(IFRS) for Small and Medium-sized Entities (SMEs)

IFRS FOR SMES – JULY 2009Example 18Admission fees23A.22 The seller recognises revenue from artistic performances, banquets and otherspecial events when the event takes place. When a subscription to a number ofevents is sold, the seller allocates the fee to each event on a basis that reflects theextent to which services are performed at each event.Example 19Tuition fees23A.23 The seller recognises revenue over the period of instructionExample 20Initiation, entrance and membership fees23A.24 Revenue recognition depends on the nature of the services provided. If the feepermits only membership, and all other services or products are paid forseparately, or if there is a separate annual subscription, the fee is recognised asrevenue when no significant uncertainty about its collectibility exists. If the feeentitles the member to services or publications to be provided during themembership period, or to purchase goods or services at prices lower than thosecharged to non-members, it is recognised on a basis that reflects the timing,nature and value of the benefits provided.Franchise fees23A.25 Franchise fees may cover the supply of initial and subsequent services, equipmentand other tangible assets, and know how. Accordingly, franchise fees arerecognised as revenue on a basis that reflects the purpose for which the fees werecharged. The following methods of franchise fee recognition are appropriate.Example 21 Franchise fees: Supplies of equipment and othertangible assets23A.26 The franchisor recognises the fair value of the assets sold as revenue when theitems are delivered or title passes.Example 22servicesFranchise fees: Supplies of initial and subsequent23A.27 The franchisor recognises fees for the provision of continuing services, whetherpart of the initial fee or a separate fee, as revenue as the services are rendered.When the separate fee does not cover the cost of continuing services together witha reasonable profit, part of the initial fee, sufficient to cover the costs ofcontinuing services and to provide a reasonable profit on those services, isdeferred and recognised as revenue as the services are rendered.23A.28 The franchise agreement may provide for the franchisor to supply equipment,inventories, or other tangible assets at a price lower than that charged to othersor a price that does not provide a reasonable profit on those sales. In thesecircumstances, part of the initial fee, sufficient to cover estimated costs inexcess of that price and to provide a reasonable profit on those sales, is deferredand recognised over the period the goods are likely to be sold to the franchisee.146 © IASCF