Revenues and Fair Values

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IAS 18 prescribes the accounting treatment for revenue arising from certain types of transactions and events. It defines revenue as the gross inflow of economic benefits, such as cash, receivables, and other assets, arising from the ordinary operating activities of an enterprise, such as sales of goods or services, interest, royalties, and dividends (IAS 18 7).


The approach focuses on the balance sheet elements to address the issues arising from complex revenue recognition situations. The current standard is based on the assumed primacy of the income statement whereas the proposal is based on a balance sheet approach. The latter relates revenues (gains) to an increase in net assets (increase in ownership interest not resulting from new contributions from owners) rather than recognising revenue first, with the movement in net assets the residual. The change in focus would have to be linked, or even subsumed, in a new standard covering "substance over form" to enable gains on such items as sale and repurchase agreements to be covered, in addition to the more obvious revenue generating activities, in a single statement.
The other major change is in the area of measurement, defined as the process of assigning monetary amounts at which elements of the financial statements are to be recognised and reported (IASB, 2001, 99-100). There are several measurement bases currently used to different degrees and in varying combinations in financial statements, such as historical cost, current cost, net realisable (settlement value), and discounted present value. ...
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