Classification of Revenue in NFPs
Prestented by:
Dr Ted Fack
Queensland University of Technologhy
Brisbane
Background to the issue
AASB are sector neutral
NFP variations allowed under “Aus” paras
“Income” is defined in para 70(a) of the AASB Framework (2009) as:
“..increases in economic benefit during the accounting
period in the form of inflows or enhansements of assets or
decreases of liabilities that result in increases of equity,
other than those relating to contributions from equity
participants.”
Income
• Income comprises both revenue and other income that arises in
the ordinary course of the entities operations;
• Revenue is reported in the Income Statement on a gross basis;
• AASB 118 revenue is classified into:
• sale of goods
• rendering of services
• the use by others of entity assets, eg. interest, royalties and
dividends
Contributions (aka “transfers”)
Appendix to AASB 1004
“a non-reciprocal transfer is defined as a transfer in which
the entity receives an assets (being cash, the right to receive
cash, or other asset) without giving approximately equal
value to the other party or parties to the transfer.”
AASB 1004 states that
“Reciprocal transfers are transfers in which the transferor
and the transferee receive and sacrifice approximately equal
value.”
What’s the problem? – Comparability!
Determining whether a transaction is reciprocal or non-reciprocal is
often difficult in practice:
For example:
 Government “grant” to fund certain services
 Government “grant” to support NFP’s work
 Donor contribution for special puposes
 Philanthropic Trust “grant” to fund a new service
Revenue Recognition
AASB 1004 (para 12) revenue recognition criteria
If classified as a “contribution”, then NFP must recognise
contribution as revenue when all following conditions are met:
a. Entity gains control or right to receive contribution;
b. It is probable that the economic benefits comprising the
contribution will flow to the entity; and
c. The amount of the contribution can be measured reliably.
NFP to recognise enire amount of the contribution as
income upon receipt – unless…..
Multi-year policy agreement exception
AASB 1004 (para 14) gives example of a multi-year policy agreement
where the entity does not obtain control of the contribution until it has
met conditions or provided services that make it eligible to receive
the contribution.
Where such an agreement – income recognised only in relation to
contributions received or receivable under the agreement.
Change is in the wind!
• IFRS 15 Revenue from contracts with customers replaces
IAS 18 Revenue
• AASB 15 (the Aus equivolent) has not yet been issued (due
4th Qtr 2014)
• AASB 1004 Contributions under review
AASB15 is coming
IFRS 15 Step process
Core principle of IFRS 15 requires 5 step process:
1. Identify the contract(s)
2. Identify the performance obligations
3. Determine the transaction price
4. Allocate the transaction price
5. Regonise revenue when each performance obligation is
satisfied
Recommendations from recent QUT Research
Statement of Profit and Loss and Other
Comprehensive Income
Note
Revenue
Sales of goods
Provision of services
Gifts
Transfers
Investment income
Total Revenue
Other Income
Total Income
2
3
4
5
6
7
Sale of Goods
Lottery sales
Art unions
Raffles
Tax-deductible contributions
Other sales
Total Sales of Goods
2
Provision of services
Government grants (reciprocal)
Membership fees
Sponsorships (commercial)
Event ticket sales
Total Income from provision of services
3
Sale of Goods and
Provision of Services
Gifts Transfers
Investment
Other
Gifts
Gifts
Bequests/Legacies
Total Gifts
4
Transfers
Government Grants (non-reciprocal)
Grants from Trusts and Foundations
Total Transfers
5
Investment Income
Interest
Dividends
Rents
Royalties
Total Investment Income
6
Other Income
Gains on sale of non-current assets
Foreign exchange gain
Total Other Income
7
Examples
A. State Government provides $25,000 grant “to support your wonderful work
with disadvantaged youth”
B. Local government provides a “grant” of $5,000 to assist disabled children
holiday program
C. XYZ Trust makes a grant of $125,000 over 3 years for a pilot program to
teach older people computer skills.
D. Commonwealth Government grant of $350,000 pa for three years to deliver
range of HACC–type services
Questions?
1.
2.
3.
4.
Are government grants “reciprocal” or “non reciprocal”?
Are government grants “purchases of service” or “contributions”?
What are “relative stand-alone selling prices?”
What are the issues re recognition of liability for “special purpose”
funds received in advance?
Where to from here?
AASB 15 Revenue from Contracts expected in Q4 2014
New standard expected to apply for annual periods after 1 January 2017
Step 1 & 2
IDENTIFY CONTRACTS
Applies to
Oral, Written
or Implied
contracts
Identify
performance
obligations
under each
contract
Step 3
DETERMINE
Identify the
transaction
price
Step 4
ALLOCATE
Step 5
RECOGNISE
Allocate
transaction
price to
performance
obligation
Recognise
revenue
when each
performance
obligation is
satisfied
AASB project on NFP Income
• Currently AASB 118, 111 and 1004 are relevant to NFP income
recognition
• AASB Project under way to replace all except parts of 1004 re
restructure of admin arrangements
• Expected in Q4 2014
Questions?