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AASB 118 - Revenue - July 2004

Authoritative Version
  • - F2005B01542
  • In force - Superseded Version
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AASB 118 Standards/Accounting & Auditing as made
The Standard prescribes the accounting treatment of revenue arising from certain types of transactions and events.
Administered by: Treasury
General Comments: When applicable, this Standard supersedes AASB 1004 Revenue - June 1998 and AAS 15 Revenue - June 1998.
Exempt from sunsetting by the Legislation (Exemptions and Other Matters) Regulation 2015 s12 item 18
Made 15 Jul 2004
Registered 24 May 2005
Tabled HR 16 Nov 2004
Tabled Senate 30 Aug 2004
Gazetted 22 Jul 2004
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Obtaining a Copy of this Accounting Standard
CONTENTS
Preface
Reasons for Issuing AASB 118
Main Features of this Standard
Application Date
First-time Application and Comparatives
Main Requirements
Differences between this Standard and AASB 1004
Comparison with International Pronouncements
AASB 118 and IAS 18
Compliance with IAS 18
AASB 118 and IPSAS 9
aCCOUNTING STANDARD AASB 118
Objective
Application
Scope
Definitions
Measurement of Revenue
Identification of the Transaction
Sale of Goods
Rendering of Services
Interest, Royalties and Dividends
Disclosure
Effective Date of IAS 18
Appendix
Sale of Goods
Rendering of Services
Interest, Royalties and Dividends
Differences Between AASB 118 AND AASB 1004
Introduction
Differences
A. Incompatibilities between AASB 1004 and AASB 118
A.1 Exchange or swap of goods or services
A.2 Control, significant risks and rewards
A.3 Reliable measurement of costs of providing goods
A.4 Stage of completion – control of right to be compensated
A.5 Stage of completion – reliable measurement of costs of providing services
A.6 Disposal of assets
B. AASB 1004 is more detailed or restrictive
B.1 Definition
B.2 Estimation techniques
C. AASB 118 is more detailed or restrictive
C.1 Identification of the transaction
C.2 Guidance examples on timing of recognition
C.3 Control of a financial asset
D. AASB 1004 disclosures are more extensive
D.1 Category of revenue
D.2 Revenue and income
D.3 Revenue arising from exchanges or swaps of goods or services
D.4 Reconciliation where aggregate revenue is disclosed
E. AASB 118 disclosures are more extensive
None noted.

Accounting Standard

AASB 118

July 2004

 

 

 

 

Revenue

 



Obtaining a Copy of this Accounting Standard

This Standard is available on the AASB website: www.aasb.com.au.

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COPYRIGHT

 

© 2004 Commonwealth of Australia

 

This AASB Standard contains International Accounting Standards Committee Foundation copyright material.  Reproduction within Australia in unaltered form (retaining this notice) is permitted for personal and non-commercial use subject to the inclusion of an acknowledgment of the source.  Requests and enquiries concerning reproduction and rights for commercial purposes within Australia should be addressed to The Administration Director, Australian Accounting Standards Board, PO Box 204, Collins Street West, Melbourne, Victoria 8007.

All existing rights in this material are reserved outside Australia.

Reproduction outside Australia in unaltered form (retaining this notice) is permitted for personal and non-commercial use only.  Further information and requests for authorisation to reproduce for commercial purposes outside Australia should be addressed to the International Accounting Standards Committee Foundation at www.iasb.org.

 

ISSN 1036-4803


CONTENTS

Preface

Comparison With International Pronouncements

Accounting Standard

AASB 118 Revenue

         Paragraphs

Objective

Application                                                                                  Aus1.1 – Aus1.7

Scope                                                                                                                 1 – 6

Definitions                                                                                                        7 – 8

Measurement of Revenue                                                                            9 – 12

Identification of the Transaction                                                                       13

Sale of Goods                                                                                               14 – 19

Rendering of Services                                                                                 20 – 28

Interest, Royalties and Dividends                                                             29 – 34

Disclosure                                                                                                     35 – 36

 

Appendix                                                                                                    Page 21

 

DIFFERENCES BETWEEN AASB 118 AND AASB 1004                  Page 31

 

Australian Accounting Standard AASB 118 Revenue is set out in paragraphs Aus1.1 - 36.  All the paragraphs have equal authority.  Terms defined in this Standard are in italics the first time they appear in the Standard.  AASB 118 is to be read in the context of other Australian Accounting Standards, including AASB 1048 Interpretation and Application of Standards, which identifies the UIG Interpretations.  In the absence of explicit guidance, AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies.

 


Preface

Reasons for Issuing AASB 118

The Australian Accounting Standards Board (AASB) is implementing the Financial Reporting Council’s policy of adopting the Standards of the International Accounting Standards Board (IASB) for application to reporting periods beginning on or after 1 January 2005.  The AASB has decided it will continue to issue sector-neutral Standards, that is, Standards applicable to both for-profit and not-for-profit entities, including public sector entities.  Except for Standards that are specific to the not-for-profit or public sectors or that are of a purely domestic nature, the AASB is using the IASB Standards as the “foundation” Standards to which it adds material detailing the scope and applicability of a Standard in the Australian environment.  Additions are made, where necessary, to broaden the content to cover sectors not addressed by an IASB Standard and domestic, regulatory or other issues.

The IASB defines International Financial Reporting Standards (IFRSs) as comprising:

(a)       International Financial Reporting Standards;

(b)      International Accounting Standards; and

(c)       Interpretations originated by the International Financial Reporting Interpretations Committee (IFRIC) or the former Standing Interpretations Committee (SIC).

The Australian equivalents to IFRSs are:

(a)       Accounting Standards issued by the AASB that are equivalent to Standards issued by IASB, being AASBs 1 – 99 corresponding to the IFRS series and AASBs 101 – 199 corresponding to the IAS series; and

(b)      UIG Interpretations issued by the AASB corresponding to the Interpretations adopted by the IASB, as listed in AASB 1048 Interpretation and Application of Standards.

Main Features of this Standard

Application Date

This Standard is applicable to annual reporting periods beginning on or after 1 January 2005.  To promote comparability among the financial reports of Australian entities, early adoption of this Standard is not permitted. 

First-time Application and Comparatives

Application of this Standard will begin in the first annual reporting period beginning on or after 1 January 2005 in the context of adopting all Australian equivalents to IFRSs.  The requirements of AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards, the Australian equivalent of IFRS 1 First-time Adoption of International Financial Reporting Standards, must be observed.  AASB 1 requires prior period information, presented as comparative information, to be restated as if the requirements of this Standard had always applied.  This differs from previous Australian requirements where changes in accounting policies did not require the restatement of the income statement and balance sheet of the preceding period. 

Main Requirements

The Standard:

(a)       applies to revenues other than revenues arising from:

(i)        lease agreements;

(ii)       dividends from entities that are accounted for using the equity method;

(iii)      insurance contracts;

(iv)     changes in the fair value of financial assets and financial liabilities or their disposal;

(v)      changes in the value of other current assets;

(vi)     initial recognition and from changes in the fair value of biological assets related to agricultural activity;

(vii)    initial recognition of agricultural produce;

(viii)   the extraction of mineral ores; and

(ix)      construction contracts;

(b)      requires revenue to be measured at the fair value of the consideration received or receivable;

(c)       requires revenue from the sale of goods to be recognised when all the specified conditions are satisfied;

(d)      requires that, when the outcome of a transaction involving the rendering of services:

(i)        can be estimated reliably, revenue associated with the transaction be recognised by reference to the stage of completion of the transaction at the reporting date; and

(ii)       cannot be estimated reliably, revenue be recognised only to the extent of the expenses recognised that are recoverable; and

(e)       requires disclosure of:

(i)        accounting policies adopted for the recognition of revenue;

(ii)       each significant category of revenue recognised during the reporting period; and

(iii)      the amount of revenue arising from exchanges of goods or services included in each significant category of revenue.

Differences between this Standard and AASB 1004

The primary difference between this Standard and the AASB Standard that it supersedes, AASB 1004 Revenue, is that in this Standard, revenue is defined as “the gross inflow of economic benefits [from] ordinary activities” while AASB 1004 contains a broader definition of revenue encompassing all of an entity’s inflows (i.e. they need not be attributable to ordinary activities).  Accordingly, AASB 118 prescribes a narrower range of accounting treatments than AASB 1004.

This Standard and the Framework for the Preparation and Presentation of Financial Statements are both based on a notion that income comprises revenue and gains.  Under AASB 1004, revenue received on disposal of assets is the fair value of the consideration received but, under AASB 118, for some assets gains and losses are recognised on a net basis.

A more detailed description of the differences between this Standard and AASB 1004 accompanies this Standard under the heading “Differences between AASB 118 and AASB 1004”.

The requirements of the superseded AASB 1004 are essentially the same as AAS 15 Revenue.  Accordingly, there is no separate analysis of the differences between AASB 118 and AAS 15.


 

 

 


Comparison with International Pronouncements

AASB 118 and IAS 18

AASB 118 is equivalent to IAS 18 Revenue issued by the IASB.  Paragraphs that have been added to this Standard (and do not appear in the text of the equivalent IASB standard) are identified with the prefix “Aus”, followed by the number of the relevant IASB paragraph and decimal numbering.

Compliance with IAS 18

Entities that comply with AASB 118 will simultaneously be in compliance with IAS 18. 

AASB 118 and IPSAS 9

International Public Sector Accounting Standards (IPSASs) are issued by the Public Sector Committee of the International Federation of Accountants.

IPSAS 9 Revenue from Exchange Transactions (June 2001) is drawn primarily from IAS 18.  The main difference between IPSAS 9 and AASB 118 is that IPSAS 9 adopts a broader definition of revenue than AASB 118 in that no reference is made to “ordinary activities”.  In cases where revenue from exchange transactions arise outside the ordinary activities of the entity, the provisions in IPSAS 9 would apply, while those in IAS 18 would not.


ACCOUNTING STANDARD AASB 118

The Australian Accounting Standards Board makes Accounting Standard AASB 118 Revenue under section 334 of the Corporations Act 2001.

 

 

 

D.G. Boymal

Dated 15 July 2004

Chair – AASB

 

 

aCCOUNTING STANDARD AASB 118

Revenue

Objective

Income is defined in the Framework for the Preparation and Presentation of Financial Statements as increases in economic benefits during the reporting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants.  Income encompasses both revenue and gains.  Revenue is income that arises in the course of ordinary activities of an entity and is referred to by a variety of different names including sales, fees, interest, dividends and royalties.  The objective of this Standard is to prescribe the accounting treatment of revenue arising from certain types of transactions and events.

The primary issue in accounting for revenue is determining when to recognise revenue.  Revenue is recognised when it is probable that future economic benefits will flow to the entity and these benefits can be measured reliably.  This Standard identifies the circumstances in which these criteria will be met and, therefore, revenue will be recognised.  It also provides practical guidance on the application of these criteria.

Application

Aus1.1          This Standard applies to:

(a)       each entity that is required to prepare financial reports in accordance with Part 2M.3 of the Corporations Act and that is a reporting entity;

(b)       general purpose financial reports of each other reporting entity; and

(c)       financial reports that are, or are held out to be, general purpose financial reports.

Aus1.2          This Standard applies to annual reporting periods beginning on or after 1 January 2005.

Aus1.3          This Standard shall not be applied to annual reporting periods beginning before 1 January 2005.

Aus1.4          The requirements specified in this Standard apply to the financial report where information resulting from their application is material in accordance with AASB 1031 Materiality.

Aus1.5          When applicable, this Standard supersedes:

(a)       AASB 1004 Revenue as notified in the Commonwealth of Australia Gazette No S 283, 17 June 1998; and

(b)       AAS 15 Revenue as issued in June 1998.

Aus1.6          Both AASB 1004 and AAS 15 remain applicable until superseded by this Standard.

Aus1.7          Notice of this Standard was published in the Commonwealth of Australia Gazette No S 294, 22 July 2004.

Scope

1.        This Standard shall be applied in accounting for revenue arising from the following transactions and events:

(a)       the sale of goods;

(b)       the rendering of services; and

(c)       the use by others of entity assets yielding interest, royalties and dividends.

2.        [Deleted by the AASB]

3.        Goods includes goods produced by the entity for the purpose of sale and goods purchased for resale, such as merchandise purchased by a retailer or land and other property held for resale.

4.        The rendering of services typically involves the performance by the entity of a contractually agreed task over an agreed period of time.  The services may be rendered within a single period or over more than one period.  Some contracts for the rendering of services are directly related to construction contracts, for example, those for the services of project managers and architects.  Revenue arising from these contracts is not dealt with in this Standard but is dealt with in accordance with the requirements for construction contracts as specified in AASB 111 Construction Contracts.

5.        The use by others of entity assets gives rise to revenue in the form of:

(a)       interest – charges for the use of cash or cash equivalents or amounts due to the entity;

(b)      royalties – charges for the use of long-term assets of the entity, for example, patents, trademarks, copyrights and computer software; and

(c)       dividends – distributions of profits to holders of equity investments in proportion to their holdings of a particular class of capital.

6.        This Standard does not deal with revenue arising from:

(a)       lease agreements (see AASB 117 Leases);

(b)      dividends arising from investments which are accounted for under the equity method (see AASB 128 Accounting for Investments in Associates);

(c)       insurance contracts within the scope of AASB 4 Insurance Contracts;

(d)      changes in the fair value of financial assets and financial liabilities or their disposal (see AASB 139 Financial Instruments: Recognition and Measurement);

(e)       changes in the value of other current assets;

(f)       initial recognition and from changes in the fair value of biological assets related to agricultural activity (see AASB 141 Agriculture);

(g)      initial recognition of agricultural produce (see AASB 141); and

(h)      the extraction of mineral ores.

Definitions

7.        The following terms are used in this Standard with the meanings specified.

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 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.

8.        Revenue includes only the gross inflows of economic benefits received and receivable by the entity on its own account.  Amounts collected on behalf of third parties such as sales taxes, goods and services taxes and value added taxes are not economic benefits which flow to the entity and do not result in increases in equity.  Therefore, they are excluded from revenue.  Similarly, in an agency relationship, the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity.  The amounts collected on behalf of the principal are not revenue.  Instead, revenue is the amount of commission.

Measurement of Revenue

9.        Revenue shall be measured at the fair value of the consideration received or receivable.1

10.      The amount of revenue arising on a transaction is usually determined by agreement between the entity and the buyer or user of the asset.  It is measured at the fair value of the consideration received or receivable taking into account the amount of any trade discounts and volume rebates allowed by the entity.

11.      In most cases, the consideration is in the form of cash or cash equivalents and the amount of revenue is the amount of cash or cash equivalents received or receivable.  However, when the inflow of cash or cash equivalents is deferred, the fair value of the consideration may be less than the nominal amount of cash received or receivable.  For example, an entity may provide interest free credit to the buyer or accept a note receivable bearing a below-market interest rate from the buyer as consideration for the sale of goods.  When the arrangement effectively constitutes a financing transaction, the fair value of the consideration is determined by discounting all future receipts using an imputed rate of interest.  The imputed rate of interest is the more clearly determinable of either:

(a)       the prevailing rate for a similar instrument of an issuer with a similar credit rating; or

(b)      a rate of interest that discounts the nominal amount of the instrument to the current cash sales price of the goods or services.

The difference between the fair value and the nominal amount of the consideration is recognised as interest revenue in accordance with paragraphs 29 and 30 and in accordance with AASB 139.

12.      When goods or services are exchanged or swapped for goods or services which are of a similar nature and value, the exchange is not regarded as a transaction which generates revenue.  This is often the case with commodities like oil or milk where suppliers exchange or swap inventories in various locations to fulfil demand on a timely basis in a particular location.  When goods are sold or services are rendered in exchange for dissimilar goods or services, the exchange is regarded as a transaction which generates revenue.  The revenue is measured at the fair value of the goods or services received, adjusted by the amount of any cash or cash equivalents transferred.  When the fair value of the goods or services received cannot be measured reliably, the revenue is measured at the fair value of the goods or services given up, adjusted by the amount of any cash or cash equivalents transferred.

Identification of the Transaction

13.      The recognition criteria in this Standard are usually applied separately to each transaction.  However, in certain circumstances, it is necessary to apply the recognition criteria to the separately identifiable components of a single transaction in order to reflect the substance of the transaction.  For example, 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.  Conversely, 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.  For example, an entity may sell goods and, at the same time, enter into a separate agreement to repurchase the goods at a later date, thus negating the substantive effect of the transaction; in such a case, the two transactions are dealt with together.

Sale of Goods

14.      Revenue from the sale of goods shall be recognised when all the following conditions have been satisfied:

(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;

(c)       the amount of revenue can be measured reliably;

(d)       it is probable that the economic benefits associated with the transaction will flow to the entity; and

(e)       the costs incurred or to be incurred in respect of the transaction can be measured reliably.

15.      The assessment of when an entity has transferred the significant risks and rewards of ownership to the buyer requires an examination of the circumstances of the transaction.  In most cases, the transfer of the risks and rewards of ownership coincides with the transfer of the legal title or the passing of possession to the buyer.  This is the case for most retail sales.  In other cases, the transfer of risks and rewards of ownership occurs at a different time from the transfer of legal title or the passing of possession.

16.      If the entity retains significant risks of ownership, the transaction is not a sale and revenue is not recognised.  An entity may retain a significant risk of ownership in a number of ways.  Examples of situations in which the entity may retain the significant risks and rewards of ownership are:

(a)       when the entity retains an obligation for unsatisfactory performance not covered by normal warranty provisions;

(b)      when the receipt of the revenue from a particular sale is contingent on the derivation of revenue by the buyer from its sale of the goods;

(c)       when the goods are shipped subject to installation and the installation is a significant part of the contract which has not yet been completed by the entity; and

(d)      when the buyer has the right to rescind the purchase for a reason specified in the sales contract and the entity is uncertain about the probability of return.

17.      If an entity retains only an insignificant risk of ownership, the transaction is a sale and revenue is recognised.  For example, a seller may retain the legal title to the goods solely to protect the collectability of the amount due.  In such a case, if the entity has transferred the significant risks and rewards of ownership, the transaction is a sale and revenue is recognised.  Another example of an entity retaining only an insignificant risk of ownership may be a retail sale when a refund is offered if the customer is not satisfied.  Revenue in such cases is recognised at the time of sale provided the seller can reliably estimate future returns and recognises a liability for returns based on previous experience and other relevant factors.

18.      Revenue is recognised only when it is probable that the economic benefits associated with the transaction will flow to the entity.  In some cases, this may not be probable until the consideration is received or until an uncertainty is removed.  For example, it may be uncertain that a foreign governmental authority will grant permission to remit the consideration from a sale in a foreign country.  When the permission is granted, the uncertainty is removed and revenue is recognised.  However, when an uncertainty arises about the collectability of an amount already included in revenue, the uncollectable amount or the amount in respect of which recovery has ceased to be probable is recognised as an expense, rather than as an adjustment of the amount of revenue originally recognised.

19.      Revenue and expenses that relate to the same transaction or other event are recognised simultaneously; this process is commonly referred to as the matching of revenues and expenses.  Expenses, including warranties and other costs to be incurred after the shipment of the goods can normally be measured reliably when the other conditions for the recognition of revenue have been satisfied.  However, revenue cannot be recognised when the expenses cannot be measured reliably; in such circumstances, any consideration already received for the sale of the goods is recognised as a liability.

Rendering of Services

20.      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 reporting date.  The outcome of a transaction can be estimated reliably when all the following conditions are satisfied:

(a)       the amount of revenue can be measured reliably;

(b)       it is probable that the economic benefits associated with the transaction will flow to the entity;

(c)       the stage of completion of the transaction at the reporting date can be measured reliably; and

(d)       the costs incurred for the transaction and the costs to complete the transaction can be measured reliably.2, 3

21.      The recognition of revenue by reference to the stage of completion of a transaction is often referred to as the percentage of completion method.  Under this method, revenue is recognised in the reporting periods in which the services are rendered.  The recognition of revenue on this basis provides useful information on the extent of service activity and performance during a period.  AASB 111 Construction Contracts also requires the recognition of revenue on this basis.  The requirements of that Standard are generally applicable to the recognition of revenue and the associated expenses for a transaction involving the rendering of services.

22.      Revenue is recognised only when it is probable that the economic benefits associated with the transaction will flow to the entity.  However, when an uncertainty arises about the collectability of an amount already included in revenue, the uncollectable amount, or the amount in respect of which recovery has ceased to be probable, is recognised as an expense, rather than as an adjustment of the amount of revenue originally recognised.

23.      An entity is generally able to make reliable estimates after it has agreed to the following with the other parties to the transaction:

(a)       each party’s enforceable rights regarding the service to be provided and received by the parties;

(b)      the consideration to be exchanged; and

(c)       the manner and terms of settlement.

It is also usually necessary for the entity to have an effective internal financial budgeting and reporting system.  The entity reviews and, when necessary, revises the estimates of revenue as the service is performed.  The need for such revisions does not necessarily indicate that the outcome of the transaction cannot be estimated reliably.

24.      The stage of completion of a transaction may be determined by a variety of methods.  An entity uses the method that measures reliably the services performed.  Depending on the nature of the transaction, the methods may include:

(a)       surveys of work performed;

(b)      services performed to date as a percentage of total services to be performed; or

(c)       the proportion that costs incurred to date bear to the estimated total costs of the transaction.  Only costs that reflect services performed to date are included in costs incurred to date.  Only costs that reflect services performed or to be performed are included in the estimated total costs of the transaction.

Progress payments and advances received from customers often do not reflect the services performed.

25.      For practical purposes, when services are performed by an indeterminate number of acts over a specified period of time, revenue is recognised on a straight-line basis over the specified period unless there is evidence that some other method better represents the stage of completion.  When a specific act is much more significant than any other acts, the recognition of revenue is postponed until the significant act is executed.

26.      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.

27.      During the early stages of a transaction, it is often the case that the outcome of the transaction cannot be estimated reliably.  Nevertheless, it may be probable that the entity will recover the transaction costs incurred.  Therefore, revenue is recognised only to the extent of costs incurred that are expected to be recoverable.  As the outcome of the transaction cannot be estimated reliably, no profit is recognised.

28.      When the outcome of a transaction cannot be estimated reliably and it is not probable that the costs incurred will be recovered, revenue is not recognised and the costs incurred are recognised as an expense.  When the uncertainties that prevented the outcome of the contract being estimated reliably no longer exist, revenue is recognised in accordance with paragraph 20 rather than in accordance with paragraph 26.

Interest, Royalties and Dividends

29.      Revenue arising from the use by others of entity assets yielding interest, royalties and dividends shall be recognised on the bases set out in paragraph 30 when:

(a)       it is probable that the economic benefits associated with the transaction will flow to the entity; and

(b)       the amount of the revenue can be measured reliably.

30.      Revenue shall be recognised on the following bases:

(a)       interest shall be recognised using the effective interest method as set out in AASB 139, paragraphs 9 and AG5-AG8;

(b)       royalties shall be recognised on an accrual basis in accordance with the substance of the relevant agreement; and

(c)       dividends shall be recognised when the shareholder’s right to receive payment is established.

31.      [Deleted by the IASB]

32.      When unpaid interest has accrued before the acquisition of an interest-bearing investment, the subsequent receipt of interest is allocated between pre-acquisition and post-acquisition periods; only the post-acquisition portion is recognised as revenue.  When dividends on equity securities are declared from pre-acquisition net income, those dividends are deducted from the cost of the securities.  If it is difficult to make such an allocation except on an arbitrary basis, dividends are recognised as revenue unless they clearly represent a recovery of part of the cost of the equity securities.

33.      Royalties accrue in accordance with the terms of the relevant agreement and are usually recognised on that basis unless, having regard to the substance of the agreement, it is more appropriate to recognise revenue on some other systematic and rational basis.

34.      Revenue is recognised only when it is probable that the economic benefits associated with the transaction will flow to the entity.  However, when an uncertainty arises about the collectability of an amount already included in revenue, the uncollectable amount, or the amount in respect of which recovery has ceased to be probable, is recognised as an expense, rather than as an adjustment of the amount of revenue originally recognised.

Disclosure

35.      An entity shall disclose:

(a)       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;

(b)       the amount of each significant category of revenue recognised during the period including revenue arising from:

(i)       the sale of goods;

(ii)      the rendering of services;

(iii)     interest;

(iv)      royalties;

(v)       dividends; and

(c)       the amount of revenue arising from exchanges of goods or services included in each significant category of revenue.

36.      An entity discloses any contingent liabilities and contingent assets in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets.  Contingent liabilities and contingent assets may arise from items such as warranty costs, claims, penalties or possible losses.

Effective Date of IAS 18

37.      [Deleted by the AASB]


Appendix

The appendix accompanies, but is not part of, AASB 118.  The examples focus on particular aspects of a transaction and are not a comprehensive discussion of all the relevant factors which might influence the recognition of revenue.  The examples generally assume that the amount of revenue can be measured reliably, it is probable that the economic benefits will flow to the entity and the costs incurred or to be incurred can be measured reliably.  The examples do not modify or override the Standard.

Sale of Goods

The law in different countries may mean the recognition criteria in this Standard are met at different times.  In particular, the law may determine the point in time at which the entity transfers the significant risks and rewards of ownership.  Therefore, the examples in this section of the appendix need to be read in the context of the laws relating to the sale of goods in the country in which the transaction takes place.

1.        ‘Bill and hold’ sales, in which delivery is delayed at the buyer’s request but the buyer takes title and accepts billing

Revenue is recognised when the buyer takes title, provided:

(a)       it is probable that delivery will be made;

(b)      the item is on hand, identified and ready for delivery to the buyer at the time the sale is recognised;

(c)       the buyer specifically acknowledges the deferred delivery instructions; and

(d)      the usual payment terms apply.

Revenue is not recognised when there is simply an intention to acquire or manufacture the goods in time for delivery.

2.        Goods shipped subject to conditions

(a)      Installation and inspection

Revenue is normally recognised when the buyer accepts delivery, and installation and inspection are complete.  However, revenue is recognised immediately upon the buyer’s acceptance of delivery when:

(i)        the installation process is simple in nature, for example the installation of a factory tested television receiver which only requires unpacking and connection of power and antennae; or

(ii)       the inspection is performed only for purposes of final determination of contract prices, for example, shipments of iron ore, sugar or soya beans.

(b)      On approval when the buyer has negotiated a limited right of return

           If there is uncertainty about the possibility of return, revenue is recognised when the shipment has been formally accepted by the buyer or the goods have been delivered and the time period for rejection has elapsed.

(c)      Consignment sales under which the recipient (buyer) undertakes to sell the goods on behalf of the shipper (seller)

Revenue is recognised by the shipper when the goods are sold by the recipient to a third party.

(d)      Cash on delivery sales

Revenue is recognised when delivery is made and cash is received by the seller or its agent.

3.        Lay away sales under which the goods are delivered only when the buyer makes the final payment in a series of instalments

Revenue from such sales is recognised when the goods are delivered.  However, when experience indicates that most such sales are consummated, revenue may be recognised when a significant deposit is received provided the goods are on hand, identified and ready for delivery to the buyer.

4.        Orders when payment (or partial payment) is received in advance of delivery for goods not presently held in inventory, for example, the goods are still to be manufactured or will be delivered directly to the customer from a third party

Revenue is recognised when the goods are delivered to the buyer.

5.        Sale and repurchase agreement (other than swap transactions) under which the seller concurrently agrees to repurchase the same goods at a later date, or when the seller has a call option to repurchase, or the buyer has a put option to require the repurchase, by the seller, of the goods

For a sale and repurchase agreement on an asset other than a financial asset the terms of the agreement need to be analysed to ascertain whether, in substance, the seller has transferred the risks and rewards of ownership to the buyer and hence revenue is recognised.  When the seller has retained the risks and rewards of ownership, even though legal title has been transferred, the transaction is a financing arrangement and does not give rise to revenue.  For a sale and repurchase agreement on a financial asset, AASB 139 Financial Instruments: Recognition and Measurement applies.

6.        Sales to intermediate parties, such as distributors, dealers or others for resale

Revenue from such sales is generally recognised when the risks and rewards of ownership have passed.  However, when the buyer is acting, in substance, as an agent, the sale is treated as a consignment sale.

7.        Subscriptions to publications and similar items

When the items involved are of similar value in each time period, revenue is recognised on a straight-line basis over the period in which the items are despatched.  When the items vary in value from period to period, revenue is recognised on the basis of the sales value of the item despatched in relation to the total estimated sales value of all items covered by the subscription.

8.        Instalment sales, under which the consideration is receivable in instalments

Revenue attributable to the sales price, exclusive of interest, is recognised at the date of sale.  The sale price is the present value of the consideration, determined by discounting the instalments receivable at the imputed rate of interest.  The interest element is recognised as revenue as it is earned, using the effective interest method.

9.        Real estate sales

Revenue is normally recognised when legal title passes to the buyer.  However, in some jurisdictions the equitable interest in a property may vest in the buyer before legal title passes and therefore the risks and rewards of ownership have been transferred at that stage.  In such cases, provided that the seller has no further substantial acts to complete under the contract, it may be appropriate to recognise revenue.  In either case, if the seller is obliged to perform any significant acts after the transfer of the equitable and/or legal title, revenue is recognised as the acts are performed.  An example is a building or other facility on which construction has not been completed.

In some cases, real estate may be sold with a degree of continuing involvement by the seller such that the risks and rewards of ownership have not been transferred.  Examples are sale and repurchase agreements which include put and call options, and agreements whereby the seller guarantees occupancy of the property for a specified period, or guarantees a return on the buyer’s investment for a specified period.  In such cases, the nature and extent of the seller’s continuing involvement determines how the transaction is accounted for.  It may be accounted for as a sale, or as a financing, leasing or some other profit sharing arrangement.  If it is accounted for as a sale, the continuing involvement of the seller may delay the recognition of revenue.

A seller also considers the means of payment and evidence of the buyer’s commitment to complete payment.  For example, when the aggregate of the payments received, including the buyer’s initial down payment, or continuing payments by the buyer, provide insufficient evidence of the buyer’s commitment to complete payment, revenue is recognised only to the extent cash is received.

Rendering of Services

10.      Installation fees

Installation fees are recognised as revenue by reference to the stage of completion of the installation, unless they are incidental to the sale of a product, in which case they are recognised when the goods are sold.

11.      Servicing fees included in the price of the product

When the selling price of a product includes an identifiable amount for subsequent servicing (for example, after sales support and product enhancement on the sale of software), 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 under the agreement, together with a reasonable profit on those services.

 

12.      Advertising commissions

Media commissions are recognised when the related advertisement or commercial appears before the public.  Production commissions are recognised by reference to the stage of completion of the project.

13.      Insurance agency commissions

Insurance agency commissions received or receivable which do not require the agent to render further service are recognised as revenue by the agent on the effective commencement or renewal dates of the related policies.  However, when it is probable that the agent will be required to render further services during the life of the policy, the commission, or part thereof, is deferred and recognised as revenue over the period during which the policy is in force.

14.      Financial service fees

The recognition of revenue for financial service fees depends on the purposes for which the fees are assessed and the basis of accounting for any associated financial instrument.  The description of fees for financial services may not be indicative of the nature and substance of the services provided.  Therefore, it is necessary to distinguish between fees that are an integral part of the effective interest rate of a financial instrument, fees that are earned as services are provided, and fees that are earned on the execution of a significant act.

(a)      Fees that are an integral part of the effective interest rate of a financial instrument

Such fees are generally treated as an adjustment to the effective interest rate.  However, when the financial instrument is measured at fair value with the change in fair value recognised in profit or loss, the fees are recognised as revenue when the instrument is initially recognised.

(i)       Origination fees received by the entity relating to the creation or acquisition of a financial asset other than one that under AASB 139 is classified as a financial asset at fair value through profit or loss

Such fees may include compensation for activities such as evaluating the borrower’s financial condition, evaluating and recording guarantees, collateral and other security arrangements, negotiating the terms of the instrument, preparing and processing documents and closing the transaction.  These fees are an integral part of generating an involvement with the resulting financial instrument and, together with the related direct costs, are deferred and recognised as an adjustment to the effective interest rate.

(ii)     Commitment fees received by the entity to originate a loan when the loan commitment is outside the scope of AASB 139

If it is probable that the entity will enter into a specific lending arrangement, and the loan commitment is not within the scope of AASB 139, the commitment fee received is regarded as compensation for an ongoing involvement with the acquisition of a financial instrument and, together with the related direct costs, is deferred and recognised as an adjustment to the effective interest rate. If the commitment expires without the entity making the loan, the fee is recognised as revenue on expiry.  Loan commitments that are within the scope of AASB 139 are accounted for as derivatives and measured at fair value.

(iii)    Origination fees received on issuing financial liabilities measured at amortised cost

These fees are an integral part of generating an involvement with a financial liability.  When a financial liability is not classified as ‘at fair value through profit or loss’, the origination fees received are included, with the related transaction costs incurred, in the initial carrying amount of the financial liability and recognised as an adjustment to the effective interest rate.  An entity distinguishes fees and costs that are an integral part of the effective interest rate for the financial liability from origination fees and transaction costs relating to the right to provide services, such as investment management services.

(b)      Fees earned as services are provided

(i)       Fees charged for servicing a loan

Fees charged by an entity for servicing a loan are recognised as revenue as the services are provided.

(ii)     Commitment fees to originate a loan when the loan commitment is outside the scope of AASB 139

If it is unlikely that a specific lending arrangement will be entered into and the loan commitment is outside the scope of AASB 139, the commitment fee is recognised as revenue on a time proportion basis over the commitment period.  Loan commitments that are within the scope of AASB 139 are accounted for as derivatives and measured at fair value.

(iii)    Investment management fees

Fees charged for managing investments are recognised as revenue as the services are provided.

Incremental costs that are directly attributable to securing an investment management contract are recognised as an asset if they can be identified separately and measured reliably and if it is probable that they will be recovered.  As in AASB 139, an incremental cost is one that would not have been incurred if the entity had not secured the investment management contract.  The asset represents the entity’s contractual right to benefit from providing investment management services, and is amortised as the entity recognises the related revenue.  If the entity has a portfolio of investment management contracts, it may assess their recoverability on a portfolio basis.

Some financial services contracts involve both the origination of one or more financial instruments and the provision of investment management services.  An example is a long-term monthly saving contract linked to the management of a pool of equity securities.  The provider of the contract distinguishes the transaction costs relating to the origination of the financial instrument from the costs of securing the right to provide investment management services.

(c)      Fees earned on the execution of a significant act

The fees are recognised as revenue when the significant act has been completed, as in the examples below.

(i)       Commission on the allotment of shares to a client

The commission is recognised as revenue when the shares have been allotted.

(ii)     Placement fees for arranging a loan between a borrower and an investor

The fee is recognised as revenue when the loan has been arranged.

(iii)    Loan syndication fees

A syndication fee received by an entity that arranges a loan and that retains no part of the loan package for itself (or retains a part at the same effective interest rate for comparable risk as other participants) is compensation for the service of syndication.  Such a fee is recognised as revenue when the syndication has been completed.

15.      Admission fees

Revenue from artistic performances, banquets and other special events is recognised when the event takes place.  When a subscription to a number of events is sold, the fee is allocated to each event on a basis which reflects the extent to which services are performed at each event.

16.      Tuition fees

Revenue is recognised over the period of instruction.

17.      Initiation, entrance and membership fees

Revenue recognition depends on the nature of the services provided.  If the fee permits only membership, and all other services or products are paid for separately, or if there is a separate annual subscription, the fee is recognised as revenue when no significant uncertainty as to its collectability exists.  If the fee entitles the member to services or publications to be provided during the membership period, or to purchase goods or services at prices lower than those charged to non-members, it is recognised on a basis that reflects the timing, nature and value of the benefits provided.

18.      Franchise fees

Franchise fees may cover the supply of initial and subsequent services, equipment and other tangible assets, and know-how.  Accordingly, franchise fees are recognised as revenue on a basis that reflects the purpose for which the fees were charged.  The following methods of franchise fee recognition are appropriate:

 

(a)      Supplies of equipment and other tangible assets

The amount, based on the fair value of the assets sold, is recognised as revenue when the items are delivered or title passes.

(b)      Supplies of initial and subsequent services

Fees for the provision of continuing services, whether part of the initial fee or a separate fee are recognised as revenue as the services are rendered.  When the separate fee does not cover the cost of continuing services together with a reasonable profit, part of the initial fee, sufficient to cover the costs of continuing services and to provide a reasonable profit on those services, is deferred and recognised as revenue as the services are rendered.

The franchise agreement may provide for the franchisor to supply equipment, inventories, or other tangible assets, at a price lower than that charged to others or a price that does not provide a reasonable profit on those sales.  In these circumstances, part of the initial fee, sufficient to cover estimated costs in excess of that price and to provide a reasonable profit on those sales, is deferred and recognised over the period the goods are likely to be sold to the franchisee.  The balance of an initial fee is recognised as revenue when performance of all the initial services and other obligations required of the franchisor (such as assistance with site selection, staff training, financing and advertising) has been substantially accomplished.

The initial services and other obligations under an area franchise agreement may depend on the number of individual outlets established in the area.  In this case, the fees attributable to the initial services are recognised as revenue in proportion to the number of outlets for which the initial services have been substantially completed.

If the initial fee is collectable over an extended period and there is a significant uncertainty that it will be collected in full, the fee is recognised as cash instalments are received.

(c)      Continuing franchise fees

Fees charged for the use of continuing rights granted by the agreement, or for other services provided during the period of the agreement, are recognised as revenue as the services are provided or the rights used.

 

(d)      Agency transactions

Transactions may take place between the franchisor and the franchisee which, in substance, involve the franchisor acting as agent for the franchisee.  For example, the franchisor may order supplies and arrange for their delivery to the franchisee at no profit.  Such transactions do not give rise to revenue.

19.      Fees from the development of customised software

Fees from the development of customised software are recognised as revenue by reference to the stage of completion of the development, including completion of services provided for post delivery service support.

Interest, Royalties and Dividends

20.      Licence fees and royalties

Fees and royalties paid for the use of an entity’s assets (such as trademarks, patents, software, music copyright, record masters and motion picture films) are normally recognised in accordance with the substance of the agreement.  As a practical matter, this may be on a straight-line basis over the life of the agreement, for example, when a licensee has the right to use certain technology for a specified period of time.

An assignment of rights for a fixed fee or non refundable guarantee under a non cancellable contract which permits the licensee to exploit those rights freely and the licensor has no remaining obligations to perform is, in substance, a sale.  An example is a licensing agreement for the use of software when the licensor has no obligations subsequent to delivery.  Another example is the granting of rights to exhibit a motion picture film in markets where the licensor has no control over the distributor and expects to receive no further revenues from the box office receipts.  In such cases, revenue is recognised at the time of sale.

In some cases, whether or not a licence fee or royalty will be received is contingent on the occurrence of a future event.  In such cases, revenue is recognised only when it is probable that the fee or royalty will be received, which is normally when the event has occurred.


Differences Between
AASB 118 AND AASB 1004

This analysis of differences accompanies, but is not part of, AASB 118.

This section identifies differences between AASB 1004 Revenue[1] and AASB 118 Revenue under the following headings.

A:       Incompatibilities between AASB 1004 and AASB 118

B:        AASB 1004 is more detailed or restrictive

C:        AASB 118 is more detailed or restrictive

D:       AASB 1004 disclosures are more extensive

E:        AASB 118 disclosures are more extensive

The analysis of differences should not be taken as providing an exhaustive list of differences.

Introduction

AASB 118 and AASB 1004 apply to the recognition and disclosure of revenue.  Both require:

(a)       revenue to be measured at the fair value of the consideration received or receivable;

(b)      amounts collected on behalf of third parties (such as GST or sales tax) to be excluded from revenue;

(c)       revenue arising from a contract to provide services (the outcome of which can be reliably estimated) to be recognised by reference to the stage of completion of the contract once certain criteria have been satisfied;

(d)      revenue arising from a contract to provide services (the outcome of which cannot be reliably estimated) to be recognised only to the extent of the contract costs incurred and only provided recovery of those costs is probable;

(e)       interest revenue to be recognised on a time proportionate basis that takes into account the effective yield on the financial asset;

(f)       royalty revenue to be recognised on an accrual basis in accordance with the substance of the relevant agreement; and

(g)      dividend revenue to be recognised when the entity’s right to receive payment is established.

Differences

A.        Incompatibilities between AASB 1004 and AASB 118

A.1          Exchange or swap of goods or services

Under AASB 118.12, an exchange or swap of goods or services should not be treated as a transaction giving rise to revenue when the goods or services exchanged or swapped are of a similar nature and value.  Under AASB 1004.11.1, an exchange or swap of goods or services can only be treated as a transaction that does not give rise to revenue when:

(a)       the goods or services exchanged or swapped are of the same nature and value; and

(b)      the transaction does not involve any cash consideration.

Although AASB 118.12 and AASB 1004.11.1.1 use the same examples of exchanges or swaps that do not give rise to revenue (exchanges of commodities like oil or milk in circumstances where suppliers exchange or swap the inventories in various locations to fulfil demand on a timely basis in a particular location), AASB 1004.11.1.1 comments that the goods or services exchanged in a transaction that does not give rise to revenue should be homogeneous.[2]  In contrast, AASB 118 does not limit the circumstances in which an exchange or swap is treated as a transaction that does not give rise to revenue to exchanges or swaps of homogeneous items.  In addition, since an exchange or swap of goods or services need only involve goods or services that are of a similar nature and value in order for the transaction to be precluded from revenue recognition under AASB 118, an exchange or swap of goods or services of a similar nature and value that also involves some cash consideration would not give rise to revenue under AASB 118.  Accordingly, there will be circumstances in which revenues are recognised under AASB 1004 that are not recognised under AASB 118.

A.2          Control, significant risks and rewards

AASB 118.14 permits the recognition of revenue from the sale of goods only when, amongst other things, the entity has transferred to the buyer the significant risks and rewards of ownership of the goods and only provided the entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods.  In contrast, AASB 1004.6.1 requires the recognition of revenue from the sale of goods only when, amongst other things, the entity has passed control of the asset to the buyer.  Control of an asset is defined in AASB 1004.15.1 as the capacity of the entity to benefit from the asset in the pursuit of the entity’s objectives and to deny or regulate the access of others to that benefit.  Since it is the benefits, and not the risks, associated with an asset that underpin the concept of control of an asset, it is conceivable that a circumstance may arise where the capacity to benefit from the asset and to deny or regulate the access of others to that benefit (and therefore control of the asset) passes to the buyer, but not the significant risks of ownership.  For example, goods may be sold such that the buyer has the capacity to benefit from the goods and to deny or regulate the access of others to that benefit, but with the vendor required to compensate the buyer for any decline in the value of the goods until such time as the buyer either consumes or resells the goods.  Under AASB 1004, revenue from the sale would be recognised once the capacity to benefit from the goods and to deny or regulate the access of others to that benefit passes to the buyer (assuming all other recognition criteria are satisfied).  However, under AASB 118.14, revenue from the sale would be recognised only once the buyer either consumes or resells the goods (assuming all other recognition criteria are satisfied).

A.3          Reliable measurement of costs of providing goods

AASB 118.14 permits the recognition of revenue from the sale of goods when, amongst other things, the costs incurred or to be incurred in respect of the transaction can be measured reliably.  This condition is not included in the revenue recognition criteria in AASB 1004 for revenue from the sale of goods.  Therefore, in the very rare circumstance that an entity sells goods and the costs incurred or to be incurred in respect of the sale cannot be measured reliably at the time the other recognition criteria (disregarding the incompatibility identified in A.2 above) are satisfied, revenue recognition would occur under AASB 1004 at the time the other recognition criteria are satisfied, but would be deferred under AASB 118.14 until such time as the costs incurred or to be incurred in respect of the sale can be measured reliably.

A.4          Stage of completion – control of right to be compensated

AASB 1004.7.1 permits an entity to recognise revenue arising from a contract to provide services (the outcome of which can be reliably estimated) by reference to the stage of completion of the contract only when:

(a)       the entity controls a right to be compensated for services rendered;

(b)      it is probable that the economic benefits comprising the compensation will flow to the entity;

(c)       the amount of revenue can be reliably measured; and

(d)      the stage of completion of the transaction can be reliably measured.

Of the above, only the second and fourth conditions are included in the AASB 118.20 criteria for the recognition of revenue arising from a transaction to provide services (the outcome of which can be reliably estimated).  Although control of the right to be compensated for services rendered normally arises concurrently with the rendering of the services, it is possible that control of such a right arises only after the occurrence of some other event.  This may be the case with, for example, some contingency fee arrangements.  Where control of the right to be compensated arises only after the occurrence of some event other than the rendering of the services and that other event occurs subsequent to the rendering of the services (and assuming all other recognition criteria are satisfied), revenue recognition by reference to the stage of completion of the contract would occur under AASB 118 prior to the point at which it would occur under AASB 1004.

A.5          Stage of completion – reliable measurement of costs of providing services

In addition to satisfying the second and fourth conditions outlined in A.4 above, AASB 118.20(d) requires the costs incurred for a transaction to provide services and the costs to complete the transaction to be capable of reliable measurement before revenue arising from the transaction can be recognised by reference to the stage of completion of the transaction.  This condition is not included in AASB 1004.  Therefore, where an entity enters into a contract to provide services and the costs incurred or the costs to complete the transaction cannot be measured reliably at the time the other recognition criteria (disregarding the incompatibility identified in A.4 above) are satisfied, revenue recognition by reference to the stage of completion of the transaction would be deferred under AASB 118.20 until such time as the costs incurred and the costs to complete the transaction can be measured reliably.  However, revenue would be recognised under AASB 1004 by reference to the stage of completion of the transaction at the time the other recognition criteria are satisfied.

A.6          Disposal of assets

AASB 1004.5.1 and 6.1 requires the fair value of the consideration received from the disposal of assets (other than goods and other than assets measured at market values or present values with changes in values recognised in the income statement when they occur) to be recognised as revenue,[3] but only when:

(a)       the entity has passed control of the assets to the buyer;

(b)      it is probable that the economic benefits comprising the consideration will flow to the entity; and

(c)       the amount of revenue can be measured reliably.

Although AASB 118 does not deal with revenues from disposals of such assets, disposals of property, plant and equipment, other investments, intangible assets, financial assets, and investment properties are dealt with in AASB 116 Property, Plant and Equipment, AASB 138 Intangible Assets, AASB 139 Financial Instrument: Recognition and Measurement and AASB 140 Investment Property respectively.  The requirements of these Standards in relation to revenues from disposals of assets differ from the requirements of AASB 1004.5.1 and 6.1 in the following ways:

(a)       AASB 116.68 requires the gain or loss on the disposal of an item of property, plant and equipment to be recognised on a net basis as revenue or an expense, rather than separately recognising the consideration received as revenue, and does not include any recognition criteria in respect of such a gain or loss;

(b)      AASB 138.113 requires the gain or loss on the disposal of an intangible asset to be recognised on a net basis as income or an expense, rather than separately recognising the consideration received as revenue, and does not include any recognition criteria in respect of such a gain or loss; and

(c)       AASB 140.69 requires the gain or loss on the disposal of an investment property to be recognised on a net basis as income or an expense, rather than separately recognising the consideration received as revenue, and does not include any recognition criteria in respect of such a gain or loss.

B.        AASB 1004 is more detailed or restrictive

B.1          Definition

Revenue is defined in AASB 1004 and related pronouncements[4] as inflows or other enhancements, or savings in outflows, of future economic benefits in the form of increases in assets or reductions in liabilities of the entity, other than those relating to contributions by owners, that result in an increase in equity during the reporting period.  AASB 118 draws a distinction between income and revenue: the former being defined consistently with AASB 1004 definition of revenue; the latter being defined as income that arises in the course of ordinary activities.  AASB 118 only addresses the treatment of revenue (that is, income attributable to ordinary activities) arising from the sale of goods, the rendering of services, and the use by others of entity assets yielding interest, royalties and dividends.  In contrast, AASB 1004 addresses the treatment of revenues, whether or not attributable to ordinary activities, other than revenue arising from the securitisation of assets, the defeasance of debt, measuring assets and liabilities at market values or present values with changes in values recognised in the income statement when they occur, or dividends from entities accounted for using the equity method.  Therefore, AASB 1004 addresses the treatment of the following items not addressed in AASB 118:

(a)       revenue that is not attributable to ordinary activities and which arises from the sale of goods, the rendering of services, or the use by others of entity assets yielding rent, interest, royalties and dividends;

(b)      revenue, whether or not attributable to ordinary activities, arising from the disposal of assets (other than goods) not measured at market values or present values with changes in values recognised in the income statement when they occur.  However, where the asset disposed of is property, plant or equipment, an investment, an intangible asset, a financial asset, or an investment property, its treatment is addressed in AASB 116, AASB 138, AASB 139 or AASB 140 respectively (See A.6 and C.3);

(c)       revenue, whether or not attributable to ordinary activities, arising from contributions of assets.  However, where such contributions are government grants to for-profit entities, their treatment is addressed in AASB 120, UIG Interpretation 110 Government Assistance – No Specific Relation to Operating Activities, as identified in AASB 1048 Interpretation and Application of Standards and AASB 141; and

(d)      revenue, whether or not attributable to ordinary activities, arising from the forgiveness of liabilities, except to the extent that such forgiveness constitutes the defeasance of debt.

B.2          Estimation techniques

AASB 1004.6.1.3 provides guidance on the use of estimation techniques for the reliable measurement of revenue arising from the sale of goods or the disposal of other assets.  AASB 118 does not include similar guidance.

C.        AASB 118 is more detailed or restrictive

C.1          Identification of the transaction

AASB 118.13 provides guidance on identifying the transaction (or components thereof) or transactions to which the revenue recognition criteria should be applied.  Similar guidance is not included in AASB 1004.

C.2          Guidance examples on timing of recognition

AASB 118 includes an Appendix of examples which provides guidance on applying the requirements of AASB 118 to determine the timing of revenue recognition in a number of commercial situations.  AASB 1004 does not include similar guidance.

C.3          Control of a financial asset

AASB 1004 addresses the treatment of revenues arising from the disposal of assets (other than goods) that are not measured at market values or present values with changes in values recognised in the income statement when they occur.  The recognition criteria for revenues arising from the disposal of such assets includes, amongst other things, the condition that control of the assets must have passed to the buyer (AASB 1004.6.1).  Where the asset disposed of is a financial asset, its treatment is addressed in AASB 139.  AASB 139.35 provides derecognition criteria for financial assets which operate as recognition criteria for gains or losses on the disposal of financial assets.  Consistent with the notions in AASB 1004, AASB 139.17 permits a gain or loss on the disposal of a financial asset to be recognised only when the entity loses control of the contractual rights that comprise the financial asset.  However, AASB 139.20 - .34 contains detailed requirements and guidance on determining whether an entity has lost control of a financial asset.

D.        AASB 1004 disclosures are more extensive

D.1          Category of revenue

AASB 1004.12.1(b) requires disclosure of the amount of each category of revenue recognised during the reporting period, including separate disclosure of revenue from the sale of goods, the rendering of services, rents, interest, royalties, dividends, the disposal of assets other than goods, contributions of assets, the forgiveness of liabilities, and any other source.  AASB 118.35(b) only requires disclosure of the amount of each significant category of revenue recognised during the reporting period, including separate disclosure of revenue from the sale of goods, the rendering of services, interest, royalties, and dividends. 

D.2          Revenue and income

AASB 1004 addresses the treatment of revenues attributable to both operating activities and activities outside the operating activities of the entity, whereas AASB 118 only addresses the treatment of revenue arising in the course of ordinary activities.  AASB 1004.12.2 requires separate disclosure of revenue arising from operating activities and from outside operating activities for each category of revenue disclosed in accordance with AASB 1004.12.1(b).

D.3          Revenue arising from exchanges or swaps of goods or services

AASB 1004.12.1(c) requires disclosure of the amount of revenue arising from exchanges or swaps of goods or services included in any category of revenue.  AASB 118.35(c) requires this information to be disclosed only in respect of each significant category of revenue.

D.4          Reconciliation where aggregate revenue is disclosed

Where an aggregate of revenues is disclosed, AASB 1004.12.3 requires disclosure of a reconciliation of that amount to the categories of revenues disclosed in accordance with paragraph 12.1(b).

E.         AASB 118 disclosures are more extensive

None noted.

 



1    See also UIG Interpretation 131 Revenue – Barter Transactions Involving Advertising Services, as identified in AASB 1048 Interpretation and Application of Standards.

 

2    See also UIG Interpretation 127 Evaluating the Substance of Transactions Involving the Legal Form of a Lease, as identified in AASB 1048 Interpretation and Application of Standards.

 

3    See also UIG Interpretation 131 Revenue – Barter Transactions Involving Advertising Services, as identified in AASB 1048 Interpretation and Application of Standards.

 

[1]      AASB 1004 Contributions is not the subject of this analysis.

[2]      It is also worth noting that paragraph 2.1.2 of AASB 1015 Acquisitions of Assets comments that exchanges or swaps of goods or services of the same nature and value do not include exchanges of property, plant and equipment or exchanges of businesses.

[3]      AASB 1041 Revaluation of Non-Current Assets paragraph 5.9 requires the gain or loss on the disposal of a non-current asset to be measured as the difference between the carrying amount of the asset at the time of disposal and the net proceeds from disposal and recognised in net profit or loss.  Given the requirement in AASB 1004.5.1 to recognise the consideration received as revenue, compliance with both AASB 1004 and AASB 1041 compel the recognition of the carrying amount of the asset at the time of the disposal as an expense.  It is worth noting that AASB 1004 and AASB 1041 require separate recognition of the consideration received as revenue and the carrying amount of the asset at the time of disposal as an expense and AASB 1021 Depreciation paragraph 10.1 requires the gain or loss to be recognised on a net basis as a revenue or an expense. 

[4]    Related pronouncements include SAC 4 Definition and Recognition of the Elements of Financial Statements.