[et_pb_section admin_label=”Header – All Pages” global_module=”1221″ transparent_background=”off” background_color=”#1e73be” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″ custom_padding=”||0px|”][et_pb_row global_parent=”1221″ admin_label=”row”][et_pb_column type=”4_4″][et_pb_post_title global_parent=”1221″ admin_label=”Post Title” title=”on” meta=”off” author=”on” date=”on” categories=”on” comments=”on” featured_image=”off” featured_placement=”below” parallax_effect=”on” parallax_method=”on” text_orientation=”left” text_color=”light” text_background=”off” text_bg_color=”rgba(255,255,255,0.9)” module_bg_color=”rgba(255,255,255,0)” title_all_caps=”off” use_border_color=”off” border_color=”#ffffff” border_style=”solid” title_font=”|on|||” title_font_size=”35″ custom_padding=”10px|||”] [/et_pb_post_title][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” global_module=”1228″ fullwidth=”off” specialty=”off” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” custom_padding=”0px||0px|” padding_mobile=”on” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″][et_pb_row global_parent=”1228″ admin_label=”Row” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” use_custom_gutter=”off” gutter_width=”3″ custom_padding=”0px||0px|” padding_mobile=”off” allow_player_pause=”off” parallax=”off” parallax_method=”off” make_equal=”off” parallax_1=”off” parallax_method_1=”off” column_padding_mobile=”on”][et_pb_column type=”4_4″][et_pb_text global_parent=”1228″ admin_label=”Text” background_layout=”light” text_orientation=”left” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [breadcrumb] [/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off”][et_pb_row admin_label=”Row”][et_pb_column type=”1_2″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”center” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]
[button link=”https://ie.frs102.com/members/premium-toolkit/” type=”big” color=”red”] Return to Main Index[/button]
[/et_pb_text][/et_pb_column][et_pb_column type=”1_2″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”center” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]
[button link=”https://ie.frs102.com/members/premium-toolkit/section-23/” type=”big” color=”red”] Return to Section 23 Home[/button]
[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″][et_pb_row admin_label=”Row”][et_pb_column type=”4_4″][et_pb_text admin_label=”Main Body Text” background_layout=”light” text_orientation=”justified” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]
Measurement of revenue
Extract from FRS 102-Section 23.3-23.4
23.3 An entity shall measure revenue at the fair value of the consideration received or receivable. The fair value of the consideration received or receivable takes into account the amount of any trade discounts, prompt settlement discounts and volume rebates allowed by the entity.
23.4 An entity shall include in revenue only the gross inflows of economic benefits received and receivable by the entity on its own account. An entity shall exclude from revenue all amounts collected on behalf of third parties such as sales taxes, goods and services taxes and value added taxes. In an agency relationship, an entity (the agent) shall include in revenue only the amount of its commission. The amounts collected on behalf of the principal are not revenue of the entity.
OmniPro comment
Sales incentives/rebates/settlement
As detailed in Section 23.3 above, revenue should be measured at the fair value of the consideration received or receivable which is the total sales value less any discounts and rebates given to the customer, less any sales taxes which has to be paid over to a third party. Usually the fair value will be the invoiced value however there may be instances where discounts and rebates are provided after the sale is recognised based on volumes sold to the customer or early settlements.
In relation to sales incentives provided to customers when entering into a contract, these are usually treated as rebates and will be deducted from revenue on initial recognition. See example 2 and 3 below
Example 2: Sales incentives/rebates
Company A provides to customer’s sales incentives to purchase its goods as follows. Where sales for the year are:
CU0-CU50,000 a sales rebate of 0% is applied
CU50,000-CU75,000 a sales rebate of 2% is applied
>CU75,000 a sales rebate of 5% is applied
The listed sales price for Company A product is CU100 plus VAT of CU23. Company A sells goods to customer B. In the past Customer B has always purchased between CU50,000-CU75,000 from Company A and it is probable a similar level will be purchased from Company A for the coming year. When recognising the sale on delivery to the customer the expected rebate to be issued at the end of the year should be incorporated. The journal to be posted on recognition is:
|
|
CU |
CU |
|
Dr Debtors |
123 |
|
|
Cr Revenue |
|
100 |
|
Cr VAT Liability |
|
23 |
Being journal to recognise the sale
|
|
CU |
CU |
|
Dr Revenue (CU100 * 2% being the most probable rate that will be achieved) |
2 |
|
|
Cr Rebate Accrual |
|
2 |
Being journal to reflect estimated rebate payable to the customer based on current sales
If during the year, it looks like the total sales will exceed CU75,000 then the higher rebate of 5% should be applied so a catch up charge on the rebate should be posted to sales to increase the rebate of 2% previously recognised on sales prior to that date to 5%.
Example 3: Early settlements
Company A sells goods on credit to customers. It gives customers a 5% settlement discount if the invoices are paid within 7 days. From past experience 30% of customers take up this option. If we assume sales for the month were CU100,000 which occur at month end, the total revenue to be recognised should be:
CU100,000 * (30%* 5%) = CU1,500. Hence the journal required is to Cr settlement discount accrual and Dr revenue
[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section]