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looking for more help on IAS -18
12-17-2009, 01:39 PM
Post: #1
looking for more help on IAS -18
Entity A purchased land to construct a new factory. The land was formerly used for agricultural purposes. A's management has
applied to the local authorities forn permission to change the
use of the land from agrricultural to industrial. The process
is expected to last six months, because of opposition from
local residents.
Management has financed the purchase with a bank loan, which will be repaid over a period of seven years, commencing from the scheduled date of completion of the factory. Management is confident that
the authorities will approve the change the use of the land because
the new factory will bring 1,000 new jobs to the area.

(required)-Can management recognize revenue before physical construction of asset and if yes what will happen if the approval is not granted afterwards? (marks 05)
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12-17-2009, 04:32 PM
Post: #2
 
my dear Revenue is the gross in flow of economic benefits arising during the ordinary economic activities of the entities.Revenue is recorded when risks and rewards are transfered to entity .Uopon cmpletion of building what risks and rewards are transfered?ur question was not very much clear plz ask again what u really want to know?
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12-17-2009, 10:13 PM
Post: #3
 
Zia

Of which Revenue you are inquiring about? I mean there is no mention of any revenue in your query. Do you wish to inquire about recognising Interest Expense on Loan acquired? You need to re-frame or clarify your query.


Regards,


KAMRAN.
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12-19-2009, 10:49 PM
Post: #4
 
AOA.
SORRY genetle mens question is right. i had checked it.
plz tell me what should the answer of requirment of question
according to ur professional opinion.

in question there is no mention of revenue cartagery.
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12-19-2009, 10:56 PM
Post: #5
 
But kamran bhai interest exp and loan will be the exp and liability respectively of company A. I want to know can company recognize
revenue according to question?
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12-20-2009, 01:11 AM
Post: #6
 
Zia

Sorry I cannot reply the question with certainty since the question does not tell how the revenue is expected to be earned. Factory is not constructed, business is not started, no economic activity has been undertaken. In such situation revenue can come in the shape of Mann-o-salva only and yes if this happens, revenue should be booked.

The only thing which appears from the circumstances is the expected agricultural produce that could have already grown on the land at the time of its purchase (since it is still agricultural) that can result in some agri revenue in the intermediary period.

The company's objective is not to carry on agri business, if this is the intent of question. So, any such inflow will not be taken as revenue. Instead it will be taken as a periodic or deferred gain and may be offset against capital expenditure once the construction starts.

This reply is, I believe, an illetrate one and merely to find a way out; but to my understanding there appears no other solution to this mystry.

Regards



Kamran.
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