Expanded summary

Public entities generate revenues through the exchange and non-exchange transactions 

Recognition and measurement is one of the main issues of accounting the revenues. According to the general model accepted  by the standards, the revenue shall be subject to recognition if it is expected that:

• An entity will receive  economic benefit or service potential
• Auch a benefit  can   measured reliable by quantities 

Issues of recognition of revenues gained from exchange and non-exchange transactions, with considering  the specificity of the public sector, are discussed in IPSAS 9 – Revenue from Exchange Transactions and IPSAS 23 – Revenue from Non-exchange Transactions.

The Article deals with circumstances where the   criteria established by the standard are deemed satisfactory and, the revenues are recognized respectively,

To separate the revenues received from exchange- and non-exchange transactions, a  due attention  should be paid to the content of the transaction 

Exchange transactions are transactions in which one entity receives assets or services, or has liabilities extinguished, and directly gives approximately equal value (primarily in the form of cash, goods, services, or use of assets) to another entity in exchange

Non-exchange transactions are transactions that are not exchange transactions. In a non-exchange transaction, an entity either receives value from another entity without directly giving approximately equal value in exchange, or gives value to another entity without directly receiving approximately equal value in exchange.

Measurement of the revenue generated from exchange transaction should be made at the fair value of the consideration received or receivable taking into account the amount of any trade discounts and volume rebates allowed by the entity.

Measurement of the revenue generated as a result of sale of the goods and services should be made when the criteria determined by the Standard are met

The criteria of recognition of the revenues received from the exchange transactions are used for each transaction, however in some cases it becomes necessary to use them separately for different independent components of one and the same transaction, in order to defibe a real meaning of the transaction

Recognition of the revenue received from rendering services, due to a nature of such transaction, is made  either towards the percent of performance or towards the total costs envisaged under the budget,  by the costs weighted share method

The non-exchange transaction covers mainly payments and transfers. Recognition of the results of non-exchange transactions in the financial reporting is determined by agreement on the receivable assets where both the conditions and limitations mat be envisaged

The  conditions meanly imply a purposeful use of the received assets. Their violation  may envisage return of the economic benefit or service potential to an entity  which has performed transfer. Therefore, when a receiver of the assets recognizes initially the asset, it recognizes at the same time the liabilities as well, that in case of violation of the conditions, it becomes obliged to transfer to a third party a future economic benefit or service potential 

According to the Standard, when an entity recognizes  its liability related to inflow of resources, the recognition should be done in the amount that is to be  calculated by the best measurement as at the date of the reporting date. When an entity performs its recognized  current liability related to the resources received as a result if the non-exchange transaction, it should reduce a balance value of the recognized liability and recognize the revenue by this same amount

Limitation does not implyreturn of the assets received as a result of the transaction. Consequently, the resources received in the course of transfer and recognized as an asset, should be at the same time recognized as the revenue, not a liability     

Measurement of the revenue received as a result of the non-exchange transaction, takes place by  value of the assets recognized by an entity

The entity should recognize the asset received as a result of the non-exchange transaction, except for the services rendered, when it takes a control on those resources, which satisfy the definition of e asset  and the criteria of recognition thereof. Control of the asset separates the entity’s assets from the property of public use, which are available to and used by all the entities. It excludes availability by the third persons on the benefit from the asset.

A primary measurement of the  asset acquired as a result of the non-exchange transaction, takes place at its fair value existing as of the date of its acquisition. A fair value   is a measurement that is fully relied on the market data. To say simply,  this is a ;price the sellers may receive, not a price they wish to receive through selling the asset.

As mentioned above, the non-exchange transactions generate the revenues or liabilities.  The resources recognized as an asset received from the non-exchange transaction, should at the same time be recognized as the revenue, except for the case when a liability is recognized regarding  receiving the resources. 

When the entity is to incur certain expenses   in connection to the revenue received from the non-exchange transaction, it recognizes the revenue by a full value of the received asset (excluding the costs), while the expenses incurred for this transaction, are recognized separately. For example, if a reporting entity is required to incur the delivery and assembly costs related to transfer of the fixed assets, then the revenue is recognized separately from the costs, while the costs of delivery and assembly, according to IPSAS 17 – “Property, Plant, and Equipment”  is to be recognized in the value of asset, respectively.

Thus,  the criteria for measurement and recognition of the revenues received from the exchange  and non-exchange transactions differ from each other. In particular:

• As a result of the exchange transaction, if the criteria of recognition are satisfied, then  the expected economic benefit should be recognized as revenue
• Recognition as a revenue of the resources received as a  result of non-exchange transaction, is determine by conditions an limitations of an agreement
• The revenue received from the exchange transaction, is measured by the fair value   received or receivable by the entity, taking into account the amount of any trade discounts and volume rebates allowed by the entity.
• The revenue received from the non-exchange transaction, is measured by value of the assets recognized by the entity

Despite the existing differences which are caused by specificity of the public sector, a meaning of the measurement and recognition of the revenues received as a result of exchange and non-exchange transactions, corresponds in full to the general model defined by the international standards.