AC301 TEORI AKUNTANSI

TOPIC 7
REVENUE

ARTHIK DAVIANTI, SE. MSI. AK. CA. CSRS. REVENUE

REVENUE DEFINED REVENUE DEFINED

Revenue is the gross inflow of economic benefit
during the period arising in the course of the ordinary
activities on an entity when those inflows result in
increase in equity, other than increases relating to
contributions
from equity participants
IAS 18/AASB 118
Revenues are inflows or other enhancement of
assets or an entity or settlements of its liabilities (or a
combination of both) during a period from delivering
or producing goods, rendering services, or other
activities that constitute the entitys on going major or
central operation
FASB Framework

REVENUE DEFINED REVENUE DEFINED

Revenue represents a physical and a monetary flow

PSAK No.23:
Kenaikan manfaat ekonomi selama suatu periode
akuntansi dalam bentuk pemasukan atau penambahan
aset, atau penurunan liabilitas yang mengakibatkan
kenaikan ekuitas yang tidak berasal dari kontibusi
penanam modal
Revenue is an inflow of economic benefits
Revenue forms part of income which also includes
gains and arises in the course of ordinary activities
Examples are sales, fees, interest, dividends, royalties
and rents

KELAS ART 1
AC301 TEORI AKUNTANSI
REVENUE DEFINED
IASB encompasses both revenue and gains (Framework
para 74)
Gains represent future economic benefit not
considered as a separate element (Framework para 75)
FASB differentiates revenues and gains
Gains other than sale, increase in net assets:
1. From peripheral/incidental transaction
2. May be largely beyond the control of the firm
BEHAVIOURAL VIEW OF REVENUE
General business operation Bedford (1965)
1. Acquisition of money resources
2. Acquisition of services
3. Use of services
4. Recombination of acquire services
5. Disposition of services
6. Distribution of money resources
BEHAVIOURAL VIEW OF REVENUE
Historical perspective
Profit (and revenue) determined on the basis of the
increase in the net worth of the firm
Through a policy of replacement accounting or by the
way of periodic asset appraisal (Chatfield, 1962)
A review of accounting, legal and economic writing
suggest that the realisation postulate was not accepted
prior to WW I agreement on the increase of net
worth in 1913 (May, 1950)
KELAS ART
BEHAVIOURAL VIEW OF REVENUE
Revenues are the result of firm activity
Net accomplishment of firm
revenue = accomplishment
expense = effort
matching results in profit = net accomplishment
A point of recognition must be determined
critical event
accrual throughout earnings process
BEHAVIOURAL VIEW OF REVENUE
The critical event and recognition of net profit, Myers
(1959):
Certain critical events and decisions made by the
managers of the firm
Profit is earned at the moment of making the most
critical decision or of performing the most difficult task
in the cycle of a complete transaction.
Depending on the nature of the business
REVENUE RECOGNITION
Great depression in 1930 abuses of appraisal
valuation in 1920s
The first authoritative use of the word realization in
1932 (Chatfield, 1962)
Supplanted by the notion that profit and revenue had to
be realised
Developed into the revenue recognition principle (or
realisation principle)
A distinction between capital and profit emerged from
court rulings
2
AC301 TEORI AKUNTANSI
CRITERIA FOR REVENUE RECOGNITION
At what point during the earning process can revenue be
recorded as earned because there is sufficient evidence?
CRITERIA FOR REVENUE RECOGNITION
Recognition criteria are based on the desire for both
relevant and reliable accounting information
1. measurability of asset value
2. existence of a transaction
3. substantial completion of the earning process
REVENUE MEASUREMENT
The need for reliable or verifiable measurement
conservative approaches to valuing assets.
Asset valuation to be recorded when
actually realised.
IAS 18/AASB 118 Revenue
revenue is to be measured at the fair value of the
consideration received or receivable
KELAS ART
CRITERIA FOR REVENUE RECOGNITION
REVENUE MEASUREMENT
Framework provides 2 criteria for revenue recognition
it is probable that any future economic benefit
associated with the item will flow to or from the entity
the item has a cost or value that can be measured
with reliability
Revenue recognition is not straightforward because of the
wide range of different business revenue-generating
activities and circumstances
REVENUE MEASUREMENT
Liquidity
FASB (1984) revenues and gains generally not
recognised until realisable (supported by AARF
Australian Accounting Research Foundation in Theory
Monograph, 1982).
Realised the assets received is cash or claims to cash
and realisable, the assets received is readily
convertible to known amount of cash or claim to cash
(Coombes and Martin, 1982)
18
3
AC301 TEORI AKUNTANSI
REVENUE MEASUREMENT
Realise and Recognise??? Completely different
Realise has been defined as to convert (securities,
paper money etc.) into cash, or (property of any kind)
into money to obtain or amass (a sum of money,
fortune etc.) by sale, trade or similar means On the
other hand recognise means to treat as valid, as FASB revenue should be realised or realisable before
having existence (Coombes and Martin, 1982)
19
REVENUE MEASUREMENT
FASB revenue should be realised or realisable before
recognised (1974)
Recognition requires an inflow of assets or a measurable
(quantifiable) change in the value of an asset, whereas
realisation requires an inflow of liquid assets
Collectability
Measurability whether collectability of the cash is
reasonable assured
Collectability is a matter of judgement previous
experience
21
REVENUE MEASUREMENT
Substantial completion of the earning process
Revenue is not generated (earned) until the firm has
performed most of the activities to earn revenue.
Revenue is not regarded as having been earned until
the firm has done something.
23
KELAS ART
REVENUE MEASUREMENT
Realisation
realisation should be defined strictly in the terms of a
cash receipt or a legal claim to cash and should not refer
to the broader problem of revenue recognition
(Coombes and Martin, 1982)
recognised (1974)
Recognition requires an inflow of assets or a measurable
(quantifiable) change in the value of an asset, whereas
realisation requires an inflow of liquid assets
REVENUE MEASUREMENT
Existence of a transaction
Willingness to pay from an external party in an arms
length transaction over the firms product objective
evidence of an increase in value in the firm.
22
SALE OF GOODS
The sales point is generally the most appropriate point
to measure and record revenue as all three criteria are
met
The sales point is when the product is delivered or the
services are rendered, or when title passes to the
customer
24
4
AC301 TEORI AKUNTANSI

EXCEPTIONS TO SALES BASIS
Exceptions to using the sale point are
1. revenue recognised during production
e.g. construction contracts
2. revenue recognised at the end of production
production is the critical event and the sale
is assured
3. revenue recognised when cash is received after
the sale is made instalment method and the cost
recovery method
DEVELOPMENTS IN REVENUE
RECOGNITION AND MEASUREMENT
IASB/FASB joint project not well served by the current
literature
Void in revenue recognition and measurement guidance
and a lack of a conceptual basis for resolving issues
Revenue transactions have become more complex
eg. The bundling of a principal products with
ancillary products and on going services.

25 26

DEVELOPMENTS IN REVENUE DEVELOPMENTS IN REVENUE

RECOGNITION AND MEASUREMENT
They propose:
1. recognising revenues when they arise
2. measuring them at fair value at that point
3. measuring them when they arise from an increase
in assets or a decrease in liabilities, at the fair
value of that change
RECOGNITION AND MEASUREMENT
Resulting changes in emphasis:
1. revenue is recognised when it arises
changes emphasis from realisation to timeliness
2. revenue can result from the changes in asset and
liability values and from holding assets, that is,
from remeasurements
3. revenue recognition and measurement reflect fair
value
4. measurement should be reliable

27

DEVELOPMENTS IN REVENUE FINANCIAL STATEMENT

RECOGNITION AND MEASUREMENT
Tentative agreement that two criteria must be met to
recognise revenue
1. a change in assets or liabilities must have occurred
the elements criterion
2. the change in assets or liabilities can be
appropriately (reliably) measured - the
measurement criterion and no probability criterion
There is less emphasis on substantial completion of the
earnings process and on notions of realisation and
earned.
29
PRESENTATION
IASB/FASB joint project
Tentative conclusions are
1. an all-inclusive, single income statement where
all changes to assets and liabilities will be
disclosed
2. realisation is not the basis for inclusion of items
3. separate disclosure of performance (income flows)
and remeasurement (valuation adjustments)

KELAS ART 5