IAS 18

IAS 18 was an International Accounting Standard issued by the International Accounting Standards Committee (IASC) and subsequently adopted by the International Accounting Standards Board (IASB). It outlined the accounting treatment for revenue arising from certain types of transactions and events.^[1] In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers, which superseded IAS 18 for annual periods beginning on or after 1 January 2018.^[2]

Scope

IAS 18 applied to revenue arising from three specific categories of transactions:^[3]

1. The sale of goods.
2. The rendering of services.
3. The use by others of entity assets yielding interest, royalties, and dividends.

Recognition Criteria

Under IAS 18, revenue was recognized only when it was probable that future economic benefits would flow to the entity and these benefits could be measured reliably.^[4]

Sale of Goods

For the sale of goods, revenue was recognized when all of the following conditions were satisfied:^[5]

• The entity transferred the significant risks and rewards of ownership of the goods to the buyer.
• The entity retained neither continuing managerial involvement nor effective control over the goods sold.
• The amount of revenue and the costs incurred could be measured reliably.

Rendering of Services

When the outcome of a service transaction could be estimated reliably, revenue was recognized by reference to the stage of completion of the transaction (often called the percentage-of-completion method).^[6]

Measurement

Revenue was measured at the fair value of the consideration received or receivable.^[7] If the inflow of cash or cash equivalents was deferred, the fair value of the consideration was determined by discounting all future receipts using an imputed rate of interest.^[8]

IAS 18 Interest, Royalties, and Dividends

Source	Recognition Basis	IFRS Reference
Interest	Using the effective interest method.	IAS 39 / IAS 18.30(a)
Royalties	On an accrual basis in accordance with the substance of the relevant agreement.	IAS 18.30(b)
Dividends	When the shareholder's right to receive payment is established.	IAS 18.30(c)

Comparison with IFRS 15

The transition from IAS 18 to IFRS 15 marked a shift from a "risks and rewards" model to a "control" model. Critics of IAS 18 argued that the standard provided limited guidance for complex transactions, such as multiple-element arrangements (bundled goods and services), leading to diversity in practice.^[9]