Therefore, it can be determined that until the customer has actually collected their suit, revenue should not be recognised. Generally, commission charged for arranging or granting loan and other facilities should be recognized when a loan is sanctioned and accepted by borrower. Commitment facility or loan management fees which relate to continuing obligations or services should normally be recognized over the life of the loan. It is recognized when the installation has been completed and accepted by the clients. Revenue of sale price excluding interest should be recognized on the date of sale.
IAS 18 Revenue
IND AS-18 contains the provisions for revenue swaps no such corresponding provisions are in AS-9. Under IAS-18, when goods or services are exchanged or swapped for goods or services which are of a similar nature and value, the exchange is not regarded as a transaction which generates revenue. When goods are sold or services are rendered in exchange for dissimilar goods or services, the exchange is regarded as a transaction which generates revenue. The revenue is measured at the fair value of the goods or services received, adjusted by the amount of any cash or cash equivalents transferred. However, if the cars are sold or AB ltd. decides to keep it, at the end of four months period, at the list price in force at that date. Up to that point there is no sale and the cars will not appear in inventory of the AB Ltd.
Using the Standards
It is now fair to assume that we probably aren’t going to be able to fulfill the customers order and there is a high chance that the “economic benefits” will have to flow back to the buyer. The amount of excise duty to be deducted from turnover should be the total excise duty for the year except the excise duty related to the difference between the closing stock and opening stock. The excise duty related to the difference between the closing stock and opening stock should be recognised separately in the statement of profit and loss, with an explanatory note in the notes to accounts to explain the nature of the two amounts of excise duty.
Agency relationship = revenue?
Lawyers function similarly, since legal cases are very difficult to budget and even though they can provide a guesstimate, the final bill for services rendered will normally be higher than expected. 9.1 Subsequent uncertainty in collection – When uncertainty of collection of revenue arises subsequently after the revenue recognition, it is better to make provision for the uncertainty in collection rather than adjustment in already recognized revenue. (c) Royalty income will be recognized by the entity on accrual basis as per the terms of the contract. Service rendered can be explained as a finishing off of service agreement that is furthered to the client as an indicator that the work has been completed so that payment can be generated accordingly from the service receiver to the provider. Service rendered, by definition, means that the agreed-upon service has been completed so that the final leg of the payment can finally be processed. Revenue can only be recognised on the amount of the service that is completed at the end of a period/financial year.
As per the contract AB Ltd. is required to pay 15% initial deposit at the date on delivery of the car and obtains ownership of the vehicles at that point. If it fails to pay the remaining balance amount at the end of three months period, it loses its 15% deposit and has to return the cars at its own expense. AB Ltd. pays the manufacturer’s list price at the end of the four month period (or at the date of sale if earlier). In recent years AB Ltd. has returned several slow moving cars to the supplier and has also been required to transfer cars to the other dealers at supplier’s request.
Products and services
It is easy to measure the completion of this type of service as a customer is not going to leave with the job half complete. When providing a service, your customers can’t necessarily see or touch the “product” you have sold to them. This one perhaps requires a bit more thought than the other conditions that must be met to recognise revenue. For most sales, we would expect an invoice to have been raised to the customer stating the amount due.
(a) Smith supplies cars to AB Ltd. on terms that allow the entity to display the cars for a period of four months from the date of delivery or when the cars are sold by AB Ltd. to the customer in case it is less than four months period. Within this time period AB Ltd. has the right to return the cars to the supplier or can be asked by what’s your preferred federal income tax filing vendor Smith to transfer the cars to another dealer (without any charge to AB Ltd.). Other costs that do not directly contribute to rendering service should not include in the cost of services when presented in the income statement. Sometimes, you can’t estimate how much of the service has been completed or how much it will cost to finish.
- Therefore, AB Ltd. should show the cars in its inventory and recognize payable for the balance amount.
- If an entity disposes of property, plant and equipment at the end of its useful economic life the proceeds of disposal are not revenue for the entity.
- That’s exactly the main aim of the standard IAS 18—to give guidance on the revenue recognition and help in the application of the revenue recognition criteria.
This is a clear indicator that the revenue from the sale can be reliably measured. In our example, the customer has already paid for the goods so it would be fairly to assume this condition has been met (the economic benefits have already flowed to the entity). However, there must be some consideration given to the likelihood of a refund being made. If a company sells an item to a company that has recently gone insolvent, it is unrealistic to expect the company to pay and therefore it is NOT probable that the economic benefits will flow to the entity. If a business makes or buys a certain product to re-sell then this its revenue would be classed as “sale of goods”. A few examples of this type of business are supermarkets, car dealerships and restaurants.
