The focus of this chapter is revenue recognition. We first discuss the general circumstance in which revenue is recognized when a good or service is delivered. Then we discuss circumstances in which revenue should be deferred until after delivery or should be recognized prior to delivery. | INCOME MEASUREMENT AND PROFITABILITY ANALYSIS Chapter 5 The focus of this chapter is revenue recognition. We first discuss the general circumstance in which revenue is recognized when a good or service is delivered. Then we discuss circumstances in which revenue should be deferred until after delivery or should be recognized prior to delivery. The chapter also includes an Appendix describing requirements for interim financial reporting and a Where We’re Headed Supplement explaining in detail a proposed updated accounting standard (hereafter, “the proposed standard”) that the IASB and FASB plan to issue in 2012 that substantially changes how we account for revenue recognition. Revenue Recognition Record revenue when: Revenue and costs can be measured reliably Probable that economic benefits will flow to seller Seller has transferred the risks and rewards of ownership and doesn’t effectively manage or control the goods The stage of completion can be measured reliably (for services) 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 IFRS What is revenue? According to the IASB, “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”. In other words, revenue tracks the inflow of net assets that occurs when a business provides goods or services to its customers. Revenue recognition criteria help ensure that an income statement reflects the actual accomplishments of a company for the period. In other words, revenue should be recognized in the period or periods that the revenue-generating activities of the company are performed. IFRS revenue recognition concepts focus on transfer of | INCOME MEASUREMENT AND PROFITABILITY ANALYSIS Chapter 5 The focus of this chapter is revenue recognition. We first discuss the general circumstance in which revenue is recognized when a good or service is delivered. Then we discuss circumstances in which revenue should be deferred until after delivery or should be recognized prior to delivery. The chapter also includes an Appendix describing requirements for interim financial reporting and a Where We’re Headed Supplement explaining in detail a proposed updated accounting standard (hereafter, “the proposed standard”) that the IASB and FASB plan to issue in 2012 that substantially changes how we account for revenue recognition. Revenue Recognition Record revenue when: Revenue and costs can be measured reliably Probable that economic benefits will flow to seller Seller has transferred the risks and rewards of ownership and doesn’t effectively manage or control the goods The stage of completion can be measured reliably (for services) .
