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Revenue Recognition
02-03-2005, 04:43 AM,
#1
Revenue Recognition
Scenario
Company A - a debt collection agency undertakes to collect money on behalf of Company B for overdue invoices.
Currently, it is using a strange accounting methodolgy to book stock (inventory) comprising of its fee for realisable receivables. Ofcourse the other side is a credit to income.
Only a certain %age of realisable receivables is booked. Realisable receivables % is calculated via performing a historic review (3-months rollover basis) of collection trends. So for example, if such analysis reveals that only 30% of such debt is collectible, the company books only the corresponding fee as revenue (Debit in stock)

Is this treatment correct under IAS/IFRS?

PS. Aparently the local tax authorities require such accelerated recognition... ofcourse for tax purposes.



http//s4.invisionfree.com/AccountingWorld/
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02-03-2005, 05:20 PM,
#2
 
First of all the debiting the stock (inventory) is not correct, as it doesnt come under the definition of stock,(IAS 2, p.6) secondly, the business of the company is redering services, so the revenue can be book if and only when the services are rendered, i.e. in above scenario the Receivables are collected by A company on behalf of B company. Fee to the extent of those collections can be booked. (IAS 18, P 20&21)

SMR
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02-05-2005, 10:26 AM,
#3
 
Thanx for the reply.[)]
Well the issue of classifying something as stock is, from philosophical perspective, only a semantic one.. its just another asset.[D]
However I agree that it does not meet the criteria of an asset.

NB. its sometimes the irony of a guy who cant get the hands to a copy of IAS/IFRS and still needs to advise [D]

http//s4.invisionfree.com/AccountingWorld/
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