IAS 18 – Revenue
Objective: To prescribe the accounting treatment for revenue arising from certain types of transaction and event.
(1) Revenue should be measured at the fair value.
(2) Recognition:
- From sale goods when significant risks and reward have been transferred to the buyer and the amount can be reliably measured.
-From sale of services, percentage of completion method.
- From Interest on a time proportion basis.
-From Dividends when shareholders right to receive payment is established.
-From Royalties on accrual basis in accordance with the agreement.
SIC 31 – Revenue from Transaction: involving advertising service, the recognition will be only if substantial revenue is received.
The Differences and Similarities between US GAAP Law and IFRS
Similarities: Revenue recognition under both US GAAP and IFRS is tied to the completion of the earnings process and the realization of asset from such completion. Under IAS 18 Revenue is defined as "the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increase in equity other than equity increases from related parties." Under US GAAP Revenue represent actual or expected cash inflows that have occurred or will result from entity ongoing major operation.
Significant Differences:
IFRS | US Law GAAP | |
Revenue represent amount received by the entity for its own account. In agency relationship amount collected on behalf of the entity by the agent are not recognized as revenue by the agent. | Like IFRS revenue represent amount received by the entity for its own account. Like IFRS In agency relationship amount collected on behalf of the entity by the agent are not recognized as revenue by the agent. However unlike IFRS there are specific indicators in evaluating whether an entity is acting as agent. | Revenue receives |
When transaction has multiple elements, as a principle each element is accounted for separately. | Like IFRS when transaction has multiple elements, as a principle each element is accounted for separately. Un Like IFRS there is detailed guidance that must be followed in making this assessment such as: (1) delivered elements that must have standalone value (2) undelivered elements that must have reliable evidence of fair value If those criteria are met, revenue for each element of the transaction can be recognized when the element is completed. | Multiple elements |
Revenue is recognized only when (1) Risks and rewards of ownership have been transferred (2) The buyer has control of the goods (3) Revenue can be measured reliably and its probable that benefit will flow to the company. | In public company's revenue recognition require: (1) Delivery has occurred. (2) The risk of rewards and ownership has been transferred. (3) There is persuasive evidence of the sale, the fee from sale, and collectability is reasonably assured. | Sale of Goods |
Revenue from service contracts is recognized in the period that the service is rendered generally using the percentage of completion method. | Like IFRS revenue from service contracts is recognized in the period that the service is rendered. However unlike IFRS revenue from service is recognized using the proportional performance or straight line method rather than the percentage of completion method. | Service contracts |
Fixed price construction contracts are accounted for using the percentage of completion method. Otherwise revenue recognition is limited to recovering cost incurred. The complete contract method is not permitted. | The complete contract method is permitted. | Fixed price construction contracts |
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