Revenue growth as a potential indicator of future performance and profitability
income is an increase in economic benefits in the form of inflows of assets or decreases of liabilities that result in increases in equity
1. Revenues
2. Gains
1. Economic benefits arising in the course of the ordinary activities of an enterprise
2. High probability of recurrence
1. May or may not arise during ordinary activities of an entity
2. Typically either incidental activities
3. Low probability of recurrence
Revenue Recognition Framework (revenue from contracts with customer)
January 1, 2018 & IAS 11 / IAS 18
1. Distinction between performance obligations satisfied over time and performance obligations satisfied at a point in the future
2. Focus on transfer of control instead of risk and rewards
3. Substantially more guidance on the application for complex transactions
1. Lease contracts
2. Insurance contracts
3. Financial instruments and other contractual rights or obligations
4. Non-monetary exchanges
1. Identification of a contract
2. Identification of performance obligations
3. Determination of transaction price
4. Allocation of transaction price to performance obligations
5. Revenue recognition when satisfying performance obligations
1.1 The contract has been approved by the parties to the contract
1.2 Each party’s rights can be identified
1.3 The payment terms can be identified
1.4 The contract has commercial substance
1.5 It is probable that the consideration will be collected
1. the contract is not pending (‘wholly unperformed’) anymore
2. revenue can not be recognized
Continuous assessment
such amounts are non-refundable
1. the entity has completed performing all of its obligations under the contract and has received all, or substantially all, of the consideration promised by the customer; OR
2. the contract has been terminated
1. the contracts are a package with the intent of meeting a singular business purpose, or
2. price in one contract is impacted by the price or performance of the other contract, or
3. some of the goods or services promised in the individual contracts form a single performance obligation
1. the scope needs to be increased
2. the price needs te increased
is a distinct good or service
2.1 The goods or services are capable of being disctinct, AND
2.2 The goods or services are distinct when considered in the context of the entire contract
seperate performance obligation
1. The customer would not receive the option to acquire additional goods or services without entering into that contract, AND
2. The price for the additional goods or services does not refelct the stand alone selling price
1. Provide the specified goods or services itself (principal), or
2. Arrange for a third to provide those goods or services
Entity controls goods or services before the trasnfer to the customer, so entitiy acts as principal
Entity arranges for the provision of goods or services by another party, entity acts as an agent
Determination of the Transaction Price
3.1 variable consideration (f.e. discount, refunds)
3.2 significant financing components
3.3 non-cash consideration
3.4 consideration payable to customer
3.1.1 Most likely outcome (recommended in scenarios with only two possible outcomes)
3.1.2 Expected value (recommended in scenarios of multiple contracts with similar characteristics and a large number of possible outcomes)
Estimated variable consideration shall be included in the transaction price only to the extent that it is highly probably that a significant revenue reversal will not occur
1. Estimates introduce a degree of uncertainty into the amount of revenue
2. Purpose of a constraint: avoid overly optimistic estimates being included in the calculation
3. Judgement and consideration of all facts required to assess whether a constraint is necessary
3.2.1 Adjustment for the time value of money if there is significant benefit from financing
3.2.2 Special cases for which the adjustment is not necessary
3.2.3 No adjustment if financing period is < 1 year
1. Advanced payment
2. Substantial amount of consideration is variable
3. Difference between promised consideration and cash selling price arises for other reasons other than the provision of finance
1. Measurement at fair value
2. If fair value estimate is not available, measured by reference to stand alone selling price
4.1 General rule: allocation to performance obligations by reference to their stand alone selling prices
4.2 The stand alone selling price is the observable price (at which an entity would sell a promosid good or service separately to a customer)
4.3 Estimation neccessary if a stand alone selling price is not directly observable
4.3.1 Adjusted market assessment approach (estimate the price that a customer in that market would be willing to pay)
4.3.2 Expected cost plus a margin approach
4.3.3 Residual approach (estimate the stand alone selling price by reference to the total transaction price less the sym of the observable stand alone selling prices
1. The entitiy sells the same good or services to different customers for a broad range of amounts, OR
2. The entity has not yet established a price for that good or service and the good or service has not previously been sold on a stand alone basis
Generally allocated proportianately to all performance obligatoins in the contract
1. Each distinct goods or service is regularly sold on a stand alone basis
2. A bundle of some of those distincit goods or services is regularly sold at a discount
3. This discount is substantially the same as the discount in the contract
Revenue recognition when satisfying performance obligation
1. Customer receives benefits as the entity performs
2. Entity creates an asset that the customer already controls during performance (f.e. a building)
3. Asset does not have alternative use to the entity and eforceable right to receive payment already exists (f.e. audit report)
1. Output method (measure the value of goods transferred relative to those undelivered)
2. Input method (measurement based on the entity's efforts or inputs relative to the total expected inputs)
1. cost incurred does not contribute OR 2. is not proportionate to the entity's progress in satisfying the performance obligation
1. The resource must contain future economic benefits
2. The entity must have control over the economic benefits
3. There must have been an past event
1. A present obligation exists
2. Must result in giving up resources
3. must have resulted from a past transaction
determining the monetary amounts at which the elements of the financial statements are to be recognised and carried in the financial statements
1. Historical costs
2. Current costs
3. Realisable value
4. Present value
1. actual amount of currency
2. purchasing power
operating capability
1. Remove inconsistencies
2. Provide a more robus framework
3. Provide a singel reference point
4. Provide more usefull information
1. Focus on transfer of control instead of risk and rewards
2. More guidance vs limited guidance
the customer can benefit from it
they are separable from other promises