ACCOUNTING THEORY AND

PRACTICE
REVENUE RECOGNITION ISSUE

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1. The primary issue in accounting for revenue is
determine when to recognize revenue.
2. Revenue is recognized when it is probable that
future economic benefits will flow to the entity
and those benefit can be measured reliably.
3. Accrual concept and realization concept of
accounting are the two main accounting
concepts and assumption to be complied to
record the revenue
1. Income element must be recognized if:
• It is probable that any future economic benefit associated
with the revenue item will flow to the entity
• The revenue item has a value that can be measured
reliably

2. This is due to the fact that the

financial information presented must
be both relevant and faithfully
represented. Materiality of the said
revenue item must be taken into
account.
1. Sales of goods:
Nina (a customer) paid RM200 of 10 June
2016 for goods that she received on I
June 2016. When the sellers will record
the transaction as business revenue?
(a) 1 June 2016
(b) 10 June 2016
2. Rendering Services

A contract price of RM5 million to build a house

bungalow. The construction are to be completed in 2
years starting from 1 January 2016. For the first 12
month, 50% of the work was completed.What is the
amount of revenue of the construction company
received on 31 December 2016.

(a)RM5 million

(b)RM2.5 million
3.Interest, R oyalties and Dividend
The re is a new dea l to p roduce CD on Cake
Bak ing Tuto ria l by Che f Celeb rity. w ith Video
En te rp rise . R oya lty payab le is R M20 pe r CD
so ld . A to ta l o f 400,000 un its have been
p roduced bu t on ly 100,000 un its h ave been
so ld as at 31 Decem ber 2016. How m uch roya lty
incom e that can be recognized by revenue?
(a) R M8 m illion
(b) R M2 m illion
1. Accounting for multiple element
arrangement
2. MFRS 15 - Revenue from contracts with
customers
1. Revenue is crucial and is most often
a measure of the entity's
achievement.
2. Different and inconsistent revenue
recognition practices are increasing
due to the fact that the current
standard (MFRS 18) on accounting for
revenue has limited guidelines on
many important areas
1. Agreement for the construction of
real estates and the transfer of
control are not definite
2. Thus, the situation creates different
views of judgment and justification
3. Limited guidance on the transaction
also play a role in the arising
issues of revenue recognition
1. The standard have been developed and
issued to have a common model of
accounting treatment for revenue.
2. It sets up the principles for
reporting useful information to users
of financial statements about the
nature, amount, timing and
uncertainty of revenue and cashflows
arising from an entity's contract
with their customers.
3. MFRS 15 standard willtake effect on
1st January 2018 and its supersedes
the following MFRSs (or
IFRSs/IASs/IFRICs/SICs):
• MFRS111 (IAS11) - Construction Contracts
• MFRS118 (IAS8) - Revenue
• IFRIC 13 - Customer Loyalty Programmes
• IFRIC 15 - Agreements for the Construction of Real Estate
• IFRIC 18 - Transfers of Assets from Customers
• SIC 31 - Revenue: Barter Transaction Involving Advertising
Services
4. Establishment of MFRS is expected:
• To improve the financial reporting of
revenue
• to offer a clearer guidance for revenue
recognition (especially in the areas
where existing requirments
inadvertently create differences in
practice, or for transactions that were
not previously addressed
comprehensively.
5. It is anticipated that the effect of MFRS 15 would:

• Eliminate inconsistencies and weaknesses in prior revenue

recognition arrangements

• Provide a more forceful and sound framework on revenue issues

• Improve revenue recognition practices across entities,

industries, jurisdictions and capital markets

• Present more useful information to users of financial

statements through better requirements on disclosure

• Simplify the preparation of financial statements

• Manage emerging complex revenue transactions

1. MFRS 18 - not specific to each area. only 3 categor; sales of
goods, rendering services and Interest, royalties and
dividends.

2. The acrual basis and realization concept of accounting are the

two main accounting concepts and assumptions to be complied
with recording revenue.

3. Revenue and expenses that related to, or are associated with

the same transactions are to be recognized and recorded
simultaneously

4. Revenue is an important benchmark to measure an entity's

performance and achievements.