10/3/2023

Revenue Recognition

Revenue is the gross inflow

Chapter 4 of economic benefits during Accruals
the period arising in the
INCOME MEASUREMENT course of the ordinary
activities of an entity when
(AND PROFITABILITY ANALYSIS) those inflows result in
increases in equity.
Prudence Matching

Revenue Recognition for sales of goods:

Revenue Recognition under VAS 14,15
The following revenue recognition criteria to be satisfied before
VAS 14 VAS 15 revenue is recognized:
a) The seller has transferred most of risks
and rewards of ownership
b) The seller doesn’t effectively manage
or control the goods
c) The amount of revenue can be
Goods Services Construction contract measured reliably
d) The seller have received or will
received economic benefits from the
sale transaction.
e) Cost related to sale transaction may be
determined.

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Revenue Recognition for services rendering:

Revenue Recognition under VAS 14,15
Measurement of REVENUE
The following revenue recognition criteria to be satisfied before
revenue is recognized: = fair value of consideration received or receivable
a) The amount of revenue can be
measured reliably
b) The seller have received or will
received economic benefits from the Discounted Fair value of
Cash
sale transaction. future cash goods or services
c) The stage of completion can be inflow received
measured reliably.
d) Incurred cost and cost to the complete
maybe determined

Revenue Recognition under VAS 14,15 Revenue Recognition under VAS 14,15
Revenue is determined according to the reasonable value of
 When goods or services are exchanged
received or receivable amounts. for goods or services of similar nature and
It is determined as the reasonable value of received or value, such exchange shall not be
receivable amounts minus (-) trade discount, payment discount, regarded as a revenue-generating
reductions in the price of goods sold and value of returns of transaction.
goods sold. When goods or services are exchanged for goods or services of
 For cash amounts or cash equivalents not yet immediately dissimilar nature and value, such exchange shall be regarded as a
received, turnover shall be determined by converting the revenue-generating transaction. In this case, revenue shall be
nominal value of amounts receivable in future into the actual determined as reasonable value of the received goods or services after
value at the time of turnover recognition at the current adjusting cash amounts or cash equivalents additionally paid or
interest rates. The actual value at the time of turnover received. Where it is impossible to determine the reasonable value of
recognition may be smaller than the nominal value the received goods or services, revenue shall be determined as equal to
receivable in future. the reasonable value of the exchanged goods or services, after
adjusting cash amounts or cash equivalents additionally paid or
received.

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Revenue Recognition for construction contract Revenue Recognition for construction contract
(read by yourself)
shall be recognized by
Revenues of a Revenues of a construction reference to the
contract completed volume
construction contract

Payments according to Payments according to the

the set schedule value of performed work volume

Increase and
Initial revenue decrease Bonuses and Revenue shall be The revenues shall be
inscribed in the amounts in the other payments
contract contract determined by the recognized by reference
performance contractor on the date of to the completed work
compiling financial volume certified by the
statement customers in the period

Special cases: Revenue Recognition under

Revenue Recognition under Circular 200
Circular 200
promotional goods
Circular when buying goods
200 The nature of the transaction is
GIFT PRODUCT discount, free gift products in the
ARE NOT ZERO form are known as promotion but in
VALUE nature are sale because customers
will not qualify if they do not buy the
promotional goods Replacement The program product.
Real Estate
when buying products, goods, for traditional In this case, the value of free gift
goods equipment customer products is recorded in cost price
and revenue corresponding to the
fair value of such products must be
recorded

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Remember: revenue should be measured also for

Revenue Recognition under Circular 200
main product and gift product

• If the main product and the gift product are the same of kind => just Replacement
use the promotional price divided by number of total products. products, goods,
equipment
• If the main product and the gift product are different of kind In case of selling products and
– Calculate weight of each kind of product in total retailed price first goods with replacement products,
– Then use that weight to allocate in the promotional price goods, equipment (in case of
malfunction prevention), turnovers
for shall products, goods sold and
replacement products, goods,
equipment must be allocated.

Revenue Recognition under Circular 200 example

• Customers buy 4 tickets (maybe in one time or in 4 different times)

The program within one year to get one free ticket. Total amount of 4 tickets value
for traditional at 1 million VND.
customer When selling goods or services in • => when each of 4 tickets is sold, revenue is recorded at 200.000
program for traditonal customer, VND. Not 250.000.
accountants record revenue on the
basis that the total amount received
minus unearned revenue

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Revenue Recognition under Circular 200 Activity Ratios (self-study)

The following revenue recognition criteria to be Activity Ratios
Real Estate satisfied before revenue is recognized: Asset Turnover Ratio Net Sales ÷ Average Total Assets
a) The real estate has completed and transfered to Receivables Turnover Ratio Net Sales ÷ Average Accounts Receivable
buyer; seller has transferred risks and Average Collection Period 365 ÷ Receivables Turnover Ratio
rewards of ownership
Inventory Turnover Ratio Cost of Goods Sold ÷ Average Inventory
b) The seller doesn’t effectively manage or control
the real estate Average Days in Inventory 365 ÷ Inventory Turnover Ratio
c) The amount of revenue can be measured reliably
d) The seller have received or will received Whenever a ratio divides an
economic benefits from the sale transaction. income statement balance by a
e) Cost related to sale transaction may be statement of financial position
determined. balance, the average for the
year is used in the denominator.

Profitability Ratios (self-study)

Profitability Ratios Total sales revenue in the period is 1,000 million VND, trade discount is
Profit Margin on Sales Net Income ÷ Net Sales 10 million VND, payment discount is 20 million VND, sales discount is
Return on Assets Net Income ÷ Average Total Assets 30 million VND, returned sales is 100 million VND. Net sales revenue
for the period is:
Return on Shareholders' Equity Net Income ÷ Average Shareholders' Equity
840 million
860 million
870 million
All is incorrect

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• On March 31, the company signed a contract to deliver goods to Does revenue affect the Cash Flow Statement?
customers. On April 15, the goods were released from the Yes
warehouse to be transported to the customer's requested location. No
On May 1, the customer received the goods and had control of the
shipment, but had not yet paid. On June 1, the company received Has an impact if the cash flow statement is prepared using the direct
the customer's transfer payment. So sales revenue will be recorded method
at: Has an impact if the cash flow statement is prepared using the indirect
• March 31 method
• April 1
• May 15
• June 1

MCQ

Which of the following Revenue is different from the others? A company has a promotion as follows: buy 1 laptop and get 1 mobile
Sales phone free, the selling price of 1 laptop is 14,550,000 VND. (Indicates
Unrealized revenue that the selling price of a mobile phone on the market is 450,000 VND).
Revenue will be recorded as follows:
Revenue from service providers
Laptop revenue is 14,550,000 VND, phone revenue = 0
Construction contract revenue
Laptop revenue is 14,100,000 VND, phone revenue is 450,000 VND
Laptop revenue is 14,113,500 VND, phone revenue is 436,500 VND
All is incorrect