(Summary) Ind AS 18
Revenue is recognised when this Standard identifies the circumstances in which it is probable that future economic benefits will flow to the entity and these benefits can be measured reliably and, therefore, revenue will be recognised.
This Standard shall be applied in accounting for revenue arising from the following transactions and events:
- the sale of goods
- the rendering of services; and
- the use by others of entity assets yielding interest, royalties and dividends.
- Fair Value
Revenue is 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 increases in equity, other than increases relating to contributions from equity participants.
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.
Revenue shall be measured at the fair value of the consideration received or receivable.
Recognition criteria are usually applied separately to each.
The recognition criteria are applied to two or more transactions together when they are linked in such a way that the commercial effect cannot be understood without reference to the series of transactions as a whole.
- Sale of goods – Revenue can be recognised when following conditions are satisfied.
- the entity has transferred to the buyer the significant risks and rewards of ownership of the goods;
- the entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
- the amount of revenue can be measured reliably;
- it is probable that the economic benefits associated with the transaction will flow to the entity; and
- the costs incurred or to be incurred in respect of the transaction can be measured reliably.
- Rendering of Services – Recognise revenue by reference to the stage of completion of the transaction at the end of reporting period. The outcome of a transaction can be estimated reliably when all the following conditions are satisfied:
- The amount of revenue can be measured reliably;
- It is probable that the economic benefits associated with the transaction will flow to the entity;
- the stage of completion of the transaction at the end of the reporting period can be measured reliably; and
- the costs incurred for the transaction and the costs to complete the transaction can be measured reliably.
When the outcome of the transaction involving the rendering of services cannot be estimated reliably, revenue shall be recognised only to the extent of the expenses recognised that are recoverable.
- Interest, Royalties and Dividends – Revenue shall be recognised on the following basis.
- Interest shall be recognised using the effective interest method as set out in Ind AS 109;
- Royalties shall be recognised on an accrual basis in accordance with the substance of the relevant agreement; and
- Dividends shall be recognised when the shareholder’s right to receive payment is established.
- 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.
- The amount of revenue arising from exchanges of goods or services included in each significant category of revenue.