Revenue
Recognition (U.S. GAAP)[1]
Revenue
should be recognized when it is realized (or realizable) and when it is earned.
(1)
All four criteria must be met before any revenue can be
recognized
(a)
Persuasive evidence of an arrangement exists – signed contract;
(b)
Delivery has occurred or services have been rendered; – risk
& rewards transfer
(c)
The price is fixed and determinable; – no price contingencies
(d)
Collection is reasonably assured; – standard collection terms
(2)
Revenue from the sales
of products or the disposal of other assets is recognized on the date of sale
of the product or other asset (i.e., the delivery date). Generally, the
following criteria apply for a sale (exchange) to take place:
(a)
Delivery of goods or setting aside goods ordered (which would
result in a simultaneous recognition of revenue and expense), and/or
(b)
Transfer of legal title.
(3)
Revenue that stems from allowing others the use of the entity’s
assets (e.g., interest revenue , royalty revenue, and rental revenue) is
recognized when the assets are used (i.e., as the time passes)
(4)
Revenue from the performance of services is recognized in the
period the services have been rendered and are able to be billed by the entity.
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Revenue
Recognition (IFRS)[2]
Four
categories are divided. Each category has its own revenue recognition rules.
Sale of Goods
When
all the following conditions have been met:
(1)
Revenue and costs incurred for the transaction can be measured reliably
(2)
It is probable that economic benefits from the transaction will flow
to the entity
(3)
The entity has transferred to the buyer the significant risk and rewards of
ownership
(4)
The entity does not retain managerial involvement to the degree associated with
ownership or control over the goods sold
Rendering of Services
Using
the percentage of completion method, all of the following conditions have been
met:
(1)
Revenue and costs incurred from the transaction can be measured reliably;
(2)
It is probable that economic benefits from the transaction will flow
to the entity;
(3)
The stage of completion of the transaction at the end of the
reporting period can be measured reliably;
Revenue from interest, Royalties,
and Dividends
All
the following conditions have been met:
(1)
Revenue can be measured reliably
(2)
It is probable economic benefits from the transaction will flow to the entity
Interest
revenue is recognized using the effective interest method
Royalties
are recognized on the accrual basis
Dividends
are recognized when the shareholders’ rights to receive payment are established
Construction Contracts
Using
the percentage of completion method, all of the following conditions have been
met:
(1)
The contract revenue and contracts costs attributable to the transaction
can be measured reliably;
(2)
It is probable that economic benefits from the transaction will flow
to the entity;
(3)
Both the contract costs to complete the contract and the
stage of contract completion at the end of the reporting period can be measured
reliable.
An
expected loss on a construction contract is recognized immediately as an
expense.
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