Revenue recognition procedure
Intent and objectives
To ensure a consistent approach to the recognition of revenue is in place.
Procedure steps and actions
Types of revenue:
1.Recurrent and non-recurrent revenue from Commonwealth, State and local government sources:
- Commonwealth operating, capital and research funds
- higher education loan programs
- research grants
- State and local government financial assistance
2.Revenue from non-government sources:
- student fees and charges
- investment income
- consultancy and contracts income
- research revenue
- other revenue e.g. donations and bequests, scholarships and prizes, sales revenue, hiring of facilities
- recoveries and reduction revenue
- recoveries against expenditure
- The Executive Director Financial Services approves the recognition and classification of revenue items where it is not clear as to the appropriate treatment.
The following is to be considered when recognising revenue:
- Whether RMIT University controls the legal or constructive right to receive consideration (or where RMIT received the consideration on behalf of someone else)
- Whether the control of the goods and services sold has passed on to the buyer or if RMIT is still holding control (if RMIT controls the goods and services the revenue received will be income in advance and will be shown in the balance sheet)
- Whether the economic benefit arising from the revenue belongs to the University (if the economic benefit of the revenue received should be passed on to some other entity the revenue will be held on trust as a liability in the balance sheet).
- The amount of revenue can be measured reliably. Increasing the reliability of measuring revenue can be achieved by ensuring a single method of measurement is used for pricing such as the instructions on price and fee settings.
- The stage of completion of the transaction (i.e. if only half of the job is completed, only half the revenue will be recognised in the income statement; the rest of it will remain in the balance sheet as income in advance).
- Project income revenue must be recognised by reference to the achievement of those milestones and conditions.
- Student fee income is brought to account equally over the period of time in which tuition is delivered.
- Equal instalments may be recognised for each period in the absence of a clear indication of milestones and conditions.
- Research grants received will be allocated and recoded against the appropriate project account. With reciprocal grants, where a benefit flows to the granting body, income will be matched against expenditure. Non-reciprocal grants, i.e. government grants, are recognised upon receipt.
- Any discounts are recognised as gross against the relevant revenue stream to ensure that recognition of revenue is on the gross rather than net basis.