12 Revenue

Question 1

What is the five step process for revenue recognition?

Answer 1

1. Identify contract
2. Identify separate performance obligations
3. Determine the transaction price
4. Allocate the transaction price to the performance obligations
5. Recognise the revenue as or when a performance obligation is satisfied

Question 2

What happens if obligation is settled at a point in time?

Answer 2

Recognise revenue at that point

Question 3

How do you recognise agency sales?

Answer 3

Recognise commission only in revenue

Question 4

How should a sale or return be treated?

Answer 4

If control over goods does not pass to the buyer do not record revenue

Question 5

How should a sale and repurchase be treated?

Answer 5

If control over goods does not pass to the buyer, do not record any revenue. Treat proceeds as a loan and charge interest to date of repurchase

Question 6

What does IFRS15 say that a contract is?

Answer 6

An agreement between two parties that creates rights and obligations

Question 7

When can a entity account for revenue?

Answer 7

Parties have approved the contracts and rights be identified
Payment terms can be identified
The contact has commercial substance
It is probable that the selling entity will receive consideration

Question 8

What are performance obligations?

Answer 8

Are promises to transfer distinct goods or services to a customer

Question 9

What is the transaction price?

Answer 9

The transaction price is the consideration that the selling entity will be entitled to once it has fulfilled the performance obligations in the contract

Question 10

How should variable consideration be treated?

Answer 10

The entity must estimate the amount it expects to receive by only include such value within the transaction price if the likelihood of payment is highly probable

Question 11

How should a financing component be treated? (Ie pay after more than a year)

Answer 11

Consideration receivable needs to discounted to PV using rate at which the customer borrows money

Question 12

How should non cash consideration be treated?

Answer 12

Any non cash consideration is measured at fair value

Question 13

How should consideration payable to a customer be treated?

Answer 13

Separate purchase transaction

Question 14

How should the total transaction price be allocated?

Answer 14

To each performance obligation in proportion to standalone selling prices

Question 15

What happens if a performance obligation is satisfied over time?

Answer 15

Revenue is recognised based on the progress towards completion

Question 16

How can process towards completion be measured?

Answer 16

Either input or output method

Question 17

What is the input method based on?

Answer 17

Costs incurred as proportion of total expected costs

Question 18

What is the output method based on?

Answer 18

Value of work completed as proportion of total contract price

Question 19

What happens if outcome is not known?

Answer 19

Revenue is only taken to extent costs incurred are recoverable

Question 20

With contract costs what must a entity capitalise?

Answer 20

Costs of obtaining a contract

Costs of fulfilling a contract that do not fall in the scope of another standard

Question 21

How are capitalised costs treated as revenue is recognised?

Answer 21

Amortised

Question 22

How should an entity recognise in SOFP it already recognised revenue?

Answer 22

A receivable if the right to consideration is unconditional or a contact asset

Question 23

When is a contract liability recognised?

Answer 23

Entity receives consideration before the related revenue has been recognised