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[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section bb_built=”1″ 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″ custom_padding_tablet=”0px||0px|” custom_padding_last_edited=”on|desktop” prev_background_color=”#ffffff” next_background_color=”#000000″][et_pb_row][et_pb_column type=”4_4″][et_pb_toggle admin_label=”Index” _builder_version=”3.0.106″ title=”Index” open=”off”]23.1.1 Exclusions from Section 23.
23.2.1 Extract from FRS 102-Section 23.3-23.4.
23.2.2.1 Revenue – definition and basic requirements.
23.2.2.1.1 Definition of revenue.
23.2.2.1.2 Recognition criteria.
23.2.2.1.2.1 Definition of probable.
23.2.2.1.2.2 Reliable measurement
23.2.2.1.2.3 Sales incentives/rebates/settlement
23.2.2.1.3 Principal versus agent
23.2.2.1.3.1 Definition of an agent
23.2.2.1.3.2 Definition of a person acting as principal
23.2.2.1.3.3 Indication that a party is acting as principal
23.3.1 Extract from FRS 102- Section 23.5.
23.4 Exchanges of goods or services.
23.4.1 Extract from FRS 102 – Section 23.6-23.7.
23.5 Identification of the revenue transaction.
23.5.1 Extract from FRS 102 – Section 23.8-23.9.
23.5.2.2 Assessing whether separable identifiable components exist
23.5.2.2.1 Methods of allocating total consideration between components.
23.5.2.2.1.1 The relative fair value basis.
23.5.2.2.1.2 Cost plus a reasonable margin method.
23.5.2.3 Customer loyalty awards.
23.5.2.3.1 Issues to consider when determining the fair value of an award.
23.6.1 Extract from FRS 102 – Sections 23.10-23.13.
23.6.2.2 Revenue recognition criteria.
23.6.2.2.1 Example of risk and rewards of ownership transferring.
23.6.2.2.2 Assessing whether ongoing managerial involvement exists.
23.6.2.3 Right of return in exchange for cash/vouchers.
23.6.2.7 Sale of extended guarantee.
23.6.2.9 Recognition where risk and rewards of ownership based on shipment terms.
23.6.2.10 Sale of goods with retention of title clause.
23.6.2.11 Bill and hold sales.
23.6.2.12 Goods shipped subject to conditions.
23.6.2.14 Payments in advance.
23.6.2.15 Sale and repurchase agreements.
23.6.2.16 Sales to intermediate parties, such as distributors, dealers or others for Resale.
23.6.2.17 Subscriptions to publications and similar items.
23.6.2.18 Instalment sales, under which the consideration is receivable in instalments.
23.7 Agreements for the construction of real estate.
23.7.1 Extract from FRS 102 – Section 23A.14-23A.15.
23.8.1 Extract from FRS 102 – Sections 23.14-23.16, 23.21, 23.23-23.24.
23.8.2.1 Service recognition criteria.
23.8.2.1.1 Costs that relate to future activity.
23.8.2.1.2 Reliable measurements not probable.
23.8.2.1.3 Collectability no longer profitable.
23.8.2.1.4 Changes in estimates in revenues.
23.8.2.2 Intermediate number of acts over specified period.
23.8.2.3 Service with a significant act
23.8.2.4 Stage of completion method – 3 methods.
23.8.2.4.1 Proportion of costs method.
23.8.2.5 Other specific examples as extracted from the Appendix to Section 23 of FRS 102.
23.8.2.5.2 Servicing fees included in the price of the product
23.8.2.5.3 Advertising commissions.
23.8.2.5.4 Insurance agency commissions.
23.8.2.5.5 Financial services fees.
23.8.2.5.8 Initiation, entrance and membership fees.
23.8.2.5.9.1 Franchise fees: Supplies of equipment and other tangible assets.
23.8.2.5.9.2 Franchise fees: Supplies of initial and subsequent services.
23.8.2.5.9.3 Franchise fees: Continuing franchise fees.
23.8.2.5.9.4 Franchise fees: Agency transactions.
23.8.2.5.10 Fees from the development of customised software.
23.9.1 Extract from FRS 102 – Sections 23.17-23.27.
23.9.2.1 Definition of construction contract and its importance.
23.9.2.1.1 Requirements of length of a construction contract
23.9.2.2 Combination and segmentation of contracts.
23.9.2.3 Recognition of Contract revenue and contract costs.
23.9.2.4.1 Changes in fair value – reasons.
23.9.2.4.2 Penalties and variations – recognition and impact
23.9.2.4.3 Incentive payments.
23.9.2.5.1 Directly related contract costs.
23.9.2.5.2 Incidental income from directly related costs.
23.9.2.5.3 Costs directly attributable to the contract in general – overhead costs.
23.9.2.5.3.1 Costs excluded from directly attributable overhead costs.
23.9.2.5.4 Directly attributable costs to be excluded (specific costs)
23.9.2.6 Percentage of completion.
23.9.2.6.1 Methods to determine the percentage of completion.
23.9.2.6.1.1 Preparation of costs incurred over total expected costs.
23.9.2.6.1.2 Surveys of work performed.
23.9.2.6.1.3 Completion of physical preparation of contract work.
23.9.2.6.2 Assessment of which method to use.
23.9.2.7 Reliable measurement – stage of completion cost to complete.
23.9.2.8 Loss expected on contract
23.10.1 Extract from FRS102 – Section 23.29(a)
23.11.1 Extract from FRS102 – Section 23.29(b)
23.11.2.2 Assignment of rights.
23.11.2.3 Licence fee or royalty contingent on future events.
23.11.2.4 Points to consider when deciding recognition initially or over a period of time.
23.12.1 Extract from FRS102 – Section 23.29(c)
23.13.1 Extract from FRS102 – Section 23.30.
23.13.2.1 Accounting policies.
23.13.2.1.2 Acconting policy for insuracne broker
23.13.2.1.4 Accountig policy note where turnover is derived from investments.
23.13.2.1.5 Accounting policy for a software company.
23.13.2.1.6 Extract from accounting policy showing royalty income.
23.13.2.1.8 Contracting work – accounting policy.
23.13.2.2 Note to the financial statements.
23.13.2.2.1 Turnover and segmental analysis.
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23.13 Disclosures
23.13.1 Extract from FRS102 – Section 23.30
General disclosures about revenue
23.30 An entity shall disclose:
(a) the accounting policies adopted for the recognition of revenue, including the methods adopted to determine the stage of completion of transactions involving the rendering of services; and
(b) the amount of each category of revenue recognised during the period, showing separately, at a minimum, revenue arising from:
(i) the sale of goods;
(ii) the rendering of services;
(iii) interest;
(iv) royalties;
(v) dividends;
(vi) commissions;
(vii) grants; and
(viii) any other significant types of revenue.
Disclosures relating to revenue from construction contracts
23.31 An entity shall disclose the following:
(a) the amount of contract revenue recognised as revenue in the period;
(b) the methods used to determine the contract revenue recognised in the period; and
(c) the methods used to determine the stage of completion of contracts in progress.
23.32 An entity shall present:
(a) the gross amount due from customers for contract work, as an asset; and
(b) the gross amount due to customers for contract work, as a liability.
23.13.2 OmniPro Comment
See below for illustration of the disclosure requirements stated in section 23.30 to 23.32 of FRS 102. Company law requires deferred revenue to be disclosed separately in the creditors note. In addition, Company law requires a split of turnover by market also by revenue type where the markets/types are significantly different. However, where disclosure of this information would be seriously prejudicial to the interest of the company that information need not be provided but the reason for not providing same must be disclosed.
23.13.2.1 Accounting Policies
Example 29 – Extract from the Accounting policy notes
Turnover represents net sales to customers and excludes trade discounts and Value Added Tax.
Turnover from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on dispatch of the goods. Turnover from the provision of services is recognised in the accounting period in which the services are rendered and the outcome of the contract can be estimated reliably. The company uses the percentage of completion method based on the actual service performed as a percentage of the total services to be provided.
Revenue in relation to maintenance and support is recognised on a straight line basis over the term of the contract with any unearned revenue included in deferred revenue.
23.13.2.1.2 Accounting Policy for an Insurance Broker
Turnover – commission income
Turnover represents commissions earned in the period together with overrider and profit commissions receivable. Commission income is recognised in the accounting period in which the policy commences. To the extent that future services need to be provided over the life of the policy which straddles an accounting period, revenue is deferred. Commission income in relation to claims handling is recognised in the accounting period in which the claims are settled. Overrider and profit commissions, if any, are recognised in line with the underlying agreements and amounts confirmed by product providers.
23.13.2.1.3 Accounting Policy For A Manufacturng Company That Produces, Installs And Also Engages In Long Term Contracts Using The Stage Of Completion
Turnover
Turnover, excluding value added tax, represents the income received and receivable from third parties, in the ordinary course of business, for goods and services provided. Any discounts given to customers are deducted from turnover.
Revenue from the sale of products is recognised when the goods are dispatched to the customer. Revenue from the servicing of machines is recognised over the period of the performance of the service. Proceeds received in advance of product dispatch or performance of service are recorded as deferred revenue in the balance sheet.
Revenue from the sale of machines and manufactured steel components is recognised over the period of the design, build and installation contract. Where the outcome of a long-term contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the balance sheet date. This is normally measured by surveys of work performed to date. Variations in contract work are included to the extent that it is probable that they will result in revenue and they are capable of being reliably measured.
When the outcome of a long-term contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred and that it is probable it will be recoverable. Contract costs are recognised as expenses in the period in which they are incurred. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.
23.13.2.1.4 Accounting Policy Note Where Turnover Is Derived From Investments
Turnover
Turnover represents dividends and other income received on investments held, net of irrecoverable withholding taxes. Dividends are recognised in the period to which the dividends relate.
Government grants
Government grants are recognised when it is reasonable to expect that the grants will be received and all related conditions will be met.
Grants that relate to specific capital expenditure are treated as deferred income which is then credited to the profit and loss account over the related asset’s useful life on an accruals basis. Revenue grants are credited to the profit and loss account when receivable so as to match them with the expenditure to which they relate.
Dividends
Dividends from the company’s shares are recognised as income on receipt of the dividend.
23.13.2.1.5 Accounting Policy For A Software Company
Turnover
Turnover, which excludes value added tax, represents the invoiced value of goods and services supplied and the value of long term contract work done, as outlined below.
The company usually sells its software as part of an overall solution offered to a customer, in which significant customisation and modification to the company’s software generally is required. As a result, revenue generally is recognised over the course of these long term projects.
Initial license fee for software revenue is recognised as work is performed, under the percentage of completion method of accounting. Subsequent license fee revenue is recognised upon completion of the specified conditions in each contract. Service revenue that involves significant ongoing obligations, including fees for customisation, implementation and modification, is recognised as work is performed, under the percentage of completion method of accounting.
Software revenue that does not require significant customisation and modification, is recognised upon delivery and installation. In managed service contracts, revenue from operation and maintenance of customers’ billing systems is recognised in the period in which the bills are produced. Revenue from ongoing support is recognised as work is performed. Revenue from third–party hardware and software sales is recognised upon delivery and installation, and recorded at gross or net amount according to whether the company acts as a Principal or as an Agent. Maintenance revenue is recognised ratably over the term of the maintenance agreement, which in most cases is one year or less. Losses are recognised on contracts in the period in which the liability is identified.
23.13.2.1.6 Extract from accounting policy showing royalty income.
Turnover reflects amounts received or receivable in respect of patent royalties license income.
23.13.2.1.7 Accounting Policy Where Agreement Exists For Construction Of Real Estate Where Recognised Only When Risk And Reward Transfer As Opposed To Using Percentage Completion
Revenue recognition
Revenue is recognised to the extent that it is probable the economic benefits will flow to the Company and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration receivable. Revenue represents the value of goods and services supplied to customers net of value added tax and trade discounts. The following criteria must also be met before revenue is recognised.
Revenue on housing developments
Revenue on housing developments and the respective profits are recognised when the property is structurally complete and legally transferred to the purchaser.
Stock
Inventories are stated at the lower of cost and net realisable value. Net realisable value in respect of inventory property is assessed with reference to market prices at the reporting date, less estimate costs to complete including overheads and selling costs.
Building land and roads are stated at the lower of cost and net realisable less an appropriate proportion relating to plots sold in the case of estimates of estates in the course of developments.
The company assess at each balance sheet date whether the building land and roads is impaired in accordance with Section 13 and 27 of FRS 102. If an impairment has occurred then the write down is recognised as an expense in the profit and loss account.
Work in progress – The cost of uncompleted and unsold new properties comprises direct labour and material costs. No profits are taken until houses are conveyed on legal completion to third parties.
23.13.2.1.8 Contracting work – accounting policy
ACCOUNTING POLICY NOTE
Turnover – contracting work
Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the balance sheet date. This is normally measured by reference to the proportion of costs incurred up to the date of the balance sheet to the estimated total costs or this is normally measured by surveys of work done. Variations in contract work, claims and incentive payments are included to the extent that it is probable that they will result in revenue and they are capable of being reliably measured.
When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred and that it is probable it will be recoverable. Contract costs are recognised as expenses in the period in which they are incurred. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.
23.13.2.2 Note to the financial statements
Example 30: Extract from notes to the financial statements for revenue showing revenue by market and class
23.13.2.2.1 Turnover and segmental analysis
Turnover comprises the invoice value of goods and services supplied by the company exclusive of trade discounts and value-added tax derived from the company’s principal activities.
| Turnover by segment: | 2015 | 2014 |
| CU | CU | |
| Revenue from construction contracts | XXXX | XXXX |
| Rental income | XXXX | XXXX |
| Sale of services | XXXX | XXXX |
| Sale of goods | XXXX | XXXX |
|
XXXX
|
XXXX |
The amount of turnover by destination is as follows:
| 2015 | 2014 | |
| CU | CU | |
| EU Countries | XXXX | XXXX |
| Russia | XXXX | XXXX |
| Africa | XXXX | XXXX |
| Australia and New Zealand | XXXX | XXXX |
| Asia | XXXX | XXXX |
| XXXX | XXXX |
Example 31: Extract from notes to the financial statements for revenue where exemption claimed due to its inclusion being seriously prejudicial to the entity
Turnover and segmental analysis
The company operates in one principal area of activity, that of providing business support systems and related services to the communications industry. It also operates within three geographical markets: Europe, XXXXXX and the rest of the world.
No detailed business and geographical segment analysis of the company is disclosed as, in the opinion of the directors, any of these disclosures would be seriously prejudicial to the interest of the company.
23.13.2.2.2 Brokers
Example 32: Extract from notes to the financial statements for revenue derived by brokers
| Commission income | 2015 | 2014 |
| CU | CU | |
| Commission income represents commission earned as follows: | ||
| Gross value of contracts and services transacted |
XXXXXX
|
XXXXXX
|
| Commission income earned |
XXXXX
|
XXXXX
|
Example 33: Extract from notes to the financial statements for construction contracts
Turnover and segmental analysis
Turnover comprises the invoice value of goods and services supplied by the company exclusive of trade discounts and value-added tax derived from the company’s principal activities.
| Turnover by segment: | 2015 | 2014 |
| CU | CU | |
| Revenue from construction contracts | XXXX | XXXX |
| Sale of goods | XXXX | XXXX |
| XXXX | XXXX |
23.13.2.2.3 Debtors
| 2015 | 2014 | |
| CU | CU | |
| Trade debtors | XXXXX | XXXXX |
| Prepayments and other debtors | XXXXX | XXXXX |
| Corporation tax | – | – |
|
Value added tax Prepayments Accrued income |
– | – |
| Amounts due from customers for contract work (see i below) |
XXXXX |
XXXXX |
| XXXX |
XXXX |
23.13.2.2.4 Creditors
| 2015 | 2014 | |
| CU | CU | |
| Trade creditors | XXXXX | XXXXX |
| Corporation tax | – | – |
| Deferred revenue | – | – |
| Amounts due to customers for contract work (see i below) |
XXXXX |
XXXXX |
|
XXXX |
XXXX |
Note the below is not specifically required
(i) Movement on amounts due from customers for contract work:
| Balance at beginning of period | XXX | XXX |
| Gross value of work executed | XXX | XXX |
| Less progress payments received and receivable | XXX | XXX |
| Amounts due from customers | XXX | XXX |
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Example 1: Probable or possible criteria on sale.
Example 2: Sales incentives/rebates.
Example 6: Deferred payment example.
Example 7: Deferred payment example.
Example 8: Identifying separable components and allocating relative fair value.
Example 9: Identifying separable components and allocating relative fair value – goods.
Example 10: Relative fair value results in a loss.
Example 11: Cost plus a reasonable margin.
Example 12: Customer loyalty awards
Example 13: Right of return in exchange for cash/vouchers.
Example 15: Discount coupons – buy one get one free.
Example 17: Sale of extended guarantee.
Example 18: Interest free credit
Example 19: Construction real estate – buyer has the right to specify structural design.
Example 20: Construction real estate – buyer has no right to specify structural design.
Example 20A: Reliable measurement
Example 20B: Reliable measurement
Example 21: Stage of completion – detailed in the contract
Example 22: Stage of completion.
Example 23: Proportion of costs method.
Example 24: Insurance agency commissions.
Example 25: – Proportion of cost basis.
Example 26: Inability to reliably measure the contract
Example 28: Application of change in estimate.
Example 29 – Extract from the Accounting policy notes.
Example 32: Extract from notes to the financial statements for revenue derived by brokers.
Example 33: Extract from notes to the financial statements for construction contracts
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