Samsung Electronics Revenue Recognition

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Revenue is at the heart of business performance. Everything hinges on the sale. Revenue recognition is an accounting principle under generally accepted accounting principles (GAAP) that determines the specific conditions under which revenue is recognized or accounted for. Generally, revenue is recognized only when a specific critical event has occurred, and the amount of revenue is measurable. However, there are several situations in which exceptions may apply. (Revenue Recognition, n.d.)

Samsung Electronics Revenue mainly comprises the fair value of the consideration received or receivable for the sale of goods in the ordinary course of the Group’s activities. Revenue is shown net of value-added tax, returns, sales incentives and discounts and after eliminating intercompany transactions. The Group recognizes revenue when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the entity; and when specific criteria have been met for each of the Group’s activities, as described below. The Group measures revenue by reliably estimating the contingencies associated with revenue based on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. Where multiple-element arrangements exist, the fair values of each element are decided based on the current market price of each of the elements when sold separately. When the fair values of each element are indeterminable, the fair values of deliverables which have already been given, are calculated in such way that the fair values of elements which are yet to be provided, are subtracted from total contract value of the arrangement. These revenues are mainly, sales of goods, services, interest income, royalty income, and dividend income. For instance, sales of goods such as products and merchandises are recognized upon delivery when all things afferent are transferred to the customer. And it is recognized net of discounts and return. Revenues from services are recognized by using the percentage-of-completion method. for interest revenues, it is based upon interest method according to the time passed. Thus, when loan or receivable is impaired, Samsung cut off the carrying amount to its recoverable amount. This to extent the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues slowing down the discount as interest income. Then, the royalty income is recognized on accrual basis, regarding the substance of the relevant agreements. Lastly, the Group recognize the dividend income when the right to receive payment is set up. (SAMSUNG ELECTRONICS ANNUAL REPORT, 2015)[1]

References

Revenue Recognition. (n.d.). Retrieved from Investopedia: https://www.investopedia.com/terms/r/revenuerecognition.asp#ixzz57K6JR1M7

SAMSUNG ELECTRONICS ANNUAL REPORT. (2015). Retrieved from http://images.samsung.com/is/content/samsung/p5/global/ir/docs/SAMSUNG_SUSTAINABILITY_REPORT_2015_ENG.pdf

[1] Annual Report has been integrated into the Sustainability Report from 2015 and 2014