PUBLIC SECTOR

IPSAS 9—REVENUE FROM EXCHANGE TRANSACTIONS

Acknowledgment
This International Public Sector Accounting Standard (IPSAS) is drawn primarily
from International Accounting Standard (IAS) 18 (Revised 1993), Revenue,
published by the International Accounting Standards Board (IASB). Extracts from
IAS 18 are reproduced in this publication of the International Public Sector
Accounting Standards Board (IPSASB) of the International Federation of
Accountants (IFAC) with the permission of the International Financial Reporting
Standards (IFRS) Foundation.
The approved text of the International Financial Reporting Standards (IFRSs) is
that published by the IASB in the English language, and copies may be obtained
directly from IFRS Publications Department, First Floor, 30 Cannon Street,
London EC4M 6XH, United Kingdom.
E-mail: [email protected]
Internet: www.ifrs.org
IFRSs, IASs, Exposure Drafts, and other publications of the IASB are copyright of
the IFRS Foundation.
“IFRS,” “IAS,” “IASB,” “IFRS Foundation,” “International Accounting
Standards,” and “International Financial Reporting Standards” are trademarks of
the IFRS Foundation and should not be used without the approval of the IFRS
Foundation.

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History of IPSAS
This version includes amendments resulting from IPSASs issued up to January 15,
2011.
IPSAS 9, Revenue from Exchange Transactions was issued in July 2001.
Since then, IPSAS 9 has been amended by the following IPSASs:
 IPSAS 27, Agriclture (issued December 2009)
 IPSAS 29, Financial Instruments: Recognition and Measurement (issued
January 2010)
 Improvements to IPSASs (issued November 2010)

Table of Amended Paragraphs in IPSAS 9

Paragraph Affected How Affected Affected By
1 Amended Improvements to IPSASs
November 2010
9 Amended Improvements to IPSASs
November 2010
10 Amended IPSAS 27 December 2009
IPSAS 29 January 2010
Improvements to IPSASs
November 2010
12 Amended Improvements to IPSASs
November 2010
33 Amended Improvements to IPSASs
November 2010
34 Amended Improvements to IPSASs
November 2010
36 Amended Improvements to IPSASs
November 2010
39 Amended Improvements to IPSASs
November 2010
IG1 Amended Improvements to IPSASs
November 2010
IG12 Amended IPSAS 29 January 2010

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Paragraph Affected How Affected Affected By
Heading above IG29 Amended Improvements to IPSASs
November 2010
IG32 New Improvements to IPSASs
November 2010
IG33 New Improvements to IPSASs
November 2010
IG34 New Improvements to IPSASs
November 2010

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IPSAS 9—REVENUE FROM EXCHANGE TRANSACTIONS
CONTENTS
Paragraph
Objective
Scope ............................................................................................................... 1–10
Definitions ...................................................................................................... 11–13
Revenue ................................................................................................... 12–13
Measurement of Revenue ............................................................................... 14–17
Identification of the Transaction ..................................................................... 18
Rendering of Services ..................................................................................... 19–27
Sale of Goods .................................................................................................. 28–32
Interest, Royalties, and Dividends .................................................................. 33–38
Disclosure ....................................................................................................... 39–40
Effective Date ................................................................................................. 41–42
Implementation Guidance
Comparison with IAS 18

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International Public Sector Accounting Standard 9, Revenue from Exchange
Transactions, is set out in the objective and paragraphs 142. All the paragraphs
have equal authority. IPSAS 9 should be read in the context of its objective and the
Preface to International Public Sector Accounting Standards. IPSAS 3, Accounting
Policies, Changes in Accounting Estimates and Errors, provides a basis for
selecting and applying accounting policies in the absence of explicit guidance.

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Objective
The IASB’s Framework for the Preparation and Presentation of Financial
Statements defines income as “increases in economic benefits during the accounting
period in the form of inflows or enhancements of assets or decreases of liabilities
that result in increases in equity, other than those relating to contributions from
equity participants.” The IASB definition of income encompasses both revenue and
gains. This Standard uses the term “revenue,” which encompasses both revenues and
gains, in place of the term “income.” Certain specific items to be recognized as
revenues are addressed in other standards, and are excluded from the scope of this
Standard. For example, gains arising on the sale of property, plant, and equipment
are specifically addressed in standards on property, plant, and equipment and are not
covered in this Standard.
The objective of this Standard is to prescribe the accounting treatment of revenue
arising from exchange transactions and events.
The primary issue in accounting for revenue is determining when to recognize
revenue. Revenue is recognized when it is probable that (a) future economic benefits
or service potential will flow to the entity, and (b) these benefits can be measured
reliably. This Standard identifies the circumstances in which these criteria will be
met and, therefore, revenue will be recognized. It also provides practical guidance on
the application of these criteria.

Scope
1. An entity that prepares and presents financial statements under the
accrual basis of accounting shall apply this Standard in accounting for
revenue arising from the following exchange transactions and events:
(a) The rendering of services;
(b) The sale of goods; and
(c) The use by others of entity assets yielding interest, royalties, and
dividends or similar distributions.
2. This Standard applies to all public sector entities other than
Government Business Enterprises.
3. The Preface to International Public Sector Accounting Standards issued by
the IPSASB explains that Government Business Enterprises (GBEs) apply
IFRSs issued by the IASB. GBEs are defined in IPSAS 1, Presentation of
Financial Statements.
4. This Standard does not deal with revenue arising from non-exchange
transactions.
5. Public sector entities may derive revenues from exchange or non-exchange
transactions. An exchange transaction is one in which the entity receives

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assets or services, or has liabilities extinguished, and directly gives
approximately equal value (primarily in the form of goods, services, or use
of assets) to the other party in exchange. Examples of exchange transactions
include:
(a) The purchase or sale of goods or services; or
(b) The lease of property, plant, and equipment at market rates.
6. In distinguishing between exchange and non-exchange revenues, substance
rather than the form of the transaction should be considered. Examples of
non-exchange transactions include revenue from the use of sovereign
powers (for example, direct and indirect taxes, duties, and fines), grants,
and donations.
7. The rendering of services typically involves the performance by the entity
of an agreed task over an agreed period of time. The services may be
rendered within a single period, or over more than one period. Examples of
services rendered by public sector entities for which revenue is typically
received in exchange may include the provision of housing, management of
water facilities, management of toll roads, and management of transfer
payments. Some agreements for the rendering of services are directly
related to construction contracts, for example, those for the services of
project managers and architects. Revenue arising from these agreements is
not dealt with in this Standard, but is dealt with in accordance with the
requirements for construction contracts as specified in IPSAS 11,
Construction Contracts.
8. Goods includes (a) goods produced by the entity for the purpose of sale,
such as publications, and (b) goods purchased for resale, such as
merchandise or land and other property held for resale.
9. The use by others of entity assets gives rise to revenue in the form of:
(a) Interest – charges for the use of cash or cash equivalents, or amounts
due to the entity;
(b) Royalties – charges for the use of long-term assets of the entity, for
example, patents, trademarks, copyrights, and computer software;
and
(c) Dividends or similar distributions – distributions of surpluses to
holders of equity investments in proportion to their holdings of a
particular class of capital.
10. This Standard does not deal with revenues arising from:
(a) Lease agreements (see IPSAS 13, Leases);

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(b) Dividends or similar distributions arising from investments that are

accounted for under the equity method (see IPSAS 7, Investments in
Associates);
(c) Gains from the sale of property, plant, and equipment (which are
dealt with in IPSAS 17, Property, Plant, and Equipment);
(d) Insurance contracts within the scope of the relevant international or
national accounting standard dealing with insurance contracts;
(e) Changes in the fair value of financial assets and financial liabilities
or their disposal (guidance on the recognition and measurement of
financial instruments can be found in IPSAS 29, Financial
Instruments: Recognition and Measurement);
(f) Changes in the value of other current assets;
(g) Initial recognition, and from changes in the fair value of biological
assets related to agricultural activity (see IPSAS 27, Agriculture);
(gA) Initial recognition of agricultural produce (see IPSAS 27); and
(h) The extraction of mineral ores.

Definitions
11. The following terms are used in this Standard with the meanings
specified:
Exchange transactions are transactions in which one entity receives
assets or services, or has liabilities extinguished, and directly gives
approximately equal value (primarily in the form of cash, goods,
services, or use of assets) to another entity in exchange.
Fair value is the amount for which an asset could be exchanged, or a
liability settled, between knowledgeable, willing parties in an arm’s
length transaction.
Non-exchange transactions are transactions that are not exchange
transactions. In a non-exchange transaction, an entity either receives
value from another entity without directly giving approximately equal
value in exchange, or gives value to another entity without directly
receiving approximately equal value in exchange.
Terms defined in other IPSASs are used in this Standard with the same
meaning as in those Standards, and are reproduced in the Glossary of
Defined Terms published separately.
Revenue
12. Revenue includes only the gross inflows of economic benefits or service
potential received and receivable by the entity on its own account. Amounts
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collected as an agent of the government or another government organization
or on behalf of other third parties; for example, the collection of telephone
and electricity payments by the post office on behalf of entities providing
such services are not economic benefits or service potential that flow to the
entity, and do not result in increases in assets or decreases in liabilities.
Therefore, they are excluded from revenue. Similarly, in an agency
relationship, the gross inflows of economic benefits or service potential
include amounts collected on behalf of the principal that do not result in
increases in net assets/equity for the entity. The amounts collected on behalf
of the principal are not revenue. Instead, revenue is the amount of any
commission received, or receivable, for the collection or handling of the
gross flows.
13. Financing inflows, notably borrowings, do not meet the definition of
revenue because they (a) result in an equal change in both assets, and
liabilities and (b) have no impact upon net assets/equity. Financing inflows
are taken directly to the statement of financial position and added to the
balances of assets and liabilities.

Measurement of Revenue
14. Revenue shall be measured at the fair value of the consideration
received or receivable.
15. The amount of revenue arising on a transaction is usually determined by
agreement between the entity and the purchaser or user of the asset or
service. It is measured at the fair value of the consideration received, or
receivable, taking into account the amount of any trade discounts and
volume rebates allowed by the entity.
16. In most cases, the consideration is in the form of cash or cash equivalents,
and the amount of revenue is the amount of cash or cash equivalents
received or receivable. However, when the inflow of cash or cash
equivalents is deferred, the fair value of the consideration may be less than
the nominal amount of cash received or receivable. For example, an entity
may provide interest-free credit to the purchaser or accept a note receivable
bearing a below-market interest rate from the purchaser as consideration for
the sale of goods. When the arrangement effectively constitutes a financing
transaction, the fair value of the consideration is determined by discounting
all future receipts using an imputed rate of interest. The imputed rate of
interest is the more clearly determinable of either:
(a) The prevailing rate for a similar instrument of an issuer with a
similar credit rating; or
(b) A rate of interest that discounts the nominal amount of the
instrument to the current cash sales price of the goods or services.

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The difference between the fair value and the nominal amount of the
consideration is recognized as interest revenue in accordance with
paragraphs 33 and 34.
17. When goods or services are exchanged or swapped for goods or services
that are of a similar nature and value, the exchange is not regarded as a
transaction that generates revenue. This is often the case with commodities
like oil or milk, where suppliers exchange or swap inventories in various
locations to fulfill demand on a timely basis in a particular location. When
goods are sold or services are rendered in exchange for dissimilar goods or
services, the exchange is regarded as a transaction that 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. When
the fair value of the goods or services received cannot be measured reliably,
the revenue is measured at the fair value of the goods or services given up,
adjusted by the amount of any cash or cash equivalents transferred.

Identification of the Transaction

18. The recognition criteria in this Standard are usually applied separately to
each transaction. However, in certain circumstances, it is necessary to apply
the recognition criteria to the separately identifiable components of a single
transaction in order to reflect the substance of the transaction. For example,
when the price of a product includes an identifiable amount for subsequent
servicing, that amount is deferred, and recognized as revenue over the
period during which the service is performed. Conversely, the recognition
criteria are applied to two or more transactions together when they are
linked in such a way that the effect cannot be understood without reference
to the series of transactions as a whole. For example, an entity may sell
goods and, at the same time, enter into a separate agreement to repurchase
the goods at a later date, thus negating the substantive effect of the
transaction; in such a case, the two transactions are dealt with together.

Rendering of Services
19. When the outcome of a transaction involving the rendering of services
can be estimated reliably, revenue associated with the transaction shall
be recognized by reference to the stage of completion of the transaction
at the reporting date. The outcome of a transaction can be estimated
reliably when all the following conditions are satisfied:
(a) The amount of revenue can be measured reliably;
(b) It is probable that the economic benefits or service potential
associated with the transaction will flow to the entity;
(c) The stage of completion of the transaction at the reporting date
can be measured reliably; and

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(d) The costs incurred for the transaction and the costs to complete
the transaction can be measured reliably.
20. The recognition of revenue by reference to the stage of completion of a
transaction is often referred to as the percentage of completion method.
Under this method, revenue is recognized in the reporting periods in which
the services are rendered. For example, an entity providing property
valuation services would recognize revenue as the individual valuations are
completed. The recognition of revenue on this basis provides useful
information on the extent of service activity and performance during a
period. IPSAS 11 also requires the recognition of revenue on this basis. The
requirements of that Standard are generally applicable to the recognition of
revenue and the associated expenses for a transaction involving the
rendering of services.
21. Revenue is recognized only when it is probable that the economic benefits
or service potential associated with the transaction will flow to the entity.
However, when an uncertainty arises about the collectability of an amount
already included in revenue, the uncollectable amount, or the amount in
respect of which recovery has ceased to be probable, is recognized as an
expense, rather than as an adjustment of the amount of revenue originally
recognized.
22. An entity is generally able to make reliable estimates after it has agreed to
the following with the other parties to the transaction:
(a) Each party’s enforceable rights regarding the service to be provided
and received by the parties;
(b) The consideration to be exchanged; and
(c) The manner and terms of settlement.
It is also usually necessary for the entity to have an effective internal
financial budgeting and reporting system. The entity reviews and, when
necessary, revises the estimates of revenue as the service is performed. The
need for such revisions does not necessarily indicate that the outcome of the
transaction cannot be estimated reliably.
23. The stage of completion of a transaction may be determined by a variety of
methods. An entity uses the method that measures reliably the services
performed. Depending on the nature of the transaction, the methods may
include:
(a) Surveys of work performed;
(b) Services performed to date as a percentage of total services to be
performed; or

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(c) The proportion that costs incurred to date bear to the estimated total
costs of the transaction. Only costs that reflect services performed to
date are included in costs incurred to date. Only costs that reflect
services performed or to be performed are included in the estimated
total costs of the transaction.
Progress payments and advances received from customers often do not
reflect the services performed.
24. For practical purposes, when services are performed by an indeterminate
number of acts over a specified time frame, revenue is recognized on a
straight line basis over the specified time frame, unless there is evidence
that some other method better represents the stage of completion. When a
specific act is much more significant than any other acts, the recognition of
revenue is postponed until the significant act is executed.
25. When the outcome of the transaction involving the rendering of
services cannot be estimated reliably, revenue shall be recognized only
to the extent of the expenses recognized that are recoverable.
26. During the early stages of a transaction, it is often the case that the outcome
of the transaction cannot be estimated reliably. Nevertheless, it may be
probable that the entity will recover the transaction costs incurred.
Therefore, revenue is recognized only to the extent of costs incurred that are
expected to be recoverable. As the outcome of the transaction cannot be
estimated reliably, no surplus is recognized.
27. When (a) the outcome of a transaction cannot be estimated reliably, and (b)
it is not probable that the costs incurred will be recovered, revenue is not
recognized and the costs incurred are recognized as an expense. When the
uncertainties that prevented the outcome of the contract being estimated
reliably no longer exist, revenue is recognized in accordance with
paragraph 19 rather than in accordance with paragraph 25.

Sale of Goods
28. Revenue from the sale of goods shall be recognized when all the
following conditions have been satisfied:
(a) The entity has transferred to the purchaser the significant risks
and rewards of ownership of the goods;
(b) The entity retains neither continuing managerial involvement to
the degree usually associated with ownership nor effective
control over the goods sold;
(c) The amount of revenue can be measured reliably;
(d) It is probable that the economic benefits or service potential
associated with the transaction will flow to the entity; and

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(e) The costs incurred or to be incurred in respect of the
transaction can be measured reliably.
29. The assessment of when an entity has transferred the significant risks and
rewards of ownership to the purchaser requires an examination of the
circumstances of the transaction. In most cases, the transfer of the risks and
rewards of ownership coincides with the transfer of the legal title or the
passing of possession to the purchaser. This is the case for most sales.
However, in certain other cases, the transfer of risks and rewards of
ownership occurs at a different time from the transfer of legal title or the
passing of possession.
30. If the entity retains significant risks of ownership, the transaction is not a
sale, and revenue is not recognized. An entity may retain a significant risk
of ownership in a number of ways. Examples of situations in which the
entity may retain the significant risks and rewards of ownership are:
(a) When the entity retains an obligation for unsatisfactory performance
not covered by normal warranty provisions;
(b) When the receipt of the revenue from a particular sale is contingent
on the derivation of revenue by the purchaser from its sale of the
goods (for example, where a government publishing operation
distributes educational material to schools on a sale or return basis);
(c) When the goods are shipped subject to installation and the
installation is a significant part of the contract that has not yet been
completed by the entity; and
(d) When the purchaser has the right to rescind the purchase for a
reason specified in the sales contract, and the entity is uncertain
about the probability of return.
31. If an entity retains only an insignificant risk of ownership, the transaction is
a sale and revenue is recognized. For example, a seller may retain the legal
title to the goods solely to protect the collectability of the amount due. In
such a case, if the entity has transferred the significant risks and rewards of
ownership, the transaction is a sale and revenue is recognized. Another
example of an entity retaining only an insignificant risk of ownership may
be a sale when a refund is offered if the purchaser is not satisfied. Revenue
in such cases is recognized at the time of sale, provided the seller can
reliably estimate future returns and recognizes a liability for returns based
on previous experience and other relevant factors.
32. Revenue is recognized only when it is probable that the economic benefits
or service potential associated with the transaction will flow to the entity. In
some cases, this may not be probable until the consideration is received or
until an uncertainty is removed. For example, the revenue may be
dependent upon the ability of another entity to supply goods as part of the
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contract, and if there is any doubt that this will occur, recognition may be
delayed until it has occurred. When the goods are supplied, the uncertainty
is removed and revenue is recognized. However, when an uncertainty arises
about the collectability of an amount already included in revenue, the
uncollectable amount, or the amount in respect of which recovery has
ceased to be probable, is recognized as an expense, rather than as an
adjustment of the amount of revenue originally recognized.

Interest, Royalties, and Dividends or Similar Distributions

33. Revenue arising from the use by others of entity assets yielding interest,
royalties, and dividends or similar distributions shall be recognized
using the accounting treatments set out in paragraph 34 when:
(a) It is probable that the economic benefits or service potential
associated with the transaction will flow to the entity; and
(b) The amount of the revenue can be measured reliably.
34. Revenue shall be recognized using the following accounting treatments:
(a) Interest shall be recognized on a time proportion basis that
takes into account the effective yield on the asset;
(b) Royalties shall be recognized as they are earned in accordance
with the substance of the relevant agreement; and
(c) Dividends or similar distributions shall be recognized when the
shareholder’s or the entity’s right to receive payment is
established.
35. The effective yield on an asset is the rate of interest required to discount the
stream of future cash receipts expected over the life of the asset to equate to
the initial carrying amount of the asset. Interest revenue includes the
amount of amortization of any discount, premium, or other difference
between the initial carrying amount of a debt security and its amount at
maturity.
36. When unpaid interest has accrued before the acquisition of an interest-
bearing investment, the subsequent receipt of interest is allocated between
pre-acquisition and post-acquisition periods; only the post-acquisition
portion is recognized as revenue. When dividends or similar distributions on
equity securities are declared from pre-acquisition net surplus, those
dividends or similar distributions are deducted from the cost of the
securities. If it is difficult to make such an allocation except on an arbitrary
basis; dividends or similar distributions are recognized as revenue unless
they clearly represent a recovery of part of the cost of the equity securities.
37. Royalties, such as petroleum royalties, accrue in accordance with the terms
of the relevant agreement, and are usually recognized on that basis unless,

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having regard to the substance of the agreement, it is more appropriate to
recognize revenue on some other systematic and rational basis.
38. Revenue is recognized only when it is probable that the economic benefits
or service potential associated with the transaction will flow to the entity.
However, when an uncertainty arises about the collectability of an amount
already included in revenue, the uncollectable amount, or the amount in
respect of which recovery has ceased to be probable, is recognized as an
expense, rather than as an adjustment of the amount of revenue originally
recognized.

Disclosure
39. An entity shall disclose:
(a) The accounting policies adopted for the recognition of revenue,
including the methods adopted to determine the stage of
completion of transactions involving the rendering of services;
(b) The amount of each significant category of revenue recognized
during the period, including revenue arising from:
(i) The rendering of services;
(ii) The sale of goods;
(iii) Interest;
(iv) Royalties; and
(v) Dividends or similar distributions; and
(c) The amount of revenue arising from exchanges of goods or
services included in each significant category of revenue.
40. Guidance on disclosure of any contingent assets and contingent liabilities
can be found in IPSAS 19, Provisions, Contingent Liabilities and
Contingent Assets. Contingent assets and contingent liabilities may arise
from items such as warranty costs, claims, penalties, or possible losses.

Effective Date
41. An entity shall apply this Standard for annual financial statements
covering periods beginning on or after July 1, 2002. Earlier application
is encouraged. If an entity applies this Standard for a period beginning
before July 1, 2002, it shall disclose that fact.

42. When an entity adopts the accrual basis of accounting as defined by IPSASs
for financial reporting purposes subsequent to this effective date, this
Standard applies to the entity’s annual financial statements covering periods
beginning on or after the date of adoption.

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Implementation Guidance
This guidance accompanies, but is not part of, IPSAS 9.
IG1. Public sector entities derive revenues from exchange or non-exchange
transactions. This Standard deals only with revenue arising from exchange
transactions. Revenue from exchange transactions is derived from:
(a) Sale of goods or provision of services to third parties;
(b) Sale of goods or provision of services to other government agencies;
and
(c) The use by others of entity assets yielding interest, royalties, and
dividends or similar distributions.
IG2. The application of the recognition criteria to particular transactions may be
affected by:
(a) The law in different countries, which may determine the point in time
at which the entity transfers the significant risks and rewards of
ownership. Therefore, the examples in this section of the
implementation guidance need to be read in the context of the laws in
the country in which the transaction takes place; and
(b) The nature of the relationship (contractual or otherwise) between the
entity that pays and the entity that receives the revenue (that is, the
entities may agree on specific points in time at which the receiving
entity can recognize revenue).

Rendering of Services
Housing
IG3. Rental income from the provision of housing is recognized as the income is
earned in accordance with the terms of the tenancy agreement.

School Transport
IG4. Revenue from fares charged to passengers for the provision of school
transport is recognized as the transport is provided.

Management of Toll Roads

IG5. Revenue from the management of toll roads is recognized as it is earned,
based on the usage of the roads.

Processing of Court Cases

IG6. Revenue from the processing of court cases can be recognized either by
reference to the stage of completion of the processing, or based on the periods
during which the courts are in session.

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Management of Facilities, Assets, or Services
IG7. Revenue from the management of facilities, assets, or services is recognized
over the term of the contract as the management services are provided.

Science and Technology Research

IG8. Revenue received from clients from contracts for undertaking science and
technology research is recognized by reference to the stage of completion on
individual projects.

Installation Fees
IG9. Installation fees are recognized as revenue by reference to the stage of
completion of the installation, unless they are incidental to the sale of a
product, in which case they are recognized when the goods are sold.

Servicing Fees Included in the Price of the Product

IG10. When the selling price of a product includes an identifiable amount for
subsequent servicing (for example, after sales support and product
enhancement on the sale of software), that amount is deferred and recognized
as revenue over the period during which the service is performed. The amount
deferred is that which will cover the expected costs of the services under the
agreement, together with a reasonable return on those services.

Insurance Agency Commissions

IG11. Insurance agency commissions received or receivable that do not require the
agent to render further service are recognized as revenue by the agent on the
effective commencement or renewal dates of the related policies. However,
when it is probable that the agent will be required to render further services
during the life of the policy, the commission, or part thereof, is deferred and
recognized as revenue over the period during which the policy is in force.

Financial Service Fees

IG12. The recognition of revenue for financial service fees depends on (a) the
purposes for which the fees are assessed, and (b) the basis of accounting for
any associated financial instrument. The description of fees for financial
services may not be indicative of the nature and substance of the services
provided. Therefore, it is necessary to distinguish between fees that are an
integral part of the effective yield of a financial instrument, fees that are
earned as services are provided, and fees that are earned on the execution of a
significant act.
(a) Fees that are an integral part of the effective interest rate of a
financial instrument

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Such fees are generally treated as an adjustment to the effective interest

rate. However, when the financial instrument is measured at fair value
with the change in fair value recognized in surplus or deficit, the fees
are recognized as revenue when the instrument is initially recognized.
(i) Origination fees received by the entity relating to the
creation or acquisition of a financial asset other than one
that under IPSAS 29 is classified as a financial asset “at
fair value through surplus or deficit”
Such fees may include compensation for activities such as
evaluating the borrower’s financial condition, evaluating and
recording guarantees, collateral and other security arrangements,
negotiating the terms of the instrument, preparing and processing
documents and closing the transaction. These fees are an integral
part of generating an involvement with the resulting financial
instrument and, together with the related transaction costs (as
defined in IPSAS 29), are deferred and recognized as an
adjustment to the effective interest rate.
(ii) Commitment fees received by the entity to originate a loan
when the loan commitment is outside the scope of IPSAS 29
If it is probable that the entity will enter into a specific lending
arrangement and the loan commitment is not within the scope of
IPSAS 29, the commitment fee received is regarded as
compensation for an ongoing involvement with the acquisition
of a financial instrument and, together with the related
transaction costs (as defined in IPSAS 29), is deferred and
recognized as an adjustment to the effective interest rate. If the
commitment expires without the entity making the loan, the fee
is recognized as revenue on expiry. Loan commitments that are
within the scope of IPSAS 29 are accounted for as derivatives
and measured at fair value.
(iii) Origination fees received on issuing financial liabilities
measured at amortized cost
These fees are an integral part of generating an involvement with
a financial liability. When a financial liability is not classified as
“at fair value through surplus or deficit,” the origination fees
received are included, with the related transaction costs (as
defined in IPSAS 29) incurred, in the initial carrying amount of
the financial liability and recognized as an adjustment to the
effective interest rate. An entity distinguishes fees and costs that
are an integral part of the effective interest rate for the financial
liability from origination fees and transaction costs relating to

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the right to provide services, such as investment management
services.
(b) Fees earned as services are provided
(i) Fees charged for servicing a loan
Fees charged by an entity for servicing a loan are recognized as
revenue as the services are provided.
(ii) Commitment fees to originate a loan when the loan
commitment is outside the scope of IPSAS 29
If it is unlikely that a specific lending arrangement will be
entered into and the loan commitment is outside the scope of
IPSAS 29, the commitment fee is recognized as revenue on a
time proportion basis over the commitment period. Loan
commitments that are within the scope of IPSAS 29 are
accounted for as derivatives and measured at fair value.
(iii) Investment management fees
Fees charged for managing investments are recognized as
revenue as the services are provided.
Incremental costs that are directly attributable to securing an
investment management contract are recognized as an asset if
they can be identified separately and measured reliably and if it
is probable that they will be recovered. As in IPSAS 29, an
incremental cost is one that would not have been incurred if the
entity had not secured the investment management contract. The
asset represents the entity’s contractual right to benefit from
providing investment management services, and is amortized as
the entity recognizes the related revenue. If the entity has a
portfolio of investment management contracts, it may assess
their recoverability on a portfolio basis.
Some financial services contracts involve both the origination of
one or more financial instruments and the provision of
investment management services. An example is a long-term
monthly saving contract linked to the management of a pool of
equity securities. The provider of the contract distinguishes the
transaction costs relating to the origination of the financial
instrument from the costs of securing the right to provide
investment management services.
(c) Fees that are earned on the execution of a significant act
The fees are recognized as revenue when the significant act has been
completed, as in the examples below.

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(i) Commission on the allotment of shares to a client

The commission is recognized as revenue when the shares have
been allotted.
(ii) Placement fees for arranging a loan between a borrower
and an investor
The fee is recognized as revenue when the loan has been
arranged.
(iii) Loan syndication fees
A syndication fee received by an entity that arranges a loan and
retains no part of the loan package for itself (or retains a part at
the same effective interest rate for comparable risk as other
participants) is compensation for the service of syndication.
Such a fee is recognized as revenue when the syndication has
been completed.

Admission Fees
IG13. Revenue from artistic performances, banquets, and other special events is
recognized when the event takes place. When a subscription to a number of
events is sold, the fee is allocated to each event on a basis that reflects the
extent to which services are performed at each event.

Tuition Fees
IG14. Revenue is recognized over the period of instruction.

Initiation, Entrance, and Membership Fees

IG15. Revenue recognition depends on the nature of the services provided. If the fee
permits only membership, and all other services or products are paid for
separately, or if there is a separate annual subscription, the fee is recognized
as revenue when no significant uncertainty as to its collectability exists. If the
fee entitles the member to services or publications to be provided during the
membership period, or to purchase goods or services at prices lower than
those charged to non-members, it is recognized on a basis that reflects the
timing, nature, and value of the benefits provided.

Franchise or Concession Fees

IG16. Franchise or concession fees may cover the supply of initial and subsequent
services, equipment and other tangible assets, and know-how. Accordingly,
franchise or concession fees are recognized as revenue on a basis that reflects
the purpose for which the fees were charged. The following methods of
franchise or concession fee recognition are appropriate:

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(a) Supplies of Equipment and Other Tangible Assets
The amount, based on the fair value of the assets sold, is recognized as
revenue when the items are delivered or title passes.
(b) Supplies of Initial and Subsequent Services
Fees for the provision of continuing services, whether part of the initial
fee or a separate fee, are recognized as revenue as the services are
rendered. When the separate fee does not cover the cost of continuing
services together with a reasonable return, part of the initial fee,
sufficient to cover the costs of continuing services and to provide a
reasonable return on those services, is deferred and recognized as
revenue as the services are rendered.
(c) Continuing Franchise or Concession Fees
Fees charged for the use of continuing rights granted by the agreement,
or for other services provided during the period of the agreement, are
recognized as revenue as the services are provided or the rights used.
(d) Agency Transactions
Transactions may take place between the franchisor and the franchisee
that, in substance, involve the franchisor acting as agent for the
franchisee. For example, the franchisor may order supplies and arrange
for their delivery to the franchisee at no return. Such transactions do not
give rise to revenue.

Fees From the Development of Customized Software

IG17. Fees from the development of customized software are recognized as revenue
by reference to the stage of completion of the development, including
completion of services provided for post-delivery service support.

Sale of Goods
“Bill and Hold” Sales, in Which Delivery is Delayed at the Purchaser’s Request but
the Purchaser Takes Title and Accepts Billing
IG18. Revenue is recognized when the purchaser takes title, provided:
(a) It is probable that delivery will be made;
(b) The item is on hand, identified and ready for delivery to the purchaser
at the time the sale is recognized;
(c) The purchaser specifically acknowledges the deferred delivery
instructions; and
(d) The usual payment terms apply.

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Revenue is not recognized when there is simply an intention to acquire

or manufacture the goods in time for delivery.
IG19. Goods Shipped Subject to Conditions
(a) Installation and inspection
Revenue is normally recognized when the purchaser accepts delivery,
and installation and inspection are complete. However, revenue is
recognized immediately upon the purchaser’s acceptance of delivery
when:
(i) The installation process is simple in nature; or
(ii) The inspection is performed only for purposes of final
determination of contract prices.
(b) On approval when the purchaser has negotiated a limited right of
return
If there is uncertainty about the possibility of return, revenue is
recognized when the shipment has been formally accepted by the
purchaser or the goods have been delivered and the time period for
rejection has elapsed.
(c) Consignment sales under which the recipient (purchaser)
undertakes to sell the goods on behalf of the shipper (seller)
Revenue is recognized by the shipper when the goods are sold by the
recipient to a third party.
(d) Cash on delivery sales
Revenue is recognized when delivery is made and cash is received by
the seller or its agent.

Layaway Sales under Which the Goods are Delivered Only when the Purchaser
Makes the Final Payment in a Series of Installments
IG20. Revenue from such sales is recognized when the goods are delivered.
However, when experience indicates that most such sales are consummated,
revenue may be recognized when a significant deposit is received, provided
the goods are on hand, identified, and ready for delivery to the purchaser.

Orders When Payment (or Partial Payment) is Received in Advance of Delivery for
Goods Not Presently Held in Inventory; For Example, the Goods are Still to be
Manufactured or will be Delivered Directly to the Customer from a Third Party
IG21. Revenue is recognized when the goods are delivered to the purchaser.

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Sale And Repurchase Agreements (Other than Swap Transactions) under Which the
Seller Concurrently Agrees to Repurchase the Same Goods at a Later Date, or when
the Seller has a Call Option to Repurchase, or the Purchaser has a Put Option to
Require the Repurchase by the Seller of the Goods
IG22. The terms of the agreement need to be analyzed to ascertain whether, in
substance, the seller has transferred the risks and rewards of ownership to the
purchaser, and hence revenue is recognized. When the seller has retained the
risks and rewards of ownership, even though legal title has been transferred,
the transaction is a financing arrangement and does not give rise to revenue.

Sales to Intermediate Parties, Such as Distributors, Dealers, or Others for Resale

IG23. Revenue from such sales is generally recognized when the risks and rewards
of ownership have passed. However, when the purchaser is acting, in
substance, as an agent, the sale is treated as a consignment sale.

Subscriptions to Publications and Similar Items

IG24. When the items involved are of similar value in each time period, revenue is
recognized on a straight line basis over the period in which the items are
dispatched. When the items vary in value from period to period, revenue is
recognized on the basis of the sales value of the item dispatched in relation to
the total estimated sales value of all items covered by the subscription.

Installment Sales, under Which the Consideration is Receivable in Installments

IG25. Revenue attributable to the sales price, exclusive of interest, is recognized at
the date of sale. The sale price is the present value of the consideration,
determined by discounting the installments receivable at the imputed rate of
interest. The interest element is recognized as revenue as it is earned, on a
time proportion basis that takes into account the imputed rate of interest.

Real Estate Sales

IG26. Revenue is normally recognized when legal title passes to the purchaser.
However, in some jurisdictions the equitable interest in a property may vest in
the purchaser before legal title passes, and therefore the risks and rewards of
ownership have been transferred at that stage. In such cases, provided that the
seller has no further substantial acts to complete under the contract, it may be
appropriate to recognize revenue. In either case, if the seller is obliged to
perform any significant acts after the transfer of the equitable and/or legal
title, revenue is recognized as the acts are performed. An example is a
building or other facility on which construction has not been completed.
IG27. In some cases, real estate may be sold with a degree of continuing
involvement by the seller, such that the risks and rewards of ownership have
not been transferred. Examples are (a) sale and repurchase agreements that
include put and call options, and (b) agreements whereby the seller guarantees
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occupancy of the property for a specified period, or guarantees a return on the

purchaser’s investment for a specified period. In such cases, the nature and
extent of the seller’s continuing involvement determines how the transaction
is accounted for. It may be accounted for as a sale, or as a financing, leasing,
or some other profit-sharing arrangement. If it is accounted for as a sale, the
continuing involvement of the seller may delay the recognition of revenue.
IG28. A seller must also consider the means of payment and evidence of the
purchaser’s commitment to complete payment. For example, when the
aggregate of the payments received, including the purchaser’s initial down
payment, or continuing payments by the purchaser, provide insufficient
evidence of the purchaser’s commitment to complete payment, revenue is
recognized only to the extent cash is received.

Interest, Royalties, and Dividends or Similar Distributions

License Fees and Royalties
IG29. Fees and royalties paid for the use of an entity’s assets (such as trademarks,
patents, software, music copyright, record masters, and motion picture films)
are normally recognized in accordance with the substance of the agreement.
As a practical matter, this may be on a straight line basis over the life of the
agreement, for example, when a licensee has the right to use certain
technology for a specified period of time.
IG30. An assignment of rights for a fixed fee or non-refundable guarantee under a
non-cancelable contract that (a) permits the licensee to exploit those rights
freely and (b) the licensor has no remaining obligations to perform is, in
substance, a sale. An example is a licensing agreement for the use of software
when the licensor has no obligations subsequent to delivery. Another example
is the granting of rights to exhibit a motion picture film in markets where the
licensor has no control over the distributor, and expects to receive no further
revenues from the box office receipts. In such cases, revenue is recognized at
the time of sale.
IG31. In some cases, whether or not a license fee or royalty will be received is
contingent on the occurrence of a future event. In such cases, revenue is
recognized only when it is probable that the fee or royalty will be received,
which is normally when the event has occurred.
Recognition and Measurement
Determining whether an entity is acting as a principal or as an agent (2010
amendment)
IG32. Paragraph 12 states that “in an agency relationship, the gross inflows of
economic benefits or service potential include amounts collected on behalf
of the principal and which do not result in increases in net assets/equity for
the entity. The amounts collected on behalf of the principal are not revenue.

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Instead, revenue is the amount of any commission received or receivable for
the collection or handling of the gross flows.” Determining whether an
entity is acting as a principal or as an agent requires judgement and
consideration of all relevant facts and circumstances.
IG33. An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering of
services. Features that indicate that an entity is acting as a principal include:
(a) The entity has the primary responsibility for providing the goods or
services to the customer or for fulfilling the order, for example by
being responsible for the acceptability of the products or services
ordered or purchased by the customer;
(b) The entity has inventory risk before or after the customer order,
during shipping or on return;
(c) The entity has latitude in establishing prices, either directly or
indirectly, for example by providing additional goods or services;
and
(d) The entity bears the customer’s credit risk for the amount
receivable from the customer.
IG34. An entity is acting as an agent when it does not have exposure to the
significant risks and rewards associated with the sale of goods or the
rendering of services. One feature indicating that an entity is acting as an
agent is that the amount the entity earns is predetermined, being either a
fixed fee per transaction or a stated percentage of the amount billed to the
customer.

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Comparison with IAS 18

IPSAS 9, Revenue from Exchange Transactions is drawn primarily from IAS 18,
Revenue. The main differences between IPSAS 9 and IAS 18 are as follows:
 The title of IPSAS 9 differs from that of IAS 18, and this difference clarifies
that IPSAS 9 does not deal with revenue from non-exchange transactions.
 The definition of “revenue” adopted in IPSAS 9 is similar to the definition
adopted in IAS 18. The main difference is that the definition in IAS 18
refers to ordinary activities.
 Commentary additional to that in IAS 18 has also been included in IPSAS 9
to clarify the applicability of the standards to accounting by public sector
entities.
 IPSAS 9 uses different terminology, in certain instances, from IAS 18. The
most significant example is the use of the term “net assets/equity” in
IPSAS 9. The equivalent term in IAS 18 is “equity.”

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