Income
Income is 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.
Revenue
Revenue is defined as the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an enterprise when those inflows result in increases in equity, other than increases relating to contributions from equity pa
Gains
Gains represent other items that meet the definition of income. Gains represent increases in economic benefits and as such are no different in nature from revenue. However, they are often reported net of related expenses, e.g. net exchange gains, gain on
Measurement of Revenue
(a) Revenue should be measured at fair value of the consideration received or receivable.
(b) Fair value (????) is the amount for which an asset would be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transact
Based on the entity concept, revenue includes only the gross inflows of economic benefits received and receivable by the enterprise on its own account.
Amounts collected on behalf of third parties such as sales taxes are not counted. Similarly, in an agency relationship, any amounts collected by an enterprise on behalf of the principal are also not accounted for. Revenue is reduced by trade discounts and
Deferred payment of revenue
When the inflow of cash or cash equivalents is deferred, the fair value of the consideration will be less than the nominal amount of cash received or receivable. This happens when an enterprise provides interest free credit to the buyer or accepts a note
Exchange of assets
The revised HKAS 16 specifies that exchange of items of property, plant and equipment, regardless of whether the assets are similar, are measured at fair value of the goods or services received, adjusted by the amount of any cash or cash equivalents trans
Recognition of Sale of Goods
Revenue from the sale of goods should be recognized when all the following conditions have been satisfied:
(i) the enterprise has transferred to the buyer the significant risks and rewards of ownership of the goods;
(ii) the enterprise retains neither con
Transactions: "Bill and hold" sales - Delivery is delayed, but the buyer takes title and accepts billing.
Critical Event:
Revenue is recognized when the buyer takes title. Revenue is not recognized when there is simply an intention to acquire or manufacture the goods in time for delivery.
Transactions: Installation and inspection.
Critical Event
Revenue is normally recognized when the buyer accepts delivery, and installation and inspection are complete.
Transactions:
On approval when the buyer has negotiated a limited right of return.
Critical Event
If there is uncertainty about the possibility of return, revenue is recognized when the shipment has been formally accepted by the buyer or the goods have been delivered and the time period for rejection has elapsed.
Transactions:
Consignment sales under which the recipient (buyer) undertakes to sell the goods on behalf of the shipper (seller).
Critical Event
Revenue is recognized by the shipper when the goods are sold by the recipient to a third party.
Transactions:
Cash on delivery sales.
Critical Event
Revenue is recognized when delivery is made and cash is received by the seller or its agent
Transactions:
Lay away sales under which the goods are delivered only when the buyer makes the final payment in a series of instalments.
Revenue is recognized when the goods are delivered
Transactions:
Orders when payment is received in advance of delivery for goods not presently held in stocks.
Critical Event:
Revenue is recognized when the goods are delivered.
Transactions:
Sales and repurchase agreements
Critical Event:
In substance, the seller has transferred the risks and rewards of ownership to the buyer and hence revenue is recognized.
Transactions:
Sales to intermediate parties, e.g. distributors, dealers, etc. for resale.
Critical Event:
Revenue is recognized when the risks and rewards of ownership have passed.
Transactions:
Subscriptions to publications and similar items.
Critical Event:
Revenue is recognized when the items involved are despacted.
Transactions:
Installment sales, under which the consideration is receivable in installments.
Critical Event:
Revenue attributable to the sales price, exclusive of interest, is recognized at the date of sale.
Transactions:
Property of sales.
Critical Event:
Revenue is normally recognized when legal title passes to the buyer. 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.
Recognition of Rendering of Services
When the outcome of a transaction involving the rendering of services can be measured reliably, revenue associated with the transaction should be recognized by reference to the stage of completion of the transaction at the statement of financial position.
services cannot be estimated reliably,
When the outcome of the transaction involving the rendering of services cannot be estimated reliably, revenue should be recognized only to the extent of the expenses recognized that are recoverable.
Methods of Measuring the Revenue of Rendering of Services
- Percentage of completion method
- Straight line basis
- Straight line basis
- Percentage of completion method
With service industries, revenue is recognized by reference to the stage of completion of a transaction which is often referred to as the percentage of completion method. The stage of completion of a transaction can be determined by various means dependin
Straight line basis
When services are performed by an indeterminate number of acts over a specified period of time, revenue is recognized on a straight line basis over the specified period unless some other better method is available. For example, a fitness club which provid
Completed performance method
When a specific act is much more significant than any other acts, the recognition of revenue is postponed until the significant act is executed. For example, a moving company may pack, load, store and deliver goods to destinations designated by customers.
Transactions: Installation fees
Critical Event: Revenue is recognized by reference to the stage of completion of the installation.
Transactions: Servicing fees included in the price of the product
Critical Event: The identifiable amount included in the selling price, i.e. service fees, is deferred and recognized over the period during which the service is performed.
Transactions: Advertising commissions
Critical Event: Media commissions are recognized when the related advertisement or commercial appears before the public.
Transactions: Insurance agency commissions
Critical Event: Revenue is recognized on the renewal date of the policy provided that the agent will not be required to perform further services.
Transactions: Financial services fees
Critical Event: Recognition of revenue for financial service fees depends on the purposes for which the fees are assessed and the basis of accounting for any associated financial instrument.
Transactions: Admission fees
Critical Event: Revenue from artistic performance, other special events is recognized when the event takes place.
Transactions: Tuition fees
Critical Event: Revenue is recognized over the period of instruction.
Transactions: Initiation, entrance and membership fees
Critical Event: If fees permit only membership, the fee is membership fees. Recognised as revenue when no significant uncertainty as to their collectibility exists. If fees include other services or facilities provided, revenue is recognized on a basis re
Transactions: Franchise fees
Critical Event: Revenue is recognized on a basis that reflects the purpose for which the fees are charged.
Transactions: Fees from the development of customized software
Critical Event: Revenue is recognized by reference to the stage of completion.
Interest
Interest is the charge for the use of cash or cash equivalents or amounts due to the entity.
Royalties
Royalties are charges for the use of non-current assets of the entity, e.g. patents, computer software and trademarks.
Dividends
Dividends are distributions of profit to holders of equity investments, in proportion with their holdings, of each relevant class of capital.
Recognition of Interest, Royalties and Dividends
(a) Interest is recognised on a time proportion basis that takes into account the effective yield on the asset.
(b) Royalties are recognised on an accruals basis in accordance with the substance of the relevant agreement.
(c) Dividends are recognised when
Disclosure Requirements
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 dur