Background Objectives Current accounting standards framework Unredeemed coupons Commission and discounts Other revenue Recommendations Disclosures
DEFINITION Revenue comprises of Turnover from transportation ( passenger, cargo and mail services) Provision of engg. Maintenance,leasing,package holidays. o Basic principle of revenue be recognized o Treatment of passenger & cargo revenue is consistent. o Treatment of standard and volume incentive commissions- reflects applications of accruals, not consistent
Recognition of unredeemed coupons & time period (vary ) Taxes and airport passenger charges(airlines act as collectors) IATA accounting policy task force. Users of financial statements have great degree of transparency(recommendations)
Transportation revenue(passenger & cargo revenue) Frequent flyer programs Accrual principle be recognized when carriage is provided Guidance addresses Time period Treating commissions and discounts Categorize revenue Requires transparency and comparability
International Accounting standards committee a. IAS 1 :Disclosure of accounting policies b. IAS 18:Revenue Recognition(service transactions-uncertainity)
Passenger tickets depends upon conditions of sale and type of fare Timing for taking credit will depend on ability of airline to rely on historic data. Airlines have these coupons in 4 ways- Calculate proportion of tickets by value which may not redeemed & credit a conservative estimate of that value to revenue They age coupons monthly & write proportion back to revenue each month in line not being redeemed,will have return back the revenue(12 to 18 months)
No credit is taken on sale immediately but value of tickets is written back to revenue(12 to 15 months) after sale where material volume of coupons is redeemed. Some have longer periods to write back revenue(18 -24 months)after the date of sale
Ticket sales through travel agents Complex issue-use of override commission Lack of consistency among airlines Recognize costs and revenue of flight Treatment varies between netting against revenue /including in selling and distribution costs or standard basic commission 9-10% or volume driven incentives(discounts) Discounts are given as the incentives to encourage the purchase of the tickets- comprise of revenue of airlines
Income generated by services provided other than passenger or cargo. It may include income from- leasing of aircraft Third party engineering and maintenance services Catering Package holiday sales-air content (normal passenger revenue)and land content.
APTF Recommends the following- Unearned revenue be carried forward and be included in current liabilities Unredeemed coupons be recognized as revenue on prudent basis in light of airlines experiences. An estimate of unredeemed coupons value be recognized on sale with balance written back (18 months) Commission and discounts should be recognized in P/L account as associated revenue
Revenue should be disclosed net of discount Commissions should be included in cost of sale Income from package be recognized as normal for passenger revenue for air content & completion of holiday for land content and costs should be matched against incomes.
Minimum disclosures are made in annual financial statements – Definition of revenue-comprise passenger & cargo revenue, net of discounts, other revenue Where in P&L accounts commissions are added Basis on which unredeemed coupons are recognized as revenue. Total amount of revenue net of discounts Amount carried in Balance Sheet as deferred income in respect of unearned income.
Disclosure of segmentation of revenues include- Passenger revenue Schedule services Charter Cargo revenue Other incomes