Fiji National University

College of Business, Hospitality and

Tourism Studies
School of Accounting
ACC702 International Corporate
Reporting
Trimester III, 2016
Major Assignment Individual

Name: Arishma Nandani Devi

ID#: 2014124328

Abstract

This paper is to provide an insight into the recent annual report of FMF Foods Limited. The
paper focuses on the impact and relevance of IAS 18 Revenue which outlines the accounting
requirements for when to recognise revenue as well as identifies where the company has not
compiled with the selected accounting standards.

Introduction
To begin with, FMF Foods Limited initially Flour Mills of Fiji Limited produces and sells
many different types of food packages and snacks. FMF also deals with properties and they

are Fijis top manufacturer and exporters. It had started with a vision of using more locally
produced goods and allowing Fiji and other pacific region to less reliant on the imported
products. Thus FMF started to produce locally and made quality products.
Furthermore FMF was certified with the Quality Systems relevant to their operations. FMF
also received the licenses for True Pacific Quality mark .Meaning that FMF produces and
sells guaranteed quality products. The true pacific quality mark signifies that the products are
of high quality and effective systems are being employed to produce them.
Moreover, IAS 18 prescribes the accounting treatment for revenue arising from certain types
of transactions and events. Revenue is the gross inflow of economic benefits arising from the
ordinary operating activities of an entity. Under IAS18 revenue should be measured at the fair
value of the consideration received or receivable. IAS 18.2 states that exchanges for
dissimilar goods are regarded as generating revenue. No revenue is earned for similar type or
of value of goods exchanged because revenue is not realised until the goods are sold to a third
party.
International accounting standards board framework recognizes revenue as any item that is
probable of any future economic that will flow to the entity, and the amount of revenue can
be measured reliably.
This research aims to measure the compliance of FMF Foods Company limited to IAS 18.
Therefore the research objectives are:

To measure the impacts of the accounting standards on company performance &

relevance of information
Identify areas where the company has not complied with the requirements of the
selected accounting standard;
Suggest any improvements to the selected accounting standards.

The result will determine what level of compliance to IAS18 FMF foods limited are
committed to, and how transparent are the revenues they are reporting in their financials.

Literature Review
Under the accounting standards, IAS 18 Revenue is one of the most important standards in
accounting. Income is defined in the Conceptual Framework as an increase in economic

benefits during accounting period in the form of inflows or enhancements of assets or

decrease of liabilities that result in increase in equity, other than those relating to
contributions to equity participants. Income includes revenue as well as any gains. Revenue
is defined as the gross inflow of economic benefits arising from the ordinary operating
activities of an entity in the International Accounting Standards Board (IAS18). The
objective of IAS18 Revenue is to provide the accounting requirements as to when the revenue
is to be recognized, that is to recognise revenue from the sale of goods, rendering of services
and by use of entities other assets arises in dividends, interests and royalties.
International Accounting Standard 18 was first drafted in April, 1981 as a Revenue
Recognition and then introduced in December, 1982. Later in December 1993 IAS 18
Revenue Recognition was revised as part of the comparability of financial statements
project. It was effectively in use from 1 st January 1995. However it was further amended by
IAS39 Financial Instruments: recognition and measurement which was effective from 1 st
January 2001.
IAS 18 Revenue recognition helps accountants, auditors and other accounting professionals
to carry out their work/ responsibilities more reliably and the financial prepares to recognize
revenue accurately. IAS 18 recognizes revenue in three parts:
1. Sale of Goods revenue arising from sale of goods should be recognized when these
requirements are met;
a. The seller has transferred the significant risk and reward of ownership to the
buyer.
b. The seller has no control or managerial involvement over the goods sold.
c. The amount of revenue can be measured reliably.
d. Economic benefits of the transactions is probable to flow to the seller,
e. Cost incurred or to be incurred by the seller in respect of the transaction can be
measured reliably.
Conditions (a) and (b) are subject to a degree interpretation, thus there may be some
uncertainties as to revenue should be recognized or not. This approach contrasts with the
approach of rendering services.
2. Rendering of Services IAS18 states that where the outcome of transaction can be
measured reliably, associated revenue should be recognized by reference to the stage
of completion transactions at the end of the reporting period. Furthermore outcome of
a transaction can be estimated reliably when these requirements are fulfilled;
a. Amount of revenue can be measured reliably.
b. Economic benefits are probable to flow to the seller.
c. The stage of completion at the balance sheet date can be measured reliably.
d. The cost incurred to date for the transaction and the costs to complete the
transaction can be measured reliably.
Few other methods can be used to determine the stage of completion method of a service
transaction, example; surveys of work performed, services performed to date as a percentage
of total services performed.

If the above criteria re not met, revenue arising from rendering of services should be
recognised only to the extent of the expenses recognised that are recoverable, that is, a cost
recovery approach.
3. Interest, Royalties and Dividend IAS18 states that entities should recognise revenue
from the use of their assets yielding interest, royalties, and dividends when;
a. It is probable that the economic benefits will flow to the entity.
b. Amount of revenue can be measured reliably.
Revenue should be recognised as;
Interest using the effective interest method
Dividend - when right to receive payment is established. (Shareholders right to
receive is established)
Royalties recognised on an accrual basis in accordance with amounts receivable
as a result of asset use up to the reporting date.
4. Disclosure: accounting policy for recognising revenue
Amount of each of the following types of revenue:
Sale of goods
Rendering of services
Interest
Royalties
Dividends
Within each of the following categories, the amount of revenue from exchanges of
goods or services

Findings
1. Impacts of the accounting standard IAS 18 on company performance &
relevance of information.
In todays business world, it is important for the businesses to remain competitive. The
marketplace has been drastically changed by the rapid increase in customer demand,
innovations, and entrepreneurial competitor. Therefore business strategies are supported by

good accounting system. Accounting information is used to set goals for the businesses.
However international accounting system is used to control and report on the financial
aspects of a business.
Firstly, businesses that uses international accounting standards have good strategic plans,
decision making and control of the business. The accounting system allows business to use
the accounting information to set goals, to evaluate progress towards those goals, and to take
corrective actions if necessary. It helps to make decision such as which building and
equipment to purchase, how to merchandise inventory to keep on hand, and how much cash
to borrow and so on. Accounting standards help the companies to keep proper records of all
financial aspects. It guides the companies to prepare quality and useful reports that can be
used to by people interested in the company such as investors, shareholders, customers and
others. It enhances the quality of financial reports as it does not undermine the objectives of
the accounting standards. It is important for the companies to have quality reports as it boost
the investor confidence in the business.
Secondly, relevance in accounting means information that is generated by the accounting
system is useful to the decision makers; the information is processed in a timely manner
which allows comparability. One of the important things that investors consider is that
information of a company is comparable as it allows them to make quality information which
directly affects the company financially. When evaluating companies credit worthiness,
accounting standards makes two companies that are similar in economic appear very
different. Accounting standard makes it easier for company owners to evaluate options for
investment and cash management.
Furthermore, accounting standards are strategic tools and guidelines that help companies
tackle demanding challenges of modern business world. Accounting standards ensure that
companies are efficient, increase productivity and allows to access new markets.
Likewise, FMF Foods Fiji Limited Auditor's Responsibility, Our responsibility is to
express an opinion on these financial statements based on our audit. We conducted our
audit in accordance with International Standards on Auditing. Those Standards require
that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from material
misstatement FMFANNUAL REPORT 2015. FMF auditors have stated in the annual report
of 2015 that they have used all the accounting standards necessary to prepare the financial
statements. FMF have used accounting standards for fair representation of the internal control
as management and directors determine that it is important to enable the preparation of
financial statement that are free from material misstatement that is, free from errors and
fraud.
Moreover FMF Foods Limited uses International Accounting Standard 18(IAS18) REVNUE
RECOGNITION. Revenue comprises the consideration received or receivable for the
sale of goods or services in the ordinary course of the Company and of the Groups
activities. Revenue is shown net of value-added tax, returns, rebates and discounts. Sale is
recognised when goods are dispatched from the factory.

Other income sources for the Company and Group include:

(a) Dividend income Dividend income is recognised when the right to receive dividend is
established.
(b) Interest income Interest income is recognised on an accrual basis. FMF Annual
Report 2015

2. Areas where the company has not complied with the requirements of the
accounting standard IAS18.

Summary of key financial results for the past seven years.

Net Profit Tax

2015

2014

2013

2012

2011

2010

17455
585

159978
25

115608
92

12931
110

11636
486

116009
80

2009
69593
45

Current asset
Non-Current
Assets
Total Assets
Current
liabilities
Non- current
liabilities
total liabilities
shareholder's
equity

103695
535
566695
174
160364
709
434003
17
174072
71
608075
88
995571
21

884904
36
523706
50
140861
086
342656
55
221908
95
564565
50
844045
36

919097
88
458282
86
137738
074
403878
76
267314
87
671193
63
706187
11

69820
441
46321
677
1.16E
+08
20513
741
34658
558
55172
299
60969
819

75636
782
53300
173
1.29E
+08
31710
598
47725
648
79436
246
49500
709

780040
16
583795
00
136423
516
411613
07
562734
86
973434
793
389887
23

46487
101
68925
96
1.15E
+08
44634
327
42566
327
87200
654
28212
243

The FMF Foods Limited has not disclosed any information summarising the table. It has
earned the highest profit in the year 2015, and a drastic loss in year 2009.

3. Improvements to the international accounting standard 18 Revenue

Recognition

To begin with, IAS18 Revenue does not recognise revenue earned during a contract or
when the contract has been fully completed. Therefore revenue recognition standard should
be modified and amended to recognise revenue from the completion contracts. Situations
where entities had large population of contracts that were complete but the revenue not
recognise, thus the standard should be modified to provide useful information to investors.
Secondly, IAS 18 does not give any guidance on how to identify components of a single
transaction and how to allocate selling price which lead to use different separately. Under the
IAS 18 revenue is defined as a gross inflow economic benefits arising from ordinary
operating activities of entity. The definition should be redefined to entity should recognize
revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration (payment) to which an entity expects to be entitled in exchange for
those goods and services.
Revenue is recognised as the control over the good passes over to the buyer either over time
or at a point in time. The control of an asset is the ability to direct the use of the benefits from
the asset, including the ability to prevent others obtaining the benefits from the asset. Thus
IAS 18 should recognise benefits from the asset as potential cash flows that maybe obtain
directly or indirectly. A company recognise revenue over time if some criteria are met, such
as; an entities performance creates or enhances an asset that customer controls as the asset is
created, the customer receives all the benefits of the assets provided by the entity. An entitys
has a right to payment for performance at the completion date.
Furthermore in accounting standard 18 revenue, disclosures are not sufficient enough for
customers, investors rather the decision makers to make effective decisions. FMF Foods
Limited has not disclosed information as to which accounting methods they have used to
prepare their reports.
Basis of accounting
The Directors believe the basis of the preparation of the financial statements is appropriate
and the Company and the Group will be able to continue in operation for at least twelve
months from the date of this report. Accordingly, the Directors believe that the
classification and carrying amounts of assets and liabilities as stated in the financial
statements to be appropriate, FMF FOODS LIMITED ANNUAL REPORT 2015.
Disclosures are meant to enable users of financial statements to understand the nature,
amount, timing, and uncertainty of revenue and cash flows.

Conclusions

In conclusion, all types of companies earn revenue either it be a goods industry or service.
Revenue should be recognised properly to avoid distorted financial statement. Thus the
users of financial statement will lose interest in financial information provided and
financial reporting objective will not be satisfied. With the information collected for FMF
Foods Limited, it can be stated that practices of accounting standard revenue
recognition are satisfactory. However after reviewing all the annual reports of FMF, it
can be stated that more detailed disclosure is needed in the notes accompanying the
financial statements.

Reference

http://article.sciencepublishinggroup.com/html/10.11648.j.jim.20150405.22.html
http://www.iasplus.com/en/standards/other/framework
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http://www.accountingtools.com/questions-and-answers/what-is-relevance-inaccounting.html
http://www.iasplus.com/en/standards/ifrs/ifrs15
http://www.fmf.com.fj/about-fmf/for-investors/annual-reports/
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