Page 159 - DMGT104_FINANCIAL_ACCOUNTING

Unit 8: Financial Statements

performance it is not unreasonable to expect ultimate collection. If at the time of rising of Notes
any claim it is unreasonable to expect ultimate collection, revenue recognition should be
postponed.
11. In a transaction involving the sale of goods, performance should be regarded as being
achieved when the following conditions have been fulfilled:

(i) the seller of goods has transferred to the buyer the property in the goods for a price
or all significant risks and rewards of ownership have been transferred to the buyer
and the seller retains no effective control of the goods transferred to a degree usually
associated with ownership; and
(ii) no significant uncertainty exists regarding the amount of the consideration that will
be derived from the sale of the goods.
12. In a transaction involving the rendering of services, performance should be measured
either under the completed service contract method or under the proportionate completion
method, whichever relates the revenue to the work accomplished. Such performance
should be regarded as being achieved when no significant uncertainty exists regarding
the amount of the consideration that will be derived from rendering the service.
13. Revenue arising from the use by others of enterprise resources yielding interest, royalties
and dividends should only be recognised when no significant uncertainty as to
measurability or collectability exists. These revenues are recognised on the following
bases:
(i) Interest: On a time proportion basis taking into account the amount outstanding and
the rate applicable.
(ii) Royalties: On an accrual basis in accordance with the terms of the relevant agreement.
(iii) Dividends from investments in shares: When the owner’s right to receive payment is
established.
Disclosure

14. In addition to the disclosures required by Accounting Standard 1 on ‘Disclosure of
Accounting Policies’ (AS 1), an enterprise should also disclose the circumstances in which
revenue recognition has been postponed pending the resolution of significant uncertainties.

Appendix

This appendix is illustrative only and does not form part of the accounting standard set
forth in this Statement. The purpose of the appendix is to illustrate the application of the
Standard to a number of commercial situations in an endeavour to assist in clarifying
application of the Standard.
Sale of Goods

1. Delivery is delayed at buyer’s request and buyer takes title and accepts billing:
Revenue should be recognised notwithstanding that physical delivery has not been
completed so long as there is every expectation that delivery will be made. However,
the item must be on hand, identified and ready for delivery to the buyer at the time
the sale is recognised rather than there being simply an intention to acquire or
manufacture the goods in time for delivery.
Contd...

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