Ias 18

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IAS – 18

Income
* is:
* an increase in economic benefits
* during the accounting period
* in the form of inflows or enhancements of assets or decreases in liabilities * that results in increases in equity, other than those relating to contributions from equity participants Income may be divided into the following two categories:

* revenue (is the gross inflows of economic benefits, during the period, arising in the course of ordinary activities of an entity, when those inflows result in increases in equity, other than increases relating to contributions from equity participants; and * gain (is a type of income including for instance surplus on the revaluation of property, plant and equipment), but is not part of revenue and is thus not covered within the ambit of IAS 18 Recognition of revenue

Recognition, as defined in the IASB Framework, means incorporating an item that meets the definition of revenue (above) in the income statement when it meets the following criteria: * it is probable that any future economic benefit associated with the item of revenue will flow to the entity, and * the amount of revenue can be measured with reliability IAS 18 provides guidance for recognizing the following specific categories of revenue Sale of goods

Revenue arising from the sale of goods should be recognised when all of the following criteria have been satisfied: * the seller has transferred to the buyer the significant risks and rewards of ownership * the seller retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold * the amount of revenue can be measured reliably

* it is probable that the economic benefits associated with the transaction will flow to the seller, and * the costs incurred or to be incurred in respect of the transaction can be measured reliably Example

Inventory with a cost of C80 is sold to a customer for C100. Required:
Discuss whether the sale should be recognised assuming the: A. seller retains physical possession of the inventory until all instalments are received (lay away sale); B. seller allows buyer to take possession of the inventory immediately and pay the sales price in instalments (instalment sale). Example

Dash Limited sold a truck to Walker Limited for C100 000. Walker Limited is to pay the sales price in instalments over a period of six months but took possession of the truck on the date that the sale agreement was signed. In order to ensure that full payment would be received, Dash Limited retained legal title. Required:

Discuss whether the sale should be recognised by Dash Limited. Rendering of services
For revenue arising from the rendering of services, provided that all of the following criteria are met, revenue should be recognized by reference to the stage of completion of the transaction at the balance sheet date (the percentage-of-completion method): * the amount of revenue can be measured reliably;

* it is probable that the economic benefits will flow to the seller; * the stage of completion at the balance sheet date can be measured reliably; and * the costs incurred, or to be incurred, in respect of the transaction can be measured reliably When the above criteria are not met, revenue arising from the rendering of services should be recognized only to the extent of the expenses recognized that are recoverable (a "cost-recovery approach") Example

Scrubbers Limited signed an agreement whereby it is to scrape and re-plaster 50 buildings. The total contract price is C80 000. The expected contract cost is C50 000. The following details are available as at year-end, 31 December 20X3: * according to the surveyor, C50 000 of the work had been done and may be invoiced; * according to Scrubbers Limited, 30 buildings had been scraped and re-plastered; * costs of C35 000 have been incurred to...
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