This assignment features the recognition and measurement of revenue depending on the source of revenue in accordance with the provisions of International Accounting Standards (IAS) 18 Revenue. I researched the topic and defined the special purposes of the assignment: first of all, it is important to know the main concepts of IAS 18, also to learn the rules by using this particular regulatory framework, and to get knowledge about writing the report at all.
To: Managing Director
From: Student A
Regarding: IAS 18
Introduction to the Report
The Conference on International Accounting Standard (IAS) 18 Revenue was held to introduce the concepts of the regulatory framework of financial reporting and to represent the given information in convenient use of practice. The objective of IAS 18 is to prescribe the accounting treatment for revenue arising from certain types of transaction and events (Summaries of International Financial Reporting Standards, 2001).
According to International Accounting Standard Committee (IASC) the Framework Revenue is income that arises in the course of ordinary activities of an enterprise and is referred to by a variety of different names including sales, fees, interest, dividends and royalties (IASC, 2000). So revenue is one of the most important indicators of accounting. It is a key factor of the profit, its assessment helps to build many financial indicators on the profitability of the activities of the organization, as well as return on investment. A key issue when recording revenue is to define the moment of its recognition. Revenue is recognized if it is likely that the organization will receive economic benefits in the future, and these benefits can be reliably measured. IAS 18 specifies conditions where these criteria are met and therefore the revenue recognizes. This standard also provides practical advice on the application of those criteria.
Measurement of Revenue
In accordance with IAS 18 revenue is usually determined by agreement between the supplier and the customer or user of the asset. This means that it is measured at fair value consideration, which the company has received or receivable; trade discounts and volume rebates provided by the enterprise are taken into the amount. The standard defines fair value as “the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction". (IASC, 2000) As the fair value is often expressed in monetary terms, the revenue will be the amount that the company has received or receivable. This problem occurs when the incoming payment is deferred. In this case the present value of the payment will be less than its face value. So IAS 18 introduced the following requirement: the company must be discounting. In such circumstances all future receipts should be discounted using the imputed interest rate. The second problem in recognizing the revenue arises in cases when the company offers its clients discounts for fast calculation. To comply with the requirements of IAS 18, discounts for fast payment should be measured at the time of the sale and deduct from the revenue. In cases when there is an exchange for goods or services similar in nature, cost of revenue does not arise. When exchanging a variety of goods, revenue is measured at fair value of the goods or services received, minus the amount transferred to cash or cash equivalents.
Revenue is recognized with regard to the certain points: the convincing evidence of an agreement with a customer, the delivering goods and the rendering of services. Sale of goods
There are following criteria to recognize revenue from the sale of goods: * Significant risks and rewards associated with ownership of the goods passed from the seller to the buyer; * The...