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2. What is revenue?
 Revenue is the gross inflow of economic benefits
during the period arising in the course of the ordinary
activities of an entity.
 Revenue is measured by the fair value of the
consideration received or receivable
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3. Revenue (IAS 18)
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4. Revenue – IAS 18
 IAS 18 revenue defines when revenue from various
sources may be recognized. It deals with revenue
arising from three types of transaction or events;
Sale of goods
2. Rendering of services
3. Interest, Royalties and dividends from the assets of
the enterprise.
1.
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5. 
History of IAS 18 - Revenue
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6. History of IAS 18 – Revenue
Recognition
 April 1981
Exposure Draft E20 Revenue Recognition
 December 1982
IAS 18 Revenue Recognition
 1 January 1984
Effective date of IAS 18 (1982)
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7. History of IAS 18 – Revenue
Recognition
 May 1992
E41 Revenue Recognition
 December 1993
IAS 18 Revenue Recognition (revised as part of the
'Comparability of Financial Statements' project)
 1 January 1995
Effective date of IAS 18 (1993) Revenue Recognition
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8. History of IAS 18 – Revenue
Recognition
 December 1998
Amended by IAS 39 Financial Instruments:
Recognition and Measurement, effective 1 January 2001
 16 April 2009
Appendix to IAS 18 amended for Annual
Improvements to IFRSs 2009. It now provides
guidance for determining whether an entity is acting
as a principal or as an agent.
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9. Revenue Recognition
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10. Objective of IAS 18 – Revenue
Recognition
 The objective of IAS 18 is to prescribe the
accounting treatment for revenue arising
from certain types of transactions and
events.
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11. Objective of IAS 18 – Revenue
Recognition
 The world today is packed with different kinds of
products, services, transactions and many other
activities that people and business do. Logically, it is
sometimes very tough issue for accountants to
determine WHEN and even WHETHER to recognize
revenue in the financial statements.
 That’s exactly the main aim of the standard IAS 18—
to give guidance on the revenue recognition and help
in the application of the revenue recognition criteria.
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12. Key definition
 Revenue: the gross inflow of economic
benefits (cash, receivables, other assets)
arising from the ordinary operating
activities of an entity (such as sales of
goods, sales of
services, interest, royalties, and dividends).
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13. Recognition of Revenue
Recognition, as defined in the IASB Framework, means
incorporating an item that meets the definition of
revenue (above) in the income statement when it
meets the following criteria:
 it is probable that any future economic benefit
associated with the item of revenue will flow to the
entity, and
 the amount of revenue can be measured with
reliability
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14. Agency relationship = revenue?
 Here I would like to stress that the revenue includes
only the economic benefits received or receivable on
the entity’s own account. However, entities often
collect the amounts on behalf of the third parties, such
as taxes payable to the state budget—these amounts
are NOT revenue and CANNOT be recognized as such.
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15. Agency relationship = revenue?
 Also, agency transactions are very common in
today’s business and sometimes it’s not easy to
determine the agency relationship. In agency
relationship, the agent just collects the amounts on
behalf of the principal and thus cannot recognize
the revenue.
 For example, mobile operators often sell some
additional content with their monthly prepaid calling
plans, such as music or application. The relationship
between 3 parties is illustrated in the following
scheme:
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16. IAS - 18
Measurement of
Revenue
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17. Measurement of Revenue
The term revenue could apply in any of the following
situations:
1. The supply of goods on cash or credit sale term
2. The provision of services on cash or credit terms
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18. Measurement of revenue
3. Rent received or receivable from equipment or
property hired out
4. Interest or dividends received or receivable on a trade
investment
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19. Measurement of revenue
Revenue should be measured at the fair value of the
consideration received or receivable
1. If the sale is a cash sale, then the revenue is the
immediate proceeds of sale. Allowance may be made
for expected returns.
2. If the sale is a credit sale, i.e. a sale for a claim to
cash, then anticipated cash is revenue.
 Allowance for irrecoverable debts and returns are
usually computed as a separate exercise and disclosed
separately.
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20. Measurement of revenue
 If the inflow of cash or cash equivalents is
deferred, the fair value of the consideration receivable
is less than the nominal amount of cash and cash
equivalents to be received, and discounting is
appropriate.
 This would occur, for instance, if the seller is providing
interest-free credit to the buyer or is charging a belowmarket rate of interest. Interest must be imputed
based on market rates. [IAS 18.11]
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21. IAS - 18
 Traditional approach to revenue recognition
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22. Traditional approach to revenue
recognition
Traditionally, two conditions must be met before
revenue can be recognized:
1.
The revenue must be earned, i.e. the activities
undertaken to create the revenue must be
substantially completed.
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23. Traditional approach to revenue
recognition
2. The revenue must be realized, i.e. an event has
occurred which significantly increases the likelihood
of conversion into cash. This also means that the
revenue must be capable of being verifiably
measured.
 In most cases, realization is deemed to occur on the
date of sale. Thus, the date of the sale transaction is
the moment that the revenue is recognized in the
financial statements.
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