IAS 18 Revenue Recognition

insane asylum This assignment features the recognition and step of tax tax income depending on the source of receipts in accordance with the provisions of multinational explanation Standards (IAS) 18 gross. I researched the topic and subtendd the special purposes of the assignment first of all, it is important to cognise the main concepts of IAS 18, also to l straighten out the rules by using this particular restrictive framework, and to sire knowledge to the highest degree writing the report at all. The enshroud To Managing DirectorFrom Student A Regarding IAS 18 Date 3/11/2011 installation to the Report The Conference on International chronicle Standard (IAS) 18 Revenue was held to introduce the concepts of the regulatory framework of financial reporting and to trifle the given information in convenient mapping of practice. The objective of IAS 18 is to prescribe the cyphering treatment for receipts arising from sealed types of consummation and events (Summarie s of International Financial Reporting Standards, 2001). Key definitionAccording to International Accounting Standard military commission (IASC) the Framework Revenue is income that arises in the course of ordinary activities of an opening and is referred to by a variety of different names including sales, fees, interest, dividends and royalties (IASC, 2000). So tax revenue enhancement is bingle of the most important indicators of accounting. It is a key factor of the profit, its assessment helps to physique many financial indicators on the profitability of the activities of the organization, as wellspring as return on investment.A key issue when recording revenue is to define the moment of its recognition. Revenue is recognized if it is likely that the organization provide witness sparing benefits in the early, and these benefits arsehole be dependably measured. IAS 18 specifies conditions where these criteria be met and in that locationfore the revenue recognizes. Th is standard also provides practical advice on the natural covering of those criteria. Measurement of Revenue In accordance with IAS 18 revenue is unremarkably impelled by agreement between the supplier and the customer or user of the asset.This means that it is measured at seemly value consideration, which the guild has received or receivable trade discounts and volume rebates provided by the enterprise ar taken into the sum total. The standard defines fairish value as the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arms length transaction. (IASC, 2000) As the fair value is often expressed in monetary terms, the revenue will be the amount that the high society has received or receivable. This problem occurs when the introduction defrayal is deferred.In this case the present value of the retribution will be less than its face value. So IAS 18 introduced the following requirement the confederacy must be discounting. In such circumstances all future receipts should be discounted using the imputed interest rate. The second problem in recognizing the revenue arises in cases when the company offers its clients discounts for fast calculation. To comply with the requirements of IAS 18, discounts for fast payment should be measured at the time of the sale and deduct from the revenue.In cases when at that place is an exchange for goods or services similar in nature, comprise of revenue does not arise. When exchanging a variety of goods, revenue is measured at fair value of the goods or services received, minus the amount transferred to cash or cash equivalents. Revenue recognition Revenue is recognized with regard to the certain points the convincing evidence of an agreement with a customer, the delivering goods and the rendering of services. Sale of goodsThere are following criteria to recognize revenue from the sale of goods * Signifi senst risks and rewards associated with owners hip of the goods passed from the marketer to the buyer * The company no longer participates in the management of the property, interchange goods and it does not have control over them * The amount of revenue support be reliably assessed * Costs that should be suffered relating to a transaction chiffonier be measured reliably * There will be potential economic benefits for the enterprise as a result of this appendage. Rendering of servicesWhen the upshot of a transaction involving the rendering of services can be reliably estimated, revenue from the sale of services is based on the level of closing of the transaction at the balance sheet date. The outcome of a transaction can be measured reliably when * The amount of the transaction can be reliably assessed * There will be probability to bunk economic benefits for the enterprise as a result of this operation * direct of completion of the transaction at the balance sheet date can be assessed * Costs that should be suffered re lating to a transaction can be measured reliably.Revenue from the provision of goods and all services is only recognized when the amounts to be recognized are fixed or determinable, and collectability is reasonably assured (Elliot B. , Elliot J. , 2007) Interest, royalties and dividends IAS 18 considers the accounting procedure of potential components of revenue organization primarily from legal proceeding involving the sale of goods, rendering of services, as well as through separate organizations or individuals property of the reporting organization, giving interest, dividends or royalties.If the probability of the economic benefits for the enterprise exists and the amount of revenue can be measured reliably, income in the form of interest, royalties and dividends are recorded as follows * Interest (fees that are levied for the use of cash and cash equivalents or amounts owed) should be recognized on a temporary basis, which is proportional to the effective yield of the asset * Dividends (profit-sharing between the owners of the contend capital in proportion to their participation in the capital of a particular class) should be recognized when the shareholders have the right to receive payment * Royalties (fees for the use of fixed assets such as patents, trademarks, copyrights and computer software payments) should be recognized on an accrual basis according to the content of the relevant treaty. Disclosure requirements IAS 18 contains certain disclosure requirements because it is important to use disclosures to get the decision-useful information intimately an entitys arrangements with customers.In the income statement, as well as in the financial statements should be disclosed the following information a. The amount of all(prenominal) substantive article of the revenue received from the sale of goods, services, as well as the amount of interest, royalties and dividends b. The amount of revenue arose from exchanges of goods or services c. The methods utilize to designate the quantitative measures for the level of completion of the transactions in rendering of services. The disclosure requirements provide sufficient information to users of an entitys financial statements about the changes in circumstances affecting those performance obligations (International Accounting Standards Board, 2008). Example of Revenue On 1/04/2010 lash Ltd. eceived total subscriptions of 480,000. So as the result, the company is obliged to provide 24 monthly publications of the magazine. Dr Bank 480,000 Cr Deferred Income account 480,000 On 31/03/ 2011 the company has produced and sent out only 6 of the 24 publications, and the total cost of producing the 24 publications is 180,000. The average cost of distributively publication is the analogous amount. That means each publication cost 7,500 (180,000/24). Consequently, the cost of merchandise 6 publications is 45,000 (7,500*6). For one year, from 1/04/2010 to 31/3/2011, company produced 6 publicat ions. Therefore, to produce all 24 publications, the company should complete the pose in 4 years.Thus, each year Leather Ltd. will earn 120,000 (480,000/4) selling 6 publications. The organization will receive economic benefits in the future, and these benefits can be measured reliably. So 31/3/2011 revenue of the company is 120,000. Dr Deferred Income account 120,000 Cr Sales account 120,000 Income Statement of Leather Ltd. for the year ended 31st March 2011 Sales 120,000 Cost of production 45,000 Gross profit 75,000 expiration of the Report Revenue recognition criteria provided in IAS 18 Revenue should normally be applied to each operation separately.However, in certain circumstances, they must be applied to individual elements of a transaction in order to correctly reflect the sources of revenue. At the same time, on the contrary, recognition criteria can be applied simultaneously to dickens or more operations when their commercial effect cannot be determined without consider ing the operations as a whole. The provided conference helps to understand that the general principles of revenue recognition and measurement for financial reporting are extremely substantial in the system of accounting rules formed by IAS. Signed ____________ Conclusion The assignment represents the report that determines the important concepts of the regulatory framework defined by IAS 18 Revenue.While researching the following topic I got useful knowledge about the structure of the report. The assignment gives clear explanations of such terms as revenue and fair value, it also outlines important points of revenue recognition and measurement of the revenue. The assignment covers all information about how to recognize revenue and there is the particular example on revenue recognition. Bibliography ELLIOT, B. , ELLIOT, J. , (2007). Financial Accounting and Reporting. Accounting and reporting on an accrual accounting basis. 11th edition. London copyright Licensing Agency Ltd. , p. 26. International Accounting Standards Committee (2000). International Accounting Standards Explained.Accounting for revenue and Expenses Revenue. London Copyright of IASC, p. 321. International Accounting Standards Committee (2000), International Accounting Standards Explained, Accounting for Revenue and Expenses Revenue. London Copyright of IASC, p 322. Preliminary Views on Revenue Recognition in Contracts with Customer. International Accounting Standards Board, 2008. p. 77 http//www. iasb. org/NR/rdonlyres/0E3D5E00-B961-42F0-BA64-AB1D20BB9FE9/0/DP_PreliminaryViewsRevenueRecognition1208. pdf Accessed 24 Oct 2011 Summaries of International Financial Reporting Standards. Deloitte, 2001. http//www. iasplus. com/standard/ias18. htm. Accessed 20 Oct 2011