Revenue Recognition Standard
Japan’s corporate accounting principles stipulate that “Sales shall be recognized in accordance with realization basis and limited to the realized sale of goods or rendering of services,” but no comprehensive standards for revenue recognition have existed.
Therefore, from the standpoint of international comparability, the Accounting Standards Board of Japan (ASBJ) issued the “Accounting Standard for Revenue Recognition” and “Implementation Guidance on Accounting Standard for Revenue Recognition” on March 30, 2018. The new standards are in line with IFRS No.15 “Revenue from Contracts with Customers.”
2. Basic principle of revenue recognition
As with IFRS No.15, an entity should recognize revenue with the following five-step process:
(1) Identify the contract(s) with a customer
(2) Identify the contractual performance obligations
(3) Determine the amount of consideration/price for the transaction
(4) Allocate the determined amount of consideration/price to the contractual obligations
(5) Recognize revenue when or as the performance party satisfies a performance obligation
3. Corporation tax reform
Under the current Japanese Corporation Tax Law, in computing the amount of income in each accounting period, the amount to be included into gross revenue in the accounting period shall, unless otherwise provided for, be the amount of revenue in the said accounting period other than capital transactions. In addition, gross revenue is computed in accordance with the generally accepted accounting principles.
In 2018 Tax Reform, Corporation Tax Law Article 22-2 has been newly introduced, and Article 22 paragraph 4 has been amended. It is thought that these corporation tax reforms accept and reflect the basic principle or thoughts of revenue recognition standard under corporate accounting principles.
In this News, we mentioned the summary of “Revenue Recognition Standard.” Please note that this News only introduces general outlines and does not include professional advice. So please make sure not to make any decisions without taking professional advice individually. If you have any questions, please feel free to contact us.
ASBJ Statement No.29 “Accounting Standard for Revenue Recognition”
ASBJ Guidance No.30 “Implementation Guidance on Accounting Standard for Revenue Recognition”
Tax Treatment for “Accounting Standard for Revenue Recognition”～Corporation Tax～ National Tax Agency May 2018