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REVENUE RECOGNITION

REVENUE RECOGNITION. OUR GROUP MEMBERS . AYUSHI AGGARWAL ITISHA SHARMA KUMAR SATYANSHU. OUTLINE. Background Objectives Current accounting standards framework Unredeemed coupons Commission and discounts Other revenue Recommendations Disclosures. background. DEFINITION

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REVENUE RECOGNITION

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  1. REVENUE RECOGNITION

  2. OUR GROUP MEMBERS AYUSHI AGGARWAL ITISHA SHARMA KUMAR SATYANSHU

  3. OUTLINE • Background • Objectives • Current accounting standards framework • Unredeemed coupons • Commission and discounts • Other revenue • Recommendations • Disclosures

  4. background • DEFINITION • Revenue comprises of • Turnover from transportation ( passenger, cargo and mail services) • Provision of engg. Maintenance,leasing ,package holidays. • Basic principle of revenue be recognized • Treatment of passenger & cargo revenue is consistent. • Treatment of standard and volume incentive commissions- reflects applications of accruals, not consistent

  5. CONTD… • Recognition of unredeemed coupons & time period (vary ) • Taxes and airport passenger charges(airlines act as collectors) • IATA accounting policy task force. • Users of financial statements have great degree of transparency(recommendations)

  6. OBJECTIVES • Transportation revenue(passenger & cargo revenue) • Frequent flyer programs • Accrual principle be recognized when carriage is provided • Guidance addresses • Time period • Treating commissions and discounts • Categorize revenue • Requires transparency and comparability

  7. CURRENT ACCOUNTING STANDARDS FRAMEWORK • International Accounting standards committee • IAS 1 :Disclosure of accounting policies • IAS 18:Revenue Recognition(service transactions-uncertainity)

  8. Unredeemed coupons • Passenger tickets depends upon conditions of sale and type of fare • Timing for taking credit will depend on ability of airline to rely on historic data. • Airlines have these coupons in 4 ways- • Calculate proportion of tickets by value which may not redeemed & credit a conservative estimate of that value to revenue • They age coupons monthly & write proportion back to revenue each month in line not being redeemed,will have return back the revenue(12 to 18 months)

  9. CONTD.. • No credit is taken on sale immediately but value of tickets is written back to revenue(12 to 15 months) after sale where material volume of coupons is redeemed. • Some have longer periods to write back revenue(18 -24 months)after the date of sale

  10. Commission and discounts • Ticket sales through travel agents • Complex issue-use of override commission • Lack of consistency among airlines • Recognize costs and revenue of flight • Treatment varies between netting against revenue /including in selling and distribution costs or standard basic commission 9-10% or volume driven incentives(discounts) • Discounts are given as the incentives to encourage the purchase of the tickets-comprise of revenue of airlines

  11. Other revenue • Income generated by services provided other than passenger or cargo. It may include income from- • leasing of aircraft • Third party engineering and maintenance services • Catering • Package holiday sales-air content (normal passenger revenue)and land content.

  12. RECOMMENDATIONS APTF Recommends the following- • Unearned revenue be carried forward and be included in current liabilities • Unredeemed coupons be recognized as revenue on prudent basis in light of airline’s experiences. An estimate of unredeemed coupons value be recognized on sale with balance written back (18 months) • Commission and discounts should be recognized in P/L account as associated revenue

  13. Contd… • Revenue should be disclosed net of discount • Commissions should be included in cost of sale • Income from package be recognized as normal for passenger revenue for air content & completion of holiday for land content and costs should be matched against incomes.

  14. disclosures Minimum disclosures are made in annual financial statements – • Definition of revenue-comprise passenger & cargo revenue, net of discounts, other revenue • Where in P&L accounts commissions are added • Basis on which unredeemed coupons are recognized as revenue. • Total amount of revenue net of discounts • Amount carried in Balance Sheet as deferred income in respect of unearned income.

  15. Contd… Disclosure of segmentation of revenues include- • Passenger revenue • Schedule services • Charter • Cargo revenue • Other incomes

  16. Thank you

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