ASPE 3400 - Revenue recognition

Question 1

Revenue recognition – Consignment sales (ASPE)

Answer 1

• Consignment sales include goods shipped but not yet billed
• They could be returned if not sold or only billed for to the extent sold
• Performance is not considered complete upon delivery for such goods, as the risks and rewards are deemed not to have been transferred from the seller to the buyer because of the seller’s continuing involvement
• As such, revenue cannot be recognized up until either the goods can no longer be returned or a payment is made in regards to them

Reference: ASPE 3400.13 - .15 

Question 2

Revenue recognition criteria – Completed contract method (ASPE)

Answer 2

• The completed contract method would only be appropriate when performance consists of the execution of a single act or when the enterprise cannot reasonably estimate the extent of progress toward completion.
• NOTE: There is no equivalent recognition criteria under IFRS.

Reference: ASPE 3400.18

Question 3

Revenue recognition criteria – Percentage-of-completion method (ASPE)

Answer 3

The percentage-of-completion method is appropriate when:
* performance consists of the execution of more than one act, and
* revenue would be recognized proportionately by reference to the performance of each act.

For practical purposes, when services are provided by an indeterminate number of acts over a specific period of time, revenue would be recognized on a straight line basis over the period unless there is evidence that some other method better reflects the pattern of performance.

The amount of work accomplished would be assessed by reference to measures of performance that are reasonably determinable and relate as directly as possible to the activities critical to the completion of the contract.

Reference: ASPE 3400.17

Question 4

Revenue recognition – Effect of uncertainties (returns) (ASPE)

Answer 4

Recognition of revenue requires that the revenue is measurable and that ultimate collection is reasonably assured.
* If significant and unpredictable amounts of goods being returned, do not recognize revenue
* If the amount of returns can be reasonably estimated based upon experience, it may be possible to provide for an allowance for a returns expense.

Reference: ASPE 3400.19-.21

Question 5

Revenue recognition criteria (ASPE)

Answer 5

Revenue from sales and service transactions shall be recognized when:
* Performance is satisfied (risks and rewards transferred, significant acts complete, no continuing managerial involvement)
* Consideration is measurable
* Collection reasonably assured

Reference: ASPE 3400.04 - .06

Question 6

Revenue recognition – performance criteria (ASPE)

Answer 6

Performance would be regarded as being achieved when all of the following criteria have been met:
* Persuasive evidence of an arrangement exists
* Delivery has occurred or services rendered
* Price to the buyer is fixed or determinable

In determining if the seller’s price to the buyer is fixed or determinable, an entity would consider the impact of the following factors:
* Cancellable sales arrangements;
* Right of return arrangements;
* Price protections and/or inventory credit arrangements; and
* Refundable fee for service arrangements.

Reference: ASPE 3400.07, .10

Question 7

Revenue recognition – collectability criteria (ASPE)

Answer 7

• Recognition of revenue requires that the revenue is measurable and that ultimate collection is reasonably assured
• When there is reasonable assurance of ultimate collection, revenue is recognized even though cash receipts are deferred
• When there is uncertainty as to ultimate collection, recognize revenue only as cash is received

Reference: ASPE 3400.19

Question 8

Revenue recognition – multiple deliverables (ASPE)

Answer 8

• Evaluate all deliverables to determine whether they represent separate deliverables
• If you can identify separate deliverables, revenue recognition criteria should be assessed for each deliverable separately
• If two or more transactions are linked together in such a way the commercial effect can’t be understood without reference to the series of transactions as a whole, then the recognition criteria will be applied to the series of transactions as one

Reference: ASPE 3400.11