Revenue from Exchange Transactions (SLPSAS 10)

Revenue from Exchange Transactions (SLPSAS 10) P.Ariyasena Chief Accountant Ministry of Foreign Employments promotion and Welfare

Introduction • SLPSAS 10 is drawn from IPSAS 9 which is based on IAS 18.Local counterpart is LKR 18 Revenue • This standard uses the term revenue which encompass both revenue and gains in place of the income • Certain specific items to be recognized as revenues are addressed in other standard and are excluded from the scoped of this standard • IPSAS 23 deals with Revenue from Non Exchange Transaction

Objectives • The objective of this standard is to prescribe the accounting treatment of revenue arising from exchange transaction and events • The primary issue in accounting for revenue is determining when to recognize revenue. • Revenue is recognized when it is probable that future economic benefits can be measured reliably • This standard identifies the circumstances in which these criteria will be met and therefore revenue will be recognized

Scope • An entity prepares and presents FS under the accrual basis of accounting should apply this standard in accounting for revenue arising from the following exchange transaction and events (a) Rendering of services (b) Sale of goods ( c) The use by others of entity assets yielding interest, royalties and dividends • This standard does not deal with revenue arising from non exchange trasaction

This standard does not deal with revenues • Addressed in other SLPSAS/IPSAS including • Lease Agreement • Dividends arising from investments which are accounted for under equity method • Gains from the sale of PPEs • Arising from insurance contracts of insurance entities • Arising from changes in the fair value of financial assets and financial liabilities or other disposal • Arising from changes in the value of other current assets • Arising from the extraction of mineral or agriculture

Definitions • Exchange Transactions are transactions in which one entity receives assets or service or has liabilities extinguished, and directly gives approximately equal values( primarily in the form of cash, goods ,services or use of assets) to another entity in exchange • Non exchange Transactions are transactions that are not exchange transactions. In non exchange transactions an entity either receive value in exchange or gives value to another entity without directly value in exchange or gives value to another entity without directly receiving approximately equal value in exchange.

Definitions Revenue is the gross inflow of economic benefits or service potential during the reporting period when those inflows result in an increase in net assets/equity’ other than increases relating to contribution from owners.

Revenue • Revenue includes only the gross inflows of economic benefits or service potential received and receivable by the entity on its own account • Amounts collected as agent of the government or another government organization or on behalf of other third parties are excluded from revenue. • The amounts collected on behalf of the principle are not revenue instead. Revenue is the amount of any commission received or receivable for the collection or handling of the gross flows. • Financing inflows notably borrowing do not meet the definition of revenue

Recognition and Measurement of Revenue • Rendering of Services • When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the transaction should be recognized by reference to the stage of completion of the transaction at the reporting date • The outcome of a transaction can be estimated reliably when all the following conditions are satisfied • The amount of revenue can be measured reliably • It is probable that the economic benefit or service potential associated with the transaction will flow to the entity • The stage of completion of the transaction at the reporting date can be measured reliably • The cost incurred for the transaction can be measured reliably

Recognition and Measurement of Revenue • Sale of Goods • Revenue from the sale of goods should be recognized when all the following conditions have been satisfied • The entity has transferred to the purchaser the significant risk and rewards of ownership of the goods • The entity retain 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 economic benefits or service potential 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.

Recognition and Measurement of Revenue • Interest, Royalties and Dividends • Revenue arising from use of entity assets yielding interest, royalties and dividends should be recognized using the accounting treatment set out bellow. • Interest should be recognized on a time proportion basis that takes into account the effective yield on the assets • Royalties should be recognized as they are earned in accordance with the substance of the relevant agreement • Dividends or their equivalents should be recognized when the shareholders or the entity’s right to receive payment is established

Disclosures • The accounting policies adopted for the recognition of revenues including the methods adopted to determine the stage of completion of transactions involving the rendering of services • The amount of each significant category of revenue recognized during the period including revenue arising from • The rendering of services • The sale of goods • Interest • Royalties • Dividends or their equivalents • The amount of revenue arising from exchange of goods or services included in each significant category of revenue

Effective date • Financials statements covering periods beginningonor after 01.01.2011

Revenue from Exchange Transactions (SLPSAS 10)