Question

Explain one or two differences between general criteria for revenue recognition and same in the AASB 118 revenue recognition principles? please explain properly in point formats.

Answer 1

Under the current income recognition requirements, when a NFP entity receives assets or services or has liabilities extinguished, it is required to assess if this should be treated as a ‘contribution’ under AASB 1004. If the transfer is ‘non-reciprocal’, meaning that it is a transfer in which the entity receives assets or services or has liabilities extinguished without directly giving approximately equal value in exchange to the other party or parties to the transfer, this would be accounted for as a ‘contribution’ under AASB 1004 (where income is recognised when control or the right to receive a contribution is obtained). Otherwise, for reciprocal transfers, the NFP entity would refer back to AASB 118 or AASB 111 and would recognise income when goods are provided and services are performed. The new income recognition requirements shift the focus from a reciprocal/non-reciprocal basis to a basis of assessment that considers the existence and enforceability of a contract and the specificity of any performance obligations. The core principle of the new income recognition requirements is that, where there is an ‘enforceable’ contract with a customer with ‘sufficiently specific’ performance obligations, income would be recognised when (or as) the performance obligations are satisfied under AASB 15. Entities should ensure that the criteria in paragraph 9 of AASB 15 have been met in order for a contract with a customer to be accounted for in accordance with AASB 15. Should the transaction fall outside of the scope of AASB 15, then income (being the residual amount determined by the initial carrying amount of the asset and ‘related amounts’ recognised) would be recognised immediately under AASB 1058