While many sales are in certain collection, some others are uncertain. A good example of sales with uncertain collection is a stationary supplier delivers stationary stuffs to one of its customer with a deal that the customer settles the payment in four years time-span, and with interest. The degree of the uncertainty (on the collection) may vary—some could be not so uncertain (with shorter time-span) and others are heavily uncertain. So, how do we treat sales when collection is uncertain, under the IFRS?

There are two issues that an accountant would need to address under such situation. First is the revenue-expense matching, and second is the interest recognition that usually comes along the transaction.

Under the IASB’s Framework, revenue is defined as income arising from the ordinary activities of an entity and may be referred to by a variety of names including sales, fees, interest, dividends, and royalties. The most common revenue recognition system is based on the accrual method. Under this approach, if the revenue recognition rules presented in the previous section have been met, then revenue may be recognized in full. In addition, expenses related to that revenue should be recognized and matched against the revenue. Is this system applicable in the case that there is a long string of expected payments from a customer that are related to a sale, and for which the level of collectibility of individual payments cannot be reasonably estimated? Read on…