smes revenue.pptx

8/13/2019 SMEs Revenue.pptx

1/20

REVENUESection 23


2/20

Revenue

The gross inflow of economic benefits during the period aris

course of the ordinary activities of an entity when those inf

in increases in equity, other than increases relating to contrib

from equity participants.


3/20

PFRS for SMEs and Full PFRS

Share the same principles for the recognition of revenue from:

Sale of goods

Rendering of services

Use of an entitys assets by others:

Interest

Royalties

Dividends received

Construction contracts


4/20

Illustration:

Bicycle shops sells new and used bicycles and rents bicy

This year it sold the land and building for one of its shops

was closed.

It has 3 types of revenue: Sale of new bikes, Sale of used bike

Rentals. The proceeds from selling the land and building are not revenu

ordinary); instead, this is presented net as a gain or loss.


5/20

Measurement:

Fair value of the consideration received or receivable.

Fair value of the consideration received takes into account:

Trade discounts

Prompt settlement discount or the cash discounts

Volume rebates


6/20

Revenue is Deferred

If deferral is normal credit terms, revenue = contract amount

discounting)

But if deferral constitutes a financing transaction, revenue = p

value of all expected receipts. Discount rate is either:

Prevailing rate for similar instrument

Implicit interest rate that discounts cash flows to current

price


7/20

Illustration:

We sell goods costing 1,500,000 for 2,000,000 due in 2 yea

interest free. Current cash price would have been 1,652,89

Financing transaction. Up front revenue is 1,652,893. Profit

152,893.

=

(1+ %)

1,652,893 =2,000,000

(1+ )2

i= 10%, by solving the equation.


8/20

Illustration (Continued):

Interest income year 1 = 1,652,893 x 10% = 165,289, unpaid

receivable up to 1,818,182.

Interest income year 2 = 1,818,182 x 10% = 181,818, bringin

receivable up to 2,000,000, which is then repaid.


9/20

Illustration (Continued):

Jan. 1, 20A Accounts Receivable 1,652,893

Revenue 1,652,8

Dec. 31, 20A Accounts Receivable 165,289

Interest revenue 165,289

Dec. 31, 20B Accounts Receivable 181,818

Interest revenue 181,818

Cash 2,000,000

Accounts Receivable 2,000,0


10/20

Sale of Goods:

The entity has transferred to the buyer the significant risks an

rewards of ownership of goods; and

The entity retains neither continuing managerial involvement

effective control over the goods sold.


11/20

Rendering of Services:

Recognize revenue based on stage of completion when the o

of the transaction can be estimated reliably.

Straight line if many service acts.

Cost recovery method when outcome cannot be estimated re


12/20

Use by Others of an Entitys Assets:

Interest

Interest is recognized using the effective interest method.

Royalties

Royalties are recognized on an accruals basis in accorda

the substance of the relevant agreement.

Dividends

Dividends are recognized when the shareholders right to

payment is established.


13/20

Construction Contracts:

Recognize revenue based on stage of completion when the o

of the transaction can be estimated .

Cost recovery method when outcome cannot be estimated re


14/20

Construction Contracts: Ways to EstimStage of Completion

Based on inputs: % of costs incurred to estimated total costs

Based on outputs:

Engineering survey of work performed.

Physical portion of work that has been completed (e.g. km

paved).

Exclude costs incurred for future activities (e.g. materials inve

and prepayments).


15/20

Illustration:

Contract signed 20A for 2,000. Initial cost estimate is 1,20

cost incurred 800. Estimated additional cost 400.

For 20A: % complete based on costs = 800 / 1,200 = 66.7%

Revenue = 2,000 x .667 = 1,333. Cost = 800. Profit = 533.

For 20B: Contract finished middle of 20B. Total cost = 1

Revenue 667. Cost = 450. Profit = 217.


16/20

Construction Contract: Construction Contwhere the Outcome Cannot be EstimatedReliably

Use cost recovery method:

Recognize revenue only to the extent of costs incurred wh

recovery is probable

Recognize contract costs as expense when incurred


17/20

Construction Contracts: Other Points

Costs whose recovery is not probable are an immediate expe

If a contract will probably result in a loss, immediately recogn

loss and a provision (onerous contractSection 21)


18/20

Illustration:

Fixed price, 5-year contract for 100,000. Year 1, 5,000 cos

incurred. Unable to estimate additional costs but (a) loss

unlikely and (b) collectability is highly probable.

Use cost recovery method

In Year 1 revenue of 5,000, costs of 5,000, profit of 0


19/20

Disclosures:

Accounting policies for revenue

recognition

Amount of revenue for each

category:

Sale of goods

Rendering of services

Interest

Royalties

Dividends

Commissions

Government grants

Any others


20/20

Disclosures: Contract

Additional disclosures for

construction contracts:

Revenue recognized

Method for determining revenue

Method for determining

completion

Gross amount due from

customers (asset)

Gross amount due to c

(liability)

smes revenue.pptx

Documents