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Contents
2.2 Objective of financial statements.
2.2.1 Extract from FRS102: Section 2.1A-2.3.
2.3 Qualitative characteristics of information in financial statements.
2.3.1 Extract from FRS102: Section 2.4-2.14.
2.4 Definition of an asset and recognition criteria.
2.4.1 Extract from FRS102: Section 2.15(a), Section 2.17-2.19, Section 2.29 and Section 2.37-2.38.
2.4.2.2 When an asset is to be recognised.
2.5 Definition of a liability and recognition criteria.
2.5.2.2 Recognition criteria for a liability.
2.6.1 Extract from FRS102: Section 2.15(c) and Section 2.22.
2.7 Definition and recognition of Income/revenue.
2.7.1 Extract from FRS102: Section 2.23(a), Section 2.25 and Section 2.41.
2.7.2.2 Identifying revenue from other income/gains.
2.7.2.3 Recognition of income.
2.8 Definition and recognition of expenses.
2.8.1 Extract from FRS102: Section 2.23(b), Section 2.26 and Section 2.42.
2.8.2.1 Definition of an expense.
2.8.2.2 Recognition of an expense.
2.8.2.3 Identifying expenses from losses.
2.8 Measurement of assets, liabilities, income and expenses.
2.8.1 Extract from FRS102: Section 2.33-.2.34.
2.9 Pervasive recognition and measurement principles.
2.9.1 Extract from FRS102: Section 2.35.
2.10.1 Extract from FRS102: Section 2.36.
2.11 Recognition in financial statements.
2.11.1 Extract from FRS102: Section 2.43-2.45.
2.12.1 Extract from FRS102: Section 2.52.
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2.7 Definition and recognition of Income/revenue
2.7.1 Extract from FRS102: Section 2.23(a), Section 2.25 and Section 2.41
2.23(a) Income is increases in economic benefits during the reporting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity investors.
2.25 The definition of income encompasses both revenue and gains.
(a) Revenue is income that arises in the course of the ordinary activities of an entity and is referred to by a variety of names including sales, fees, interest, dividends, royalties and rent.
(b) Gains are other items that meet the definition of income but are not revenue. When gains are recognised in the statement of comprehensive income, they are usually displayed separately because knowledge of them is useful for making economic decisions.
2.41 The recognition of income results directly from the recognition and measurement of assets and liabilities. An entity shall recognise income in the statement of comprehensive income (or in the income statement, if presented) when an increase in future economic benefits related to an increase in an asset or a decrease of a liability has arisen that can be measured reliably.
2.7.2 OmniPro comment
2.7.2.1 Definition of income
Section 2.23(a) of FRS 102 defines income as increases in economic benefits during the reporting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity investors.
As is evident above income includes both revenue and gains and this is made clear from Section 2.25 of FRS 102.
2.7.2.2 Identifying revenue from other income/gains
Whether an item is shown as turnover/revenue in the financial statements or instead other income is driven by what the entity’s main ordinary activities are derived. If something is not derived from its ordinary course of activities then it is not revenue but other income/gains as stated in Section 2.25 of FRS 102. See Section 23 at 23.2.2.1 for a further discussion on same.
Example 1: Turnover/revenue versus other income
An entity who is in the business of buying and selling goods, would classify that income in the turnover line of the financial statements. If that same entity also generates income from the rental of investment properties which is incidental to its main trade, this would not be shown within turnover/revenue instead it would be disclosed as other income on the face of the profit and loss and an explanation provided in the notes where material detailing that it is rental income.
The same would be the case if that entity had some income from the dividends on investments, this would not be shown in the turnover line.
Example 2: Turnover/revenue versus other income
If we take another entity whose business involves the purchase of land and development of properties on this land which includes in certain instances the holding of some of these properties for future rental as investment properties. In this case the sale of the land and properties to third parties would be shown as revenue. In addition, the rental income would be classified as revenue/turnover as this is also part of its business. A note would be required to show the split of income in the financial statements.
Example 3: Turnover/revenue versus other income
Company A is involved in the holdings of investments. In this case dividend income, gains on sale of shares would be shown in revenue in the profit and loss account.
Revenue recognition rules are dependent on when the risks and reward of ownership transfer. This is discussed further in Section 23.
2.7.2.3 Recognition of income
As per Section 2.41 of FRS 102 income is only recognised where it is probable that future economic activities will flow and when it can be measured reliably such that it meets the definition of an asset as detailed at 2.4.2.
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Examples
Example 1: Turnover/revenue versus other income.
Example 2: Turnover/revenue versus other income.
Example 3: Turnover/revenue versus other income.
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