Page 161 - DMGT104_FINANCIAL_ACCOUNTING

Unit 8: Financial Statements

in value from period to period, revenue should be based on the sales value of the item Notes
delivered in relation to the total sales value of all items covered by the subscription.

8. Instalment sales: When the consideration is receivable in installments, revenue
attributable to the sales price exclusive of interest should be recognised at the date
of sale. The interest element should be recognised as revenue, proportionately to
the unpaid balance due to the seller.
9. Trade discounts and volume rebates: Trade discounts and volume rebates received
are not encompassed within the definition of revenue, since they represent a reduction
of cost. Trade discounts and volume rebates given should be deducted in determining
revenue.
Rendering of Services

1. Installation Fees: In cases where installation fees are other than incidental to the
sale of a product, they should be recognised as revenue only when the equipment is
installed and accepted by the customer.
2. Advertising and insurance agency commissions: Revenue should be recognised when
the service is completed. For advertising agencies, media commissions will normally
be recognised when the related advertisement or commercial appears before the
public and the necessary intimation is received by the agency, as opposed to
production commission, which will be recognised when the project is completed.
Insurance agency commissions should be recognised on the effective commencement
or renewal dates of the related policies.
3. Financial service commissions: A financial service may be rendered as a single act or
may be provided over a period of time. Similarly, charges for such services may be
made as a single amount or in stages over the period of the service or the life of the
transaction to which it relates. Such charges may be settled in full when made or
added to a loan or other account and settled in stages. The recognition of such
revenue should, therefore, have regard to:
(a) Whether the service has been provided “once and for all” or is on a
“continuing” basis;
(b) The incidence of the costs relating to the service;
(c) When the payment for the service will be received. In general, commissions
charged for arranging or granting loan or other facilities should be recognised
when a binding obligation has been entered into commitment, facility or loan
management fees which relate to continuing obligations or services should
normally be recognised over the life of the loan or facility having regard to
the amount of the obligation outstanding, the nature of the services provided
and the timing of the costs relating thereto.
4. Admission fees: Revenue from artistic performances, banquets and other special
events should be recognised when the event takes place. When a subscription to a
number of events is sold, the fee should be allocated to each event on a systematic
and rational basis.
5. Tuition fees: Revenue should be recognised over the period of instruction.
6. Entrance and membership fees: Revenue recognition from these sources will depend
on the nature of the services being provided. Entrance fee received is generally
Contd...

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