Identification of the Transaction12

Identification of the Transaction12 If a sales transaction comprises more than one clearly identifiable component, then revenue should be recognised for each component so that it reflects the substance of the transaction.13 For example, if a sale is made for the delivery and installation of equipment, followed by a two-year service warranty contract, the service revenue should be separated from the original equipment sale and recognised over the twenty four months that the revenue will be earned. The effective advance payment should be treated as a liability until that date.14 The recognition criteria should be applied to two or more transactions together when they are linked in such a way that the commercial effect cannot be understood without reference to the series of transactions as a whole.Sale of Goods15 Revenue from the sale of goods should be recognised when all the following conditionshave been satisfied:a) Smiths Group has transferred to the buyer the significant risks and rewards ofownership of the goods;b) Smiths Group retains neither continuing managerial involvement to the degreeusually associated with ownership nor effective control over the goods sold;c) the amount of revenue can be measured reliably;d) it is probable that the economic benefits associated with the transaction will flow toSmiths Group; ande) the costs incurred or to be incurred in respect of the transaction can be measuredreliably.