Revenue from the sale of goods is recognised when control has been transferred to the buyer.
Revenue is recognised when all these five steps have occurred:
1. Identify the contract;
2. Identify the performance obligations;
3. Determine and measure the consideration;
4. Allocate the consideration to the performance obligations; and
5. Satisfy the performance obligations.
Below is a list of specifics for contracts with customers:
Goods or services must be provided to a customer – where they are actually delivered to a third party the customer is still the “contracting” party, and this qualifies;
There must be an enforceable agreement – enforceable by legal or equivalent means; and
The agreement must have sufficiently specific performance obligations – ideally clearly defined activities to be performed or goods to be delivered. Performance obligations may be implied. Acquittal processes or single-purpose charters are unlikely, by themselves, to be sufficiently specific.
The stage of completion of contracts at the reporting date is determined by reference to the proportion of costs incurred to date compared to the estimated total costs of the transaction.
Receivables for goods and services, which have 30 day terms, are recognised at the nominal amounts due less any impairment allowance account. Collectability of debts is reviewed at the end of the reporting period. Allowances are made when collectability of the debt is no longer probable.