Summary of IAS 18
Objective of IAS 18
The objective of IAS 18 is to prescribe the accounting treatment for revenue arising from certain types of transactions and events. Key Definition
Revenue: the gross inflow of economic benefits (cash, receivables, other assets) arising from the ordinary operating activities of an entity (such as sales of goods, sales of services, interest, royalties, and dividends). [IAS 18.7] Measurement of Revenue
Revenue should be measured at the fair value of the consideration received or receivable. [IAS 18.9] An exchange for goods or services of a similar nature and value is not regarded as a transaction that generates revenue. However, exchanges for dissimilar items are regarded as generating revenue. [IAS 18.12] If the inflow of cash or cash equivalents is deferred, the fair value of the consideration receivable is less than the nominal amount of cash and cash equivalents to be received, and discounting is appropriate. This would occur, for instance, if the seller is providing interest-free credit to the buyer or is charging a below-market rate of interest. Interest must be imputed based on market rates. [IAS 18.11] 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 recognising 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: [IAS 18.14] • 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...
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