Revenue recognition in the not for profit sector

At the most recent meeting of the Australian Accounting Standards Board (“AASB”), it was noted that it is now unlikely the not-for-profit revenue recognition exposure draft will be released before mid-2015 meaning it is unlikely we’ll have a final revenue recognition standard to replace AASB 1004 Contributions before June 2015.

Much of the current discussion centres around the requirement to split ‘donation’ income from sales and service income.AASB staff prepared a draft paper which contained a number of examples illustrating how AASB staff saw this requirement applying to certain fairly common not-for-profits transactions.

The result was a very complex approach which would be quite onerous.  AASB staff are currently reconsidering the proposals.

Cocoa Inc sells chocolates for $2, a 50c premium over which they would be available in a supermarket.  According to the examples, as the chocolates are sold at a premium, the entity would use the stand alone selling price to determine the revenue from sale of goods and the excess would be allocated to donations income.

Therefore under the staff paper, there would be a 50c donation component (recognised upfront as donation income) and a $1.50 sale of goods amount (also recognised upfront due to the transfer or risks and rewards of the chocolate bar occurring at the time it is taken from the box).

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