IAS 18 – Revenue

3 Measuring Revenue

Revenue shall be measured at the fair value of the consideration received or receivable.

Where fair value means the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.

3.1 Trade discounts and volume rebates

Revenue is measured at the fair value of the consideration received or receivable taking into account the amount of any trade discounts and volume rebates allowed by the entity

3.2 When the payment is deferred under a financing transaction

When the inflow of cash or cash equivalents is deferred and the arrangement constitutes a financing transaction then fair value of the consideration should be measured by discounting all future receipts using an imputed interest rate.

The difference between the fair value and nominal amount of consideration is recognized as interest revenue in accordance with this standard, IAS 39 and IFRS 9.

3.3. Exchange of goods or services

When exchange is for goods or services with similar nature and value

The exchange is not regarded as a transaction which generates revenue. This is often the case with commodities like oil or milk where suppliers exchange or swap inventories in various locations to fulfill demand on a timely basis in a particular location

When exchange is for goods or services with dissimilar nature and value

The exchange is regarded as a transaction which generates revenue. The revenue is measured at the fair value of the goods or services received, adjusted by the amount of any cash or cash equivalents transferred.

When the fair value of the goods or services received cannot be measured reliably, the revenue is measured at the fair value of the goods or services given up, adjusted by the amount of any cash or cash equivalents transferred.

4 Identification of transactions

4.1 General principle

The recognition criteria in this Standard are usually applied separately to each transaction.

4.2 Special circumstances

When single transaction has multiple components

Apply recognition criteria separately to each component of a single transaction in order to reflect the substance of transaction. For example selling price contains subsequent service charges as well included in the product price. That portion should be deferred and recognized as services are rendered.

When multiple transactions are taken as one

Apply recognition criteria together over a series of transaction to understand the commercial effect of transaction. For example sale and repurchase agreement