What are Services Rendered? Definition, Explanation, and Example

This is a clear indicator that the revenue from the sale can be reliably measured. In our example, the customer has already paid for the goods so it would be fairly to assume this condition has been met (the economic benefits have already flowed to the entity). However, there must be some consideration given to the likelihood of a refund being made. If a company sells an item to a company that has recently gone insolvent, it is unrealistic to expect the company to pay and therefore it is NOT probable that the economic benefits will flow to the entity. If a business makes or buys a certain product to re-sell then this its revenue would be classed as “sale of goods”. A few examples of this type of business are supermarkets, car dealerships and restaurants.

• In recent years AB Ltd. has returned several slow moving cars to the supplier and has also been required to transfer cars to the other dealers at supplier’s request.
• Revenue is measured at the fair value of the consideration received or receivable.
• Therefore, in this regard, it is quite important to ensure that the service provider and the service user are on the same page about the deliverables and the scope of work included in the service contract.
• If an insurance agent receives a commission for starting or renewing a policy, they recognise the revenue when the policy starts—unless the agent has to keep providing service during the policy.
• This is essential because not all of the important points are included in the service contracts, the eventual outcome of the contract is intangible, in the sense that it cannot be physically touched or felt.

thoughts on “Revenue Recognition under Accounting Standard 9 How is it done?”

It is easy to measure the completion of this type of service as a customer is not going to leave with the job half complete. When providing a service, your customers can’t necessarily see or touch the “product” you have sold tax deductible expenses for photographers to them. This one perhaps requires a bit more thought than the other conditions that must be met to recognise revenue. For most sales, we would expect an invoice to have been raised to the customer stating the amount due.

Related active projects

As per the contract AB Ltd. is required to pay 15% initial deposit at the date on delivery of the car and obtains ownership of the vehicles at that point. If it fails to pay the remaining balance amount at the end of three months period, it loses its 15% deposit and has to return the cars at its own expense. AB Ltd. pays the manufacturer’s list price at the end of the four month period (or at the date of sale if earlier). In recent years AB Ltd. has returned several slow moving cars to the supplier and has also been required to transfer cars to the other dealers at supplier’s request.

At Which Point can Revenue be Recognised for the Sale of Goods Under FRS 102

Therefore, it can be determined that until the customer has actually collected their suit, revenue should not be recognised. Generally, commission charged for arranging or granting loan and other facilities should be recognized when a loan is sanctioned and accepted by borrower. Commitment facility or loan management fees which relate to continuing obligations or services should normally be recognized over the life of the loan. It is recognized when the installation has been completed and accepted by the clients. Revenue of sale price excluding interest should be recognized on the date of sale.

What are Services Rendered?

In the above examples, both of the components involved in the transaction will be accounted for collectively to get the true commercial substance of the complex transaction. The cost of inventory plays a major part in the calculation of COGS while there is no such thing when we calculate the cost of revenue or services. Following the example above, the salaries of the professional staff are considered as the costs of services since the professional staff is involved directly with the services. So that salary for the professional staff here considers as the costs services during the period. IAS 18 states that ‘Revenue shall be measured at the fair value of the consideration received or receivable’ (12). In determining fair value it would be necessary to take into account any trade discounts or volume rebates granted by the seller.

Hence, having a detailed breakdown and including the relevant documentation attached as an appendix to the invoice is probably a good idea that can enable both parties to have clarity about the invoice generated and the breakdown of the relevant costing. Services Rendered is a concept that can be best explained in the circumstances with a relative degree of ambiguity about the service completion itself. This calls for the parties involved to maintain proper paperwork and proper record-keeping that can ensure that there are no bottlenecks further on in the agreement process. Service rendered is a concept that is used to convey the deliverable that has been delivered to the service user.

It is now fair to assume that we probably aren’t going to be able to fulfill the customers order and there is a high chance that the “economic benefits” will have to flow back to the buyer. The amount of excise duty to be deducted from turnover should be the total excise duty for the year except the excise duty related to the difference between the closing stock and opening stock. The excise duty related to the difference between the closing stock and opening stock should be recognised separately in the statement of profit and loss, with an explanatory note in the notes to accounts to explain the nature of the two amounts of excise duty.

Accordingly, the point of time at which all  significant risks and rewards of ownership can be considered as transferred, is required to be determined on the basis of the terms and conditions of the agreement for sale. When services are performed by the entity in a continuous manner over a specified period of time, then entity will recognize the revenue on a straight-line basis over the specified period unless some other method is appropriate to determine the stage of completion. In the Framework for Financial Reporting, income is defined as the increase in economic benefits in the form of inflows or increase in asset or decrease in liability which results in increase in equity, other than contributions by equity participants. The cost of services is reported in the entity income statement similar to the cost of sales for the manufacturing or trading company.

(a) Smith supplies cars to AB Ltd. on terms that allow the entity to display the cars for a period of four months from the date of delivery or when the cars are sold by AB Ltd. to the customer in case it is less than four months period. Within this time period AB Ltd. has the right to return the cars to the supplier or can be asked by Smith to transfer the cars to another dealer (without any charge to AB Ltd.). Other costs that do not directly contribute to rendering service should not include in the cost of services when presented in the income statement. Sometimes, you can’t estimate how much of the service has been completed or how much it will cost to finish.

Lawyers function similarly, since legal cases are very difficult to budget and even though they can provide a guesstimate, the final bill for services rendered will normally be higher than expected. 9.1 Subsequent uncertainty in collection – When uncertainty of collection of revenue arises subsequently after the revenue recognition, it is better to make provision for the uncertainty in collection rather than adjustment in already recognized revenue. (c) Royalty income will be recognized by the entity on accrual basis as per the terms of the contract. Service rendered can be explained as a finishing off of service agreement that is furthered to the client as an indicator that the work has been completed so that payment can be generated accordingly from the service receiver to the provider. Service rendered, by definition, means that the agreed-upon service has been completed so that the final leg of the payment can finally be processed. Revenue can only be recognised on the amount of the service that is completed at the end of a period/financial year.

IND AS-18 contains the provisions for revenue swaps no such corresponding provisions are in AS-9. Under IAS-18, when goods or services are exchanged or swapped for goods or services which are of a similar nature and value, the exchange is not regarded as a transaction which generates revenue. When goods are sold or services are rendered in exchange for dissimilar goods or services, the exchange is regarded as a transaction which generates revenue. The revenue is measured at the fair value of the goods or services received, adjusted by the amount of any cash or cash equivalents transferred. However, if the cars are sold or AB ltd. decides to keep it, at the end of four months period, at the list price in force at that date. Up to that point there is no sale and the cars will not appear in inventory of the AB Ltd.