TABLE OF CONTENTS UK GAAP offers only modest guidance on the subject of revenue recognition in the form of:
Application Note G to FRS 5 Reporting the Substance of Transactions
UITF Abstract 40 Revenue Recognition and Service Contracts.
You will recall from earlier in the text that a UITF represents the Urgent Issues Task Force.
By contrast the IASB has a full accounting standard, IAS 18 Revenue, on revenue recognition.
The lack of formal guidance within UK GAAP means that it is not possible to make a direct comparison with international practice. However, it is useful to be aware of the key features of the latter which breaks revenue recognition into three areas.
Revenue should be recognized when all of the following conditions have been met:
The entity has transferred to the buyer the significant risks and rewards of ownership of the goods.
The entity contains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold.
The amount of revenue can be measured reliably.
It is probable that the economic benefits associated with the transaction will flow to the entity.
The costs incurred or to be incurred in respect of the transaction can be measured reliably.
[IAS 18 para 14]
The conditions to be met in these circumstances are
The amount of revenue can be measured reliably.
It is probable that the economic benefits associated with the transaction will flow...
