from sale of goods is recognised when the all the following conditions have been fulfilled:
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➢ The seller has transferred the ownership in the goods to the buyer for a consideration or all significant risks and rewards of ownership have been transferred to the buyer. ➢ The seller retains no effective control of the goods transferred. ➢ There is no significant uncertainty exists regarding the amount of the consideration. ➢ it is not unreasonable to expect ultimate collection. Attention In most cases, the transfer of the risks and rewards of ownership coincides with the transfer of the ownership or the passing of possession to the buyer. In other cases, the transfer of risks and rewards of ownership occurs at a time different from the transfer of ownership or the passing of possession.
Special Guidance 1. Delivery is delayed at buyer’s request and buyer takes title and accepts billing When delivery of goods is delayed at buyer’s request, revenue should be recognised at the time of transfer significant risks and rewards of ownership to the buyer. However, at the time sale is recognised - the item must be on hand, - the item must be identified and - the item must be ready for delivery to the buyer 2. Goods are sold subject to installation, inspection etc. Revenue should normally be recognised when - the customer accepts delivery and - installation and inspection are complete. 3. Goods sold on approval basis Revenue should be recognised when
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- the goods have been accepted by the buyer or
- the buyer has done an act adopting the transaction or - the time period for rejection has elapsed 4. Consignment sales Revenue should be recognised when the goods are sold to a third party. 5. Cash on delivery sales Revenue should be recognised when cash is received by the seller or his agent 6. Special order and shipments Revenue from such sales should be recognised when - goods are manufactured, - goods are identified and - goods are ready for delivery to the buyer by the third party. 7. Sale/repurchase agreements i.e. where seller concurrently agrees to repurchase the same goods at a later date For such transactions that are in substance a financing agreement. The resulting cash inflow is not revenue as defined and should not be recognised as revenue.
8. Sales to intermediate parties i.e. where goods are sold to
distributors, dealers or others for resale Revenue from such sales can generally be recognised if significant risks of ownership have passed. However, in some situations the buyer may in substance be an agent and in such cases the sale should be treated as a consignment sale.
9. Subscriptions for publications
Revenue received or billed should be deferred and considered as advance and recognised on a straight line basis over time.
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10. Instalment sales
When the consideration is receivable in instalments, revenue attributable to the sales price exclusive of interest should be recognised at the date of sale. The interest element should be recognised as revenue, proportionately to the unpaid balance due to the seller.
4. Rendering of Services: Following conditions should be satisfied for recognition of revenue from rendering of services: (a) Revenue from service is generally recognized as the service is performed. Revenue should be recognised either - under the completed service contract method or - under the proportionate completion method (b) There is no significant uncertainty exists regarding the amount of the consideration. (c) it is not unreasonable to expect ultimate collection.
Special Guidance 1. Installation Fees Revenue should be recognised as revenue only when the equipment is installed and accepted by the customer. 2. Advertising commissions Commission Income will normally be recognised when the related advertisement or commercial appears before the public 3. Insurance Agency Commission Insurance agency commissions should be recognised on the effective commencement or renewal dates of the related policies. 4. Financial service commissions Revenue should be recognised when loan has been granted. 5. Admission fees
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Revenue from artistic performances, banquets and other special
events should be recognised when the event takes place. 6. Tuition fees Revenue should be recognised over the period of instruction.
5. Use by others of enterprise resources:
Revenue should only be recognised when no significant uncertainty as to measurability or collectability exists. These revenues are recognised on the following bases: Interest - on a time proportion basis considering the amount outstanding and rate applicable. Royalties - on accrual basis in accordance with the terms of the relevant agreement.
Dividends - when the owner’s right to receive payment is established
Note: • Right to receive payment is established when dividend is declared by the company. • In case of proposed dividend, no right to receive dividend is established.
6. Effect of Uncertainties on Revenue Recognition
• Where the ability to assess the ultimate collection with reasonable certainty is lacking at the time of raising any claim, revenue recognition is postponed to the extent of uncertainty involved. • In such cases, it may be appropriate to recognise revenue only when it is reasonably certain that the ultimate collection will be made. • Where there is no uncertainty as to ultimate collection, revenue is recognised at the time of sale or rendering of service. • When recognition of revenue is postponed due to the effect of uncertainties, it is considered as revenue of the period in which it is properly recognised.
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7. Subsequent uncertainty of collection:
• When uncertainty of collection of revenue arises subsequently after the revenue recognition, it is better to make provision for the uncertainty in collection rather than adjustment in already recognized revenue.
8. Scope This Standard does not deal with the following (a) Revenue arising from construction contracts; (b) Revenue arising from hire-purchase, lease agreements; (c) Revenue arising from government grants and other similar subsidies; (d) Revenue of insurance companies arising from insurance contracts.
Examples of items not included within the definition of “revenue”:
(i) Realised gains resulting from the disposal of non-current assets (ii) Unrealised gains resulting from the holding of, non-current assets (iii) Unrealised holding gains resulting from the change in value of current assets (iv) Realised or unrealised gains resulting from changes in foreign exchange rates (iv) Realised gains resulting from the discharge of an obligation at less than its carrying amount; (v) Unrealised gains resulting from the restatement of the carrying amount of an obligation.
9. Disclosure requirements: • Revenue recognition policy adopted should be disclosed. • Circumstances in which revenue recognition has been postponed.
