Instructor: Munawar Hameed

IAS 18

Revenue

Course: Financial Accounting

Objective:


The primary issue in accounting for revenue is



determining when to recognize revenue.

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

 The objective of IAS 18 is to prescribe the

accounting treatment for revenue arising
from certain types of transactions and
events.
What is Revenue?


 The gross inflow of economic benefits (cash,

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receivables, other assets) arising from the
ordinary operating activities of an enterprise
(such as sales of goods, sales of services,
interests, royalties and dividends) [IAS 18.7]
Measurement of Revenue!

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 Revenue should be measured at the fair
value of the consideration receivable. 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].

Cont…
Measurement of Revenue!

 If the inflow of cash or cash equivalents is

deferred, the fair value of the
consideration receivable is less than the

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nominal amount of cash and cash
equivalents to be received; and discounting
is appropriate. This would occur if the seller
is providing interest-free credit to the buyer
or is charging a below-market rate interest.
Interest must be imputed based on market
rates [IAS 18.11].
Sale of Goods:
Following criteria needs to be satisfied to


recognize the revenue [IAS 18.14].

 Seller has transferred to the buyer the
significant risk and rewards of ownership
 Seller retains nether continuing managerial

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involvement to the degree usually
associated with the ownership nor effective
control over the goods sold
 Amount of revenue can be measured reliably

 Its is probable that the economic benefits

associated with the transaction will flow to
the seller
 Costs incurred or to be incurred in respect of
the transaction can be measured reliably
Rendering of Services
The percentage of completion method states
[IAS 18.20]
 The amount of revenue can be measured
reliably
 It is probable that the economic benefits will

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flow to the seller
 The stage of completion at the balance sheet
date can be measured reliably
 The cost incurred, or pending to be, in respect
of the transaction can be measured reliably.
When the above conditions are not met

revenue arising from the rendering of services

should be recognized only to the extent of the
expenses recognized that are recoverable –
cost recovery approach [IAS 18.26]
Interest, Royalties and Dividends:


The revenue is to be recognized as [IAS 18.29-



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30]


 Interest: on a time proportional basis that

takes into account the effective yield
 Royalties: on an accrual basis in accordance
with the substance of the relevant
agreement
 Dividends: when the stakeholders right to
receive payment is established
Disclosure [IAS 18.35]
Disclosures to be included in financial


statements:
1)The accounting policies adopted for the
recognition of revenue plus methods used to
find the percentage of completion of delivery

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of services


 2) Amount of each of the following types of

revenue
 Sale of goods
 Rendering of services
 Interest
 Royalties
 Dividends


 3) Within each of the above categories , the

amount of revenue generated from exchanges
Useful Resources and References
1) www.iasplus.com: IAS
Plus: Summaries of IFRSs and IASs
2)

www.accountancy.com.pk/accounting-standards.asp
: IFRS / IAS Summaries | Accountancy

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3) www.ifrs.org/:

Welcome to the IFRS Foundation

4)

www.pwc.com/en_TR/tr/assets/ins-sol/publ/iffs.pdf
: International Accounting Standards
5) www.duncanwil.co.uk/iashome.html:

Duncan Williamson:
International Accounting Standards
6)

www.financialstabilityboard.org/cos/cos_021001a.htm
: International Accounting Standards