RSM220H1 Study Guide - Measurement Uncertainty, Royalty Payment
Document Summary
The major issue falls in the presentation part of the conceptual framework here. According to ias 37-10, a liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. Based on this definition, the royalty payment will be treated as a liability. The royalty payment, arising from a past contract, meets the definition of a liability as it would result in an outflow of entity s resources. The amount is measurable; therefore, it must be shown as a current liability for the current year and long term liability for the next 4 years. Moreover, the criteria for revenue recognition as outlined in ias 18 advocates that when the amount of revenue cannot be measured reliably, it should only be recognized to the extent that it is certain.
