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Revenue - Essay Example

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Revenue

Income encompasses both revenue and gains.” (ec.europa.eu, p. 2) Revenue: “IAS 18 defines revenue 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 increases in equity, other than increases relating to contributions from equity participants” (ACCA, 2013.) Gain: “An increase in the value of an asset or property. A gain arises if the selling or disposition price of the asset is higher than the original purchase or acquisition price” (Investopedia, n.d.) Normally the word ‘profit’ is used in business context in the place of gain. It is also very important that that revenue and the related expenses should be matched with the accounting period, and this is called matching principle. “When the selling price of a product includes an identifiable amount for subsequent servicing that amount is deferred and recognised 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, together with a reasonable profit on those services” (ACCA 2013). ...
sale and repurchase should be dealt with together. Section 14 of IAS 18 stipulates the conditions for revenue recognition in respect of sale of goods. These following two conditions are relevant for discussion in respect of accounting of transaction related to Witney. (a) the entity has transferred to the buyer 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; Section 20 states “When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the transaction shall be recognised by reference to the stage of completion of the transaction at the end of the reporting period.” This principle is relevant for discussion in respect of support services to PC4U. Case Study Sale of electrical goods When sale has been accounted properly, the goods covered should not be treated as stock; and the sale is not treated as stock by the company. Snowfall and delay in delivery cannot alter the position. Once the goods are despatched to the buyer, the seller has no control over the same. The following conditions u/s 18 are important in this respect (a) the entity has transferred to the buyer the significant risks and rewards of ownership of the goods and (b) the entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold. Therefore, no adjustment is required on account of this transaction. Contract with Witney The total amount owing to Ibi Ryan from Witney is ?600,000 at 31st March. It is assumed that includes the sum ...Show more

Summary

Ibi Ryan Plc: Revenue Recognition and Earnings Management Revenue Recognition under IAS 18 The emphasis in auditing is not restricted to arithmetical accuracy. Appropriate application of accounting principles and disclosures is necessary for forming a correct view of the state of affairs…
Author : cbrown
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