IAS 18: Revenue

Last updated: January 2014

MEASUREMENT

SCOPE
Applied to revenue =
gross inflow of economic
benefits during period
arising in course of
ordinary activities of an
entity when those
inflows result in in
equity, OTHER THAN
relating to contributions
from equity participants.

Does not deal with revenue

arising from:
Lease agreements (IAS 17).
Dividends arising from
investments accounted for
under equity method
(IAS 28).
Insurance contracts
(IFRS 4).
s in FV/disposal of
financial assets & liabilities/
(IAS 39).
Amounts collected on
s in value of other current
behalf of third parties
assets.
(e.g., taxes) NOT
revenue as no inflow of Initial recognition & from
s in FV of biological assets
economic benefits.
and initial recognition of
Agency relationships
agricultural produce
revenue = commission
(IAS 41).
NOT amounts collected
Extraction of mineral ores.
for principal.

Measure @ FV of consideration
received/receivable (excluding trade
discounts & volume rebates)
When payment is deferred determine
FV by discounting all future cash flows
using an imputed rate of interest.
Difference in FV & nominal amount
recognize as interest revenue.

Imputed rate of interest = more

clearly determinable of EITHER:
Prevailing rate for similar instrument
of issuer with similar credit rating OR
Rate of interest that discounts
nominal amount of instrument to
current cash sales price of
goods/services.

When uncertainty arises about

collectability of amount already
recognized in revenue
recognize uncollectible
amount/amount for which
recovery ceased to be probable, as
expense in period identified
instead of adjustment of revenue.

Goods/services exchanged/swapped for: Identification of the transaction

Those of similar nature & value (e.g., oil Standard usually applied separately to each transaction. Sometimes necessary to apply recognition
suppliers swapping inventories in various criteria to separately identifiable components of single transaction to reflect substance.
locations to fulfill demand) NOT
Example: if selling price of product includes identifiable amount for subsequent servicing, that amount
transaction that generates revenue.
is deferred & recognised over period service performed.
Those of dissimilar nature & value
Recognition criteria are applied to 2 or more transactions together when they are linked in such a way
generates revenue measured @ FV of
that the commercial effect cannot be understood without reference to transaction series as a whole.
goods received adjusted for cash & cash
Example: Entity may sell goods & enter into separate agreement to repurchase goods @ later date
equivalents transferred.
negates substantive effect of transaction and accordingly the transactions are dealt with together.

RECOGNITION OF REVENUE ARISING FROM THESE EVENTS:

SALE OF GOODS

RENDERING OF SERVICES
Outcome of transaction can be estimated reliably associated revenue
recognized by reference to stage of completion @ end of reporting period.
Outcome can be estimated reliably when ALL of the following satisfied:
Amount of revenue reliably measureable.
Probable that associated economic benefits will flow to entity.
Stage of completion @ end of reporting period reliably measureable.
Costs incurred/ to complete the transaction reliably measureable.
Reliable estimates generally
available after ALL the following are
agreed upon:
Each partys enforceable rights
regarding service to be provided &
received by parties.
Consideration to be exchanged.
Manner & terms of settlement.

Revenue & expenses

related to same transaction
recognized simultaneously
(matching). If expenses
cannot be reliably
measured recognize
liability for consideration
already received.

Stage of completion can be

determined through methods
including:
Surveys of work.
Services performed to date as
percentage of total services to be
performed.
Proportion that costs incurred to
Usually necessary to have effective
date bear to estimated total
internal financial budgeting &
costs of transaction.
reporting system. Entity reviews, & if Progress payments/advances often
necessary revises estimates.
do NOT reflect services performed.
Revisions do NOT necessarily indicate (Stage/percentage of completion
that outcome cannot be reliably
method also required under IAS
estimated.
11).

Outcome CANNOT be
estimated reliably
recognize only to
extent (recoverable)
expenses are
recognized.
Indeterminate number
of service acts over
specified period:
Revenue recognized
on straight-line basis
UNLESS evidence
that other method
better represents
stage of completion.
When specific act is
more significant than
any others
postpone recognition
of revenue until
significant act
executed.

Recognize when ALL the following conditions satisfied:

Significant risks & rewards of ownership transferred (e.g., transfer
of title/possession).
Entity retains neither continuing managerial involvement to degree
usually associated with ownership nor effective control over goods
sold.
Amount of revenue reliably measureable.
Probable that associated economic benefits will flow to entity
(sometimes only when amount received/uncertainty removed).
Costs incurred/to be incurred reliably measureable.
Examples of when significant risk
of ownership retained:
Obligation retained for
unsatisfactory performance not
covered by normal warranty
provisions.
Revenue contingent on
derivation of revenue by the
buyer from its sale of the goods.
Goods shipped subject to
installation & installation is a
significant part of the contract
not yet completed.

Examples of when insignificant

risk of ownership is retained &
revenue may still be recognized:
Seller retains legal title solely
to protect collectability of
amounts due.
Refund offered if customer not
satisfied revenue recognised
at time of sale IF returns can be
estimated. Liability is
recognized for future returns
based on previous experience
& other relevant factors.

Use by others of entity assets

yielding INTEREST,
ROYALTIES & DIVIDENDS
Recognize when:
Probable that associated
economic benefits will flow to
entity AND
Amount of revenue reliably
measureable.
Interest use effective
interest method in IAS 39.
Dividends recognize when
shareholders right to receive
payment is established (i.e.,
declaration).
Royalties use accrual basis
in accordance with substance
of relevant agreement UNLESS
based on substance of
agreement, some other
systematic/rational basis is
more appropriate.

This communication contains a general overview of IAS 18: Revenue. This summary is not comprehensive and should be considered only in conjunction with review and consideration of the requirements of the relevant International Financial Reporting Standards. This
information is current as at January 2014 and should not be regarded as a substitute for professional advice. MNP LLP accepts no responsibility or liability for any loss or damage caused by your reliance on information contained in this publication. Please contact your
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