How to recognize the revenue under rendering the services?

When the outcome of a transaction involving the rendering of services can be estimated reliably, the associated revenue should be recognised by reference to the stage of completion of the transaction at the year end. The outcome of a transaction can be estimated reliably when all these conditions are satisfied.

1. The amount of revenue can be measured reliably 

2. It is probable the economic benefits associated with the transaction will flow to the entity 

3. The stage of completion of the transaction at the year end can be measured reliably 

4. The costs incurred for the transaction and costs to completion can be measured reliably.

The parties to the transaction will have to agree the following before an entity can make reliable estimates.

1. Each party 's enforceable rights 

2 The  consideration to be exchanged 

3. The manner and terms of settlement 

There are  various methods of determining the stage of completion of a transaction, however, when services are performed by an indeterminate number of acts over a period of time , revenue  should be recognised on a straight line basis over the period.

In uncertain situations, when the outcome of a. transaction involving the rendering of services cannot be estimated reliably the standard recommends a no loss or no gain approach. Revenue is recognised  only to the extent of the expenses recognised that are recoverable. (IAS 18)

Note that IFRS 15 replaces the previous revenue standards.  The core principle in the framework is that a company should recognize revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services 

To recognize revenue a company would apply the following five steps 

1 identify the contracts with the customer 

2.identify the performance obligations in the contracts 

3 Determine the transaction price 

4 allocate the transaction price and

5 Recognize revenue when performance obligation is satisfied (IFRS 15).

For revenue arising from the rendering of services, provided that all of the following criteria are met, revenue should be recognised by reference to the stage of completion of the transaction at the balance sheet date (the percentage-of-completion method): [IAS 18.20]

• the amount of revenue can be measured reliably;  
• it is probable that the economic benefits will flow to the seller;  
• the stage of completion at the balance sheet date can be measured reliably; and  
• the costs incurred, or to be incurred, in respect of the transaction can be measured reliably

The revenue recognition is a cornerstone of acccrual accounting together with the matching principles. _They both determined the accounting period, in which revenues and expenses are recognized. _Revenues are recognized when they are realized or realizable, and are earned when goods are transferred ir services rendered.

Relate it to sales or economic growth and inflation 

 

I agree with Professor Suleiman answer