12 Revenue Flashcards
What is the five step process for revenue recognition?
- Identify contract
- Identify separate performance obligations
- Determine the transaction price
- Allocate the transaction price to the performance obligations
- Recognise the revenue as or when a performance obligation is satisfied
What happens if obligation is settled at a point in time?
Recognise revenue at that point
How do you recognise agency sales?
Recognise commission only in revenue
How should a sale or return be treated?
If control over goods does not pass to the buyer do not record revenue
How should a sale and repurchase be treated?
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
What does IFRS15 say that a contract is?
An agreement between two parties that creates rights and obligations
When can a entity account for revenue?
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
What are performance obligations?
Are promises to transfer distinct goods or services to a customer
What is the transaction price?
The transaction price is the consideration that the selling entity will be entitled to once it has fulfilled the performance obligations in the contract
How should variable consideration be treated?
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
How should a financing component be treated? (Ie pay after more than a year)
Consideration receivable needs to discounted to PV using rate at which the customer borrows money
How should non cash consideration be treated?
Any non cash consideration is measured at fair value
How should consideration payable to a customer be treated?
Separate purchase transaction
How should the total transaction price be allocated?
To each performance obligation in proportion to standalone selling prices
What happens if a performance obligation is satisfied over time?
Revenue is recognised based on the progress towards completion
How can process towards completion be measured?
Either input or output method
What is the input method based on?
Costs incurred as proportion of total expected costs
What is the output method based on?
Value of work completed as proportion of total contract price
What happens if outcome is not known?
Revenue is only taken to extent costs incurred are recoverable
With contract costs what must a entity capitalise?
Costs of obtaining a contract
Costs of fulfilling a contract that do not fall in the scope of another standard
How are capitalised costs treated as revenue is recognised?
Amortised
How should an entity recognise in SOFP it already recognised revenue?
A receivable if the right to consideration is unconditional or a contact asset
When is a contract liability recognised?
Entity receives consideration before the related revenue has been recognised
