Revenue Recognition in Accounting

Area of judgment

Revenue Recognition: IAS 11, IAS 18, SIC 31, ASPE 3400

OBJECTIVE/SCOPE Establish standards for the recognition of revenue arising in the course of the ordinary activities of an enterprise:  The sale of goods;  The rendering of services; and  The use by others of enterprise resources yielding interest, royalties and dividends Not covered under IAS 18 / Section 3400: revenues arising from other types of transactions such as lease agreement, investments accounted for under the equity method. DEFINITION OF REVENUE IAS 18 (IFRS)  The gross inflow of economic benefits received or receivable by the entity on its own account  Arises during the course of the ordinary activities of an entity; and  Inflows resulting in increases in equity, other than from contribution of shareholders (amounts collected on behalf of third parties, i.e. sales taxes are excluded). Section 3400 (ASPE)  The inflow of cash, receivables or other consideration;  Arises during the course of the ordinary activities of an entity;  Arises from the sale of goods, rendering of services, or others' use of enterprise resources that yields interest, royalties and dividends; and  Net of items such as sales discounts, returns and allowances, claims for damaged goods, and certain taxes imposed at the time of sale. Principal v. Agent  Gross Method if acting as a principal An entity is acting as a principal when it has exposure to the significant risks and rewards associated with the goods/services sold. The gross amount received/receivable is reported as revenue.  Net Method if acting as an agent In an agency relationship, the amounts collected on behalf of the principal, which do not result in increase in the equity of the agent, are excluded from revenue. The agent’s revenue is the amount of commission, or the amount net of the amounts collected on behalf of the principal. Blue Card Question #1 Real Province of Ontario University UsedBooks Store sells used textbooks on behalf of...