IAS 18-REVENUE and IFRS 5

Presented by Mark Nelson Chimndozi

OBJECTIVE

To prescribe the accounting treatment of revenue arising from specific types of transactions or events.

SCOPE

This Standard shall be applied in accounting for revenue arising from the following transactions and events:• The sale of goods;• The rendering of services; and• The use by others of entity assets

yielding interest, royalties and dividends.

DEFINITION• 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.

REVENUE EXCEPTIONS• Revenue does not include sales taxes, value

added taxes or goods and service taxes which are only collected for third parties, because these do not represent an economic benefit flowing to the entity.

• The same applies with revenue received by an agent on behalf of the principal which represent a commission

MEASUREMENT

• The revenue is measured as the fair value of the consideration received.• If the revenue is receivable more than

12 months after it has been earned it will usually be discounted to present value.

RECOGNITIONRevenue from the sale of goods shouldOnly be recognized only if:• The entity has transferred the significant

risks and rewards of ownership of the goods to the buyer.

• The amount of revenue can be measured reliably.

RECOGNITION CONT…..

• The entity has no continuing managerial involvement to the degree usually associated with ownership, and no longer has effective control over the goods sold.

• It is probable that the economic benefits associated with the transaction will flow to the entity.

RECOGNITION CONT…..

• The costs incurred in respect of the transaction can be measured reliably.• It is probable that the economic benefits

associated with the transaction will flow to the entity.• The costs incurred in respect of the

transaction can be measured reliably.

DISLOSURE• The amount of each significant category

of revenue recognized during the period. • The accounting policies adopted for the

recognition of revenue and the methods used • The amount of revenue arising from

exchanges of goods or services included in each significant category of revenue.

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INTERNATIONAL FINANCIAL REPORTING STANDARD 5

NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

OBJECTIVE

• To prescribe the accounting treatment for Non-Current Assets held for sale and the presentation and disclosure of discontinued operations.

SCOPE

It applies to the accounting for all Non-Current Assets held for sale and discontinued operations.

IFRS 5 does not apply to:• Deferred tax assets (IAS 12)• Assets arising from employee benefits (IAS

19)• Financial assets (IFRS 9)

SCOPE CONT…

• Investment properties accounted for in accordance with the fair value model (IAS 40)

• Agricultural and biological assets (IAS 41)

• Insurance contracts (IFRS 4)

CLASSIFICATIONA non-current asset or disposal group should be classified as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. The following should be met:• The asset must be available for immediate

sale in its present condition.• Its sale must be highly probable.

HIGHLY PROBABLE SALEFor the sale to be highly probable, the following must

apply:• Management must be committed to a plan to sell the

asset.• There must be an active programme to locate a buyer.• The asset must be marketed for sale at a price that is

reasonable in relation to its current fair value.• The sale should be expected to take place within one

year from the date of classification.• It is unlikely that significant changes to the plan will be

made or that the plan will be withdrawn.

DEFINITIONS• Disposal group - A group of assets to be

disposed of, by sale or otherwise, together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction.• A non-current asset held for sale is one

where the carrying amount will be recovered principally through sale rather than through continuing use

MEASUREMENT

• A non-current asset (or disposal group) that is held for sale should be measured at the lower of its carrying amount and fair value less costs of disposal.

• Non-Current assets held for sale are not depreciated.

DISCLOSUREIn the period in which a non-current asset has been classified as held for sale or sold the following should be disclosed.• A description of the non-current asset (or

disposal group)• A description of the facts and

circumstances of the disposal• Any gain or loss recognized when the

item was classified as held for sale

DISCLOSURECONT….

An entity should disclose a single amount in the Statement of profit or loss comprising of;• Post Tax profit or loss of discontinued

operations• Gain or loss recognized on measurement of

fair value less cost on disposal.The entity should also disclose an analysis of

single amount into:• Related income tax expense

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