Section 20: Revenue (AASB 1061_04-26)

This section applies to the accounting for revenue arising from a transaction that is not addressed by paragraph 1.5 or another section of this Standard. Revenue is income arising in the course of an entity’s ordinary activities. Revenue arises from recorded inflows of cash and other assets to the entity, except for inflows from borrowings, sales of assets that are not inventory, asset purchases, entity combinations and contributions of capital from owners.

Examples of revenue are donations, grants, members’ fees, other forms of funding and sales consideration earned through the transfer of goods or services to customers (including customers at fundraising events).

An entity shall, on initial recording of cash or another asset transferred to the entity in a transaction with a grantor, donor, customer or similar other transferor (the transferor): 

(a) record a deferred revenue obligation (liability), if the entity and the transferor have a common understanding that in response the entity will perform in a particular manner resulting in the related transfer or using up of: 

(i) that asset; or: 

(ii) other assets of the entity of commensurate value to the transferor (eg inventory); or 

(b) otherwise, record revenue simultaneously with initially recording the asset received.

On initial recording, the liability in paragraph 20.3(a) or the revenue in paragraph 20.3(b) shall be measured at the same amount as the asset, being: 

(a) for debtors – the transaction price, in accordance with paragraph 10.9. That amount excludes amounts collectible on behalf of third parties (eg goods and services tax); and 

(b) for all other assets – the cost, fair value or other amount, as required by the relevant section of this Standard.

An entity shall reduce the carrying amount of a deferred revenue obligation and record revenue in profit or loss in the manner that faithfully represents the amount and pattern of the entity’s satisfaction of the commitments relevant to the transaction. An entity applies judgement to determine when it satisfies its commitments relating to the transferred assets. This may be different to the timing of the using up of the transferred assets.

Each commitment to perform in a particular manner must be considered separately. It is unnecessary for the commitment to be enforceable (by legal or other means) against the entity before a deferred revenue obligation can be recorded.

Examples of an entity’s performance in a particular manner resulting in the transfer or using up of either the asset received or other assets are: 

(a) transferring specified goods or rendering specified services to the transferor or its designated third party beneficiaries; 

(b) acquiring or constructing an asset under the terms of a grant; 

(c) incurring eligible expenditure; and 

(d) using the asset(s) as directed for the specified period.

Examples of when a commitment is satisfied and revenue recorded are: 

(a) when, or as, the specified goods and services are transferred; 

(b) when, or as, the specified activities are performed; 

(c) when eligible expenditure is incurred; and 

(d) as time elapses over the specified period. 

Methods for determining the extent to which a commitment is satisfied and revenue is recorded include by reference to the stage of completion or the incurred proportion of the total quantity, cost or value of the goods or services to be transferred or used up in exchange, or on a time basis.

There might be multiple documented commitments attached to an inflow of assets. If all the commitments relating to an inflow of assets are fully satisfied in the reporting period, there is no need to identify each separate commitment in the transaction as the entire amount received will be recorded as revenue of the reporting period.

A common understanding between the entity and the transferor that the entity will perform in a particular manner may be evidenced by written communication or oral representations between the entity and the transferor of the asset regarding: 

(a) the purpose for which the transferred asset, or other assets of the entity, is to be transferred or used up; or 

(b) the period over which the transferred asset is to be used. 

If an entity’s performance in a particular manner is enforceable against the entity, evidence of the aspects in (a) or (b) would normally exist. However, enforceability is not the only way a common understanding that the entity will perform in a particular manner can be evidenced.

Examples of evidence that parties to a transaction have a common understanding of how the entity will perform in response to receiving the transferred assets are: 

(a) in sales of goods or services – the invoice, communication between the customer and the entity, or other representations (such as advertising) made to the customer regarding the goods and services that will be provided in return for the consideration; 

(b) where an application for funding sets out how or when the entity expects to use the funds – approval of the application by the funding provider; and 

(c) communicated public statements of the entity regarding how the entity would use assets provided to it and that create, for the transferor, a valid expectation that the entity will use transferred assets in the promised manner.

In some cases, assets may be transferred to an entity with the expectation that the assets received will be used to support the entity’s operations over an unspecified period of time. In these cases, the parties to the transaction share a common understanding as to how the entity will perform in exchange for the transferred assets. Unless the assets are separately identified in some way, it will not usually be possible to identify when the particular transferred assets have been used up by the entity. Therefore, as a practical expedient, in all such cases revenue shall be recorded simultaneously with initially recording the assets.

Internal expectations or decisions by those charged with governance about how or when the entity expects to use funds received from donations, grants and bequests do not determine whether the parties have a common understanding as to how the entity will perform in a particular manner. Even if internal expectations regarding the intended use of such an asset received are formed and communicated by an entity’s management to a transferor after the asset was received, that communication does not establish a common understanding between the parties that the entity will perform in a particular manner without evidence of the acceptance by the transferor of that intended use.

When another party is involved in satisfying an obligation of the entity to a beneficiary or customer, the entity shall determine whether the nature of its obligation is to satisfy the requirements itself (that is, the entity is a principal) or to arrange for those requirements to be met by that other party (that is, the entity is an agent).

An entity is a principal in the transaction if it controls the specified good or service before that good or service is transferred to the beneficiary or customer. Indicators that an entity controls the specified good or service before it is transferred include, but are not limited to, the following: 

(a) the entity has the primary responsibility for providing the good or service to the beneficiary or customer, including the primary responsibility for the acceptability of the good or service (such as whether the good or service meets a customer’s specifications); 

(b) the entity has discretion in establishing the prices, either directly or indirectly, for the good or service; and 

(c) the entity has inventory risk in relation to the specified good or service (eg the customer has a right to return the transferred goods).

An example of an entity acting as a principal is when an entity organises a conference where it is responsible for the overall conference content and delivery, even though the entity may engage third parties to facilitate various sessions.

An entity that is a principal in a transaction records revenue equal to the amount of cash or other assets transferred to the entity in the transaction. An entity that is an agent in a transaction records revenue in the amount of any management or administration charge, fee or commission to which the entity expects to be entitled in exchange for arranging for the specified goods or services to be provided to beneficiaries or customers. An entity’s charge, fee or commission as an agent might be the net amount of consideration that the entity retains after forwarding to another party the consideration received for providing specified goods or services to beneficiaries or customers.

A pledge is a promise made by a donor to contribute assets to the entity in the future. Pledged assets are not recorded until the promised assets are received. The contingent asset disclosure requirements in paragraph 19.17 apply to pledges that are probable to result in an inflow of economic benefits to the entity. Revenue arising from pledges is recorded as required by paragraph 20.3.

An entity may, but is not required to, record volunteer services, or a class of volunteer services, as revenue of the period. An entity may do so only if the fair value of those services can be measured reliably. For example, a reliable measure of the fair value of volunteered professional services would be available where these services have observable market prices.

An entity that elects to record volunteer services received shall measure those services at their fair value. The entity shall record an expense for the using up of those services for the same amount and at the same time as it records the related revenue.

An entity shall disaggregate its total revenue for the period into categories that help users of its financial statements assess the nature and uncertainty of each type of revenue recorded, for example: 

(a) grants and donations specified to be used for the provision of goods or services, or rendering a specified purpose; 

(b) grants and donations for the construction or purchase of long-lived assets; 

(c) other grants and donations, and bequests; 

(d) revenue from the sale of goods or services to customers; 

(e) membership fees and subscriptions; and 

(f) interest, dividends and other investment revenue. 

In relation to amounts of revenue disclosed under (d), a general description of the nature of the goods and services provided to customers shall also be disclosed.

The categories may be described using terminology appropriate for the entity and need not use the titles in paragraph 20.21.

If there is difficulty in determining the category that should be used for a particular transaction, the entity shall use judgement to determine an appropriate classification. This classification shall be applied consistently to similar transactions in the current and future periods.

An entity shall disclose the total amount of deferred revenue obligations at the reporting date, showing separately the current and non-current portions, and disaggregated by how the entity will perform (eg transfer goods and services or construct a building) in exchange for the assets received.

Notwithstanding paragraph 3.6, an entity shall classify a deferred revenue obligation (or part thereof) as a current liability if the entity expects, consistent with paragraph 20.5, the liability to be reduced and revenue recorded within twelve months after the reporting date. All other deferred revenue obligations shall be classified as non-current.

In relation to volunteer services received by an entity during the reporting period, the entity shall disclose: 

(a) a description of those services; and 

(b) the amount, if any, recorded as revenue.

An entity shall disclose sufficient descriptive information about volunteer services received to enable users of its financial statements to understand the effects of volunteer services on the entity’s operations, including the entity’s dependence on volunteer services for the achievement of its objectives and any known information about forthcoming significant changes to the nature and extent of expected volunteer services. An entity is not required to quantify the value of volunteer services received.