The distinction between revenue and income? IFRS 15

IFRS 15 – Revenue from contracts with customers.

The core principle of IFRS 15 (the revenue standard) requires an entity to recognise revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to in exchange for transferring those goods or services to the customer.

What is the distinction between revenue and income?

Income comprises revenue and gains, and includes all benefits (enhancements of assets or settlements of liabilities) other than contributions from equity participants. Revenue is a subset of income that arises from the sale of goods or rendering of services as part of an entity’s ongoing major or central activities, also described as its ordinary activities. Transactions that do not arise in the course of an entity’s ordinary activities do not result in revenue.

For example, gains from the disposal of the entity’s property, plant and equipment are not included in revenue.

• The distinction between revenue and other income is not always clear.
• Determining whether a transaction results in the recognition of revenue will depend on the specific circumstances.

Example:

A car dealership has cars available that can be used by potential customers for test drives (‘demonstration cars’). The cars are used for more than one year and then sold as used cars. The dealership sells both new and used cars.

Is the sale of a demonstration car accounted for as revenue or as a gain?

The car dealership is in the business of selling new and used cars. The sale of demonstration cars is therefore revenue, since selling used cars is part of the dealership’s ordinary activities.