Revenue Recognition Under IFRS (IAS -18)

Thanks

Ram jee.. kuch participate bhi kar lijye.. Thanks ke liye thumb hai.. but if u participate that will be good.. because until we will not share our knowledge.. we cant impreve

How should one account for discount in case of a multi year contract. For ex. there is a contract for a period of 10 years and discount is given from the start of 5th year till the end of the contract period.

Will the revenue recognition criteria be different when the discount clause is applied? Whether the discount should affect the revenue only from the 5th year or should the discount be proportionaltely adjusted against revenue right from the inception of the contract?

Kindly clarify.

Dear Balaji

Lets discuss as per your example only..

In IFRS, You have to discounted your complete Revenue and take it in the Fair Value.

You need to segregate your interest component and Revenue Component and in case of Discount if you know in the begning itself that you need to give discount in 5th year than you need to take consideration in the revenue recognition.. Just read my mssgs carefully you will understand...

Discount will be proprtionaltely in all the year....

Hello Balaji,

This depends upon the nature of the contract and how the discount has been structured in the contract. To the extent the revenues from the 1st to the 4th year are likely to be affected by the discount in the 5th year and onwards, one has to provide the discount from the year of inception to the extent it is affecting the years.

In case the disount is in nature of a cash disount only on and after the 5th year having no bearing on the revenue from the contract during the period from the 1st to the 4th year, there is no need to book it as an expense from the inception of the contract.

Also starting from teh 5th year when discount is recoganized, it should he shown separately as an expense from the revenue generated rather than netting of against the revenue.

This is my opinion.

Regards,

Devarajan

One needs to understand that accounting concepts and basics have suddenly not changed due to IFRS. They continue to remain the same. Also IFRS is more principle based rather than rule based. IFRS is still basically historical cost based unless specifically mentioned otherwise.

Dear Dev,

But as per my understandin IFRS is not historical bases. Its very much abt Fair Value. If i am wrong please rectify my and give me some refrences and thanks for your such a wonderful explanation.

Finally i got some one who is giving the interest in IFRS

Thanks  a lot

Amit

Dear Amit,

The answer to your question lies in the IASB framework.

Also refer to the link that I had forwarded on ICAEW IFRS.

Regards,

Devarajan

Thank you sirjee.. i will check

How will revenue be recognized in the below cases

Scenario 1.

Planning, development and implementation project where the terms of payment are 50% on commencement and 50% on completion of the project. Can the revenue be recog on straightline basis over a pre-determined period or it should be spread across the period of project life. For ex: if the project life is 2 years, should we proportionate the revenue to 24 months or can we recognise it in one quarter itself.

Scenario 2:

What happens if the project was called off mid-way after the planning stage?

Dear Balaji

Scenario-1

This is a case of construction contact.. so you recognise revenue as per IAS 11... Its mean you need to use POC

In case two,

So far whatever you recognise the revenue thats fine.. further amount you need to book the expenses.. no need to reverse the revenue.. remaining amount will be booked as expense