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Revenue Recognition in Exchange Transactions

Revenue from the sale of goods is recognized when significant risks and rewards of ownership transfer to the buyer, the entity does not retain continuing involvement or control over the goods, it is probable economic benefits will flow to the entity, revenue and costs can be measured reliably. Revenue from services is recognized on a straight line basis when stage of completion can be measured reliably and the other criteria are met. Interest is recognized using the effective yield method, royalties as earned, and dividends when the right to receive payment is established. Revenue is measured at the fair value of consideration received or receivable, less any trade discounts or volume rebates.

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68 views12 pages

Revenue Recognition in Exchange Transactions

Revenue from the sale of goods is recognized when significant risks and rewards of ownership transfer to the buyer, the entity does not retain continuing involvement or control over the goods, it is probable economic benefits will flow to the entity, revenue and costs can be measured reliably. Revenue from services is recognized on a straight line basis when stage of completion can be measured reliably and the other criteria are met. Interest is recognized using the effective yield method, royalties as earned, and dividends when the right to receive payment is established. Revenue is measured at the fair value of consideration received or receivable, less any trade discounts or volume rebates.

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Crazy Solo
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RECOGNITION OF REVENUE

FROM EXCHANGE
TRANSACTIONS
Sale of Goods:
Revenue from the sale of goods shall be recognized
when all of the following conditions are satisfied.
i. Significant risks and rewards of ownership of the
goods are transferred to the buyer;
ii. The entity does not retain continuing managerial
involvement or effective control over the goods
sold;
iii. It is probable that economic benefits will flow to
the entity;
iv. Revenue can be measured reliably; and
v. Costs relating to the transaction can be measured
reliably.
Rendering of Services:
Revenue from the supply of services is
recognized on a straight line basis.
i. The stage completion of the transaction
at the reporting date can be measured
reliably;
ii. It is probable that economic benefits will
flow to the entity;
iii. Revenue can be measured reliably; and
iv. Costs relating to the transaction can be
measured reliably.
For practical purposes, when services are
performed by an indeterminate number of acts
over a specified time frame, revenue is
recognized on a straight line basis over the
specified time frame unless there is evidence
that some other method better represents the
stage of completion.
When the outcome ot the
transaction involving the rendering
of services cannot be estimated
reliably, revenue is recognized only
to the extent of the expenses
recognized that are recoverable.
Interest, Royalties and Dividends

a. Interest is recognized on a time proportionate


basis that takes into account the effective yield
on the asset;
b. Royalties are recognized as they are earned in
accordance with the substance of the relevant
agreement; and
c. Dividends are recognized when the entity's
right to receive payment is established.
A government entity normally
recognizes revenue from service
income when the services are
rendered , except when this is
not practicable, in which case,
revenue is recognized when fees
are collected.
MEASUREMENT OF REVENUE
FROM EXCHANGE
TRANSACTIONS
Revenue from exchange
transactions are measured at the
fair value of the consideration
received or receivable. Any trade
discounts and volume rebates shall
be taken into account.
Example:
Entity A sells goods with a list price of P10,000, on
account, with the following credit term 10%, 10%
and 5%. Revenue is recognized as follows:

Accounts Receivable. 7, 695


Sales Revenue
(10,000 x 90% x 90% x95%). 7,695
To recognized sale of goods on account
Exchanges of Goods and Services:
Exchanges of goods or services with:
a. Similar nature and value do not give rise
to the revenue.
b. Dissimilar nature and value give rise to
revenue measured using the following
order of priority.
i. Fair value of the goods or services
received, adjusted by the amount of
any cash transferred.
ii. Fair value of the goods or services
given up, adjusted by the amount of
any cash transferred.
THANK YOU!

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