Assurance

Question 1

Revenue Recognition

ASPE 3400

Answer 1

Under ASPE 3400.05-0.7

1 - Performance
2 - Measurement
3 - Collectibility

Question 2

Revenue Recognition

IFRS 15

Answer 2

1 - Identify the contract

IFRS 15.9 - An entity shall account for a contract with a customer that is within the scope of this Standard only when all of the following criteria are met:

A. the parties to the contract have approved the contract (in writing, orally or in accordance with other customary business practices) and are committed to perform their respective obligations;

B. the entity can identify each party’s rights regarding the goods or services to be transferred;

C. the entity can identify the payment terms for the goods or services to be transferred;

D. the contract has commercial substance (ie the risk, timing or amount of the entity’s future cash flows is expected to change as a result of the contract); and

E. it is probable that the entity will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer. In evaluating whether collectability of an amount of consideration is probable, an entity shall consider only the customer’s ability and intention to pay that amount of consideration when it is due. The amount of consideration to which the entity will be entitled may be less than the price stated in the contract if the consideration is variable because the entity may offer the customer a price concession (see paragraph52).

2 - Identity the performance obligations

Determine if the performance obligations are distinct.

Distinct if:

IFRS15.27 - A good or service that is promised to a customer is distinct if both of the following criteria are met:

A. the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (ie the good or service is capable of being distinct); and

B. the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (ie the promise to transfer the good or service is distinct within the context of the contract).

3 - Determine the transaction price

• Uncertainty? Right of return (return liability)

4 - Allocate transaction price to each performance obligations

• standalone selling prices

5 - Recognize the revenue when each performance obligations is satisfied

> Control is transferred over time if:

IFRS 15.35 - An entity transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognises revenue over time, if one of the following criteria is met:

A. the customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs (see paragraphsB3–B4);

B. the entity’s performance creates or enhances an asset (for example, work in progress) that the customer controls as the asset is created or enhanced (see paragraphB5); or

C. the entity’s performance does not create an asset with an alternative use to the entity (see paragraph36) and the entity has an enforceable right to payment for performance completed to date (see paragraph37).

Methods of measuring progress
• Output methods
• Input methods

> Otherwise, control is transferred at a point in time