In accordance with the Basic Standards for Enterprise Accounting, the Ministry of Finance issued the revised Accounting Standards for Business Enterprises No. 14—Revenue on 2017/7/5, effective as of 2018/1/1.
1. Overview of Guidelines
Revenue is the total inflow of economic benefits arising from an entity's ordinary activities that results in an increase in equity, excluding contributions from owners.
Core Principles
Enterprises shall recognize revenue when they have fulfilled their performance obligations under the contract, which occurs when the customer obtains control of the goods. Obtaining control of the goods means having the ability to direct the use of those goods and obtain substantially all of the remaining economic benefits.
II. The Five-Step Model for Revenue Recognition
Identify contracts entered into with customers
The parties have approved the contract and are committed to fulfilling their respective obligations; rights and obligations of all parties are clearly defined; payment terms are specified; the contract has commercial substance; and consideration is likely to be collected.
Identify individual performance obligations in the contract
If the goods promised by an enterprise to a customer meet both criteria for being distinct, they shall be accounted for as distinct goods.
Confirm Transaction Price
Consider the impact of variable consideration, significant financing components, non-cash consideration, and consideration payable to customers.
Allocate the transaction price to each separate performance obligation
Allocate based on the relative standalone selling prices of the promised goods under each performance obligation.
Recognize revenue when each performance obligation is satisfied.
Recognized over time or at a point in time.
3. Performance obligations satisfied over a period of time
An entity satisfies the following conditions to recognize revenue over time:
- • The customer receives and consumes the economic benefits as the entity performs its obligations.
- • The customer can control the work-in-progress goods during the company's fulfillment process.
- • The goods produced by the enterprise in fulfilling its obligations have no alternative use, and the enterprise has an enforceable right to payment for performance completed to date throughout the contract period.
For performance obligations satisfied over time, the entity shall recognize revenue over that period based on progress toward complete satisfaction.
4. Contract Assets and Contract Liabilities
Contract Assets
A right to consideration from a customer for transferring goods, where the right depends on factors other than the passage of time.
Contract Liabilities
Obligation to transfer goods or services to a customer for which the enterprise has received or is entitled to receive consideration from the customer.
Regulatory Document Attachment
ASPE 14 — Revenue (PDF)