[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”]
Section 23 – Revenue
Section 23 deals with the recognition and measurement of revenue for the sale of goods (purchase for resale or produced), rendering of services, provision of construction contracts, interest, royalties and dividends. It also details the disclosure requirements for these revenues.
Section 23.2-23.2A excludes the following types of revenue which are dealt with elsewhere in FRS 102 from Section 23:
(a) lease agreements (see Section 20 Leases);
(b) dividends and other income arising from investments that are accounted for using the equity method (see Section 14 Investments in Associates and Section 15 Investments in Joint Ventures);
(c) changes in the fair value of financial assets and financial liabilities or their disposal (see Section 11 Basic Financial Instruments and Section 12 Other Financial Instruments Issues);
(d) changes in the fair value of investment property (see Section 16 Investment Property);
(e) initial recognition and changes in the fair value of biological assets related to agricultural activity (see Section 34 Specialised Activities); and
(f) initial recognition of agricultural produce (see Section 34).
(g) revenue or other income arising from transactions and events dealt with in FRS 103 Insurance Contracts.
Revenue – definition and basic requirements
OmniPro comment
Definition of revenue
Appendix 1 of FRS 102 defines revenue as the ‘gross inflow of economic benefits during the period arising in the course of the ordinary activities of the entity when those inflows result in increases in equity, other than increases relating to contributions from equity participants’.
From the above definition it is evident that an item will only be shown as revenue where it is incurred in the ordinary course of business. As an example, a short-term car hire company who rents cars to customers and at the end of the cars life disposes of these cars. These cars would be classed as property, plant and equipment in the company’s financial statements. In this case the items that are sold in the ordinary course of business is the provision of car services in return for a fee. Therefore the fee charged to customer for the provision of the car would be recorded as revenue. However, on the sale of the vehicle the proceeds from the sale would not be shown in revenue instead this would be posted below the revenue line to be shown as a profit/loss on disposal. The sale of the vehicles is not the trade of the company. If in this example, the company also sold second hand cars, then it is possible for the sale of the car to be shown in revenue as the sale of cars is also a business which the company is engaged in.
Revenue within the scope of Section 23 shall only be recognised, at a minimum, when all of the following criteria:
- Revenue can be measured reliably; and
- It is probable that the economic benefits associated with the transaction can flow to the entity.
Note the above is the minimum requirements, additional requirements apply to the sale of goods and rendering of services. These are discussed further below.
Probable is defined as ‘more likely than not’ in Appendix I of FRS 102. Until the probable threshold has been past no revenue can be recognised. Note where at the time of sale where credit is provided by the entity, the likelihood of receiving payment was probable and subsequently after issuing the invoice it now looks like there is doubt about receiving all or some of the sale recognised, the provision booked against the receivable balance should be posted to expenses in the profit and loss and should not be debited against sales. See example 1
Example 1: Probable or possible criteria on sale
Company A sold goods to customer B regularly on 2 months credit. There was no history of non payment in the past. On 1 February due to financial difficulties customer B contacted Company A and all its creditors to enter into an arrangement to restructure its debts. On 4 February Company A ships a product to Customer B which was ordered in January. For this sale, the revenue should not be recognised until the money is received from Customer B as it is not probable that it will be paid for.
For the balance outstanding on the trade debtors listing in relation to sales made pre 1 February any provision required should be posted as a debit to expenses in the profit and loss account as opposed to a debit to revenue.
The reliable measurement should be very straight forward for a sale of goods as they would be sold at an agreed sales price. However, issues may arise in relation to measuring services or construction activities reliably as there is more judgement involved.
[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section]