Ias 18

WHAT IS INCOME?
Revenue is the total inflow of economic benefits over a period of time from performing normal business activities where such income results in an
increase in equity, without an increase associated with contributions from shareholders.
AGENCY RELATIONSHIP = INCOME?
Here I would like to emphasize that revenue only includes the economic benefits earned or received in the business account itself. However,
businesses generally collect prices on behalf of foreign companies, such as taxes paid in the state budget - these amounts are NOT an income and
CANNOT be recognized as such.
Also, agency transactions are very common in today’s business and sometimes it is not easy to determine agency relationships. In an agency
relationship, the agent simply collects values on behalf of the principal and as a result is unable to identify revenue.
• The business has a primary responsibility to provide goods or services to customers or to fulfill orders.
• The business has the risk of being established before or after customer order, during shipping or on return.
• Businesses are free to set prices, either directly or indirectly.
• The entity bears the credit risk of the customer for the receivable due to the customer of the service.
Each transaction must therefore be carefully monitored and only 1 conditions are met where the business is likely to function as a head and see
revenue from that function.
INCOME MEASUREMENT
Revenue will be measured at the fair value of the consideration received or receivable. IAS 18 specifies the following:
• Any trade discounts or rebates will be deducted and the net worth of these items will be deducted.
• When revenue is deferred or deferred to the future, then the fair value of the consideration received may be less than its carrying amount. In this
case, the fair value of the consideration received is determined by reducing the cash flow discount in the future using its interest rate.
• In the case of an exchange of goods or services (in exchange):
o Where goods or services are of the same type, the exchange is not regarded as operating income and revenue is not recognized.
o Where goods or services differ, then the exchange is treated as transaction revenue and revenue is recognized in the fair value of the goods /
services received (adjusted by the amount of any transfer).
REVENUE RECOGNITION
IAS 18 specifies the revenue recognition process for the 3 basic monetary conditions:
• Sales of goods
• Service delivery
Interest, Royalties and Shares
Sales of Goods
Proceeds from the sale of goods are accepted if all of the following conditions are met:
• The business has passed on to the consumer significant risks and rewards of ownership of the goods
• The business does not maintain its administrative involvement to the extent that it is usually associated with the ownership or control of the goods
sold
• The amount of revenue can be measured reliably
• it is likely that the economic benefits associated with the work will extend to the business
• The costs incurred or will be incurred in connection with the work can be measured reliably
ASSIGNMENT OF SERVICES
Here, can the outcome of the transaction be measured reliably?
• If so, the revenue can be determined by reference to the completion stage of the reporting period.
• If not, revenue can only be recognized at the rate of recognized recoverable expenses.
When can the outcome of a transaction be measured reliably? Only then do the following conditions apply:
• The amount of revenue can be measured reliably
• it is likely that the economic benefits associated with the work will extend to the business
• The transaction termination stage at the end of the reporting period can be measured reliably as well
• Costs incurred in practice and completion costs can be measured reliably
Interest, Royalties and Shares
Revenue from the use of certain business assets that generate interest, royalties and dividends will be recognized when:
• it is possible that the economic benefits associated with the work will go into business as well
• The amount of revenue can be measured reliably.
REVENUE WILL BE RECOGNIZED ON THE FOLLOWING GROUNDS:
• interest will be recognized using the effective interest method as set out in IAS 39
• Royal revenues will be determined by the collection of funds according to the context of the relevant agreement
• the shares will be recognized when the shareholder's right to receive payment is established.
DECISION
IAS 18 APPLIED TO IT

Ias 18

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WHAT IS INCOME?

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