Analysis on Revenue Recognition in Contracts with Customers Which Aims to Replace the Existing Frs 18 Revenue

Executive Summary

In November 2011, the FASB and IASB released the Exposure Draft: Revenue Recognition in Contracts with Customers which aims to replace the existing FRS 18 Revenue. The exposure draft aims to improve and streamline current revenue recognition methods and provide a more robust framework to do so. As a result, revenue recognition under the exposure draft is carried out differently in a number of ways.

Maxis Berhad is an investment holding company which provides telecommunication, internet and corporate services. It engages in multiple activities and recognises revenue from these activities using the principles laid down in FRS 18. Revenue is recognised only when it can be measured reliably and the company is expected to receive economic benefits. The company also lays out particular conditions to apply revenue recognition to different activities.

As a result, if the company is to implement the exposure draft it would have to face several changes in the way it recognises revenue. Specifically, activation fees for various subscription plans will have to be recognized as revenue over the expected contractual period of those plans, rather than allocated as part of the revenue for the included monthly service and handset. This would also require Maxis to determine an estimate for expected lifespan of customers’ contract, taking into account possible renewals.

In addition, Maxis will also have to change the way it recognises revenue for its prepaid mobile starter packs. At present, revenue is recognised when the starter packs are sold to an external vendor. Under the new exposure draft, this revenue cannot be recognised until control has passed to the customer, in this case determined to be when starter packs are first activated by the customer. This will tend to result in a deferral in revenue recognition compared to current practice.

These changes present both benefits and challenges to Maxis. The company itself will be able to evaluate its business...