Ch. 13 - Revenue from Contracts with Customers

Question 1

IFRS revenue recognition criteria

Answer 1

1. Identify the contract
2. Identify the performance obligations
3. Determine the transaction price
4. Allocate the transaction price to each performance obligation
5. Recognize revenue when each obligation is satisfied

Question 2

Identify the contract - attributes to a contract

Answer 2

1. must be approved by all parties
2. can identify goods/services
3. can identify payment terms
4. has commercial substance
5. collection is probable

Question 3

Identify the contract - combination of contracts is allowed if:

Answer 3

combination is allowed if:

1. they are negotiated as a package with a single commercial objective;
2. the consideration from one contract depends on price or performance of the other contract; or
3. the goods/services in the contracts are a single performance obligation

Question 4

Identify the contract - contracts can be modified if:

Answer 4

contracts can be modified when both:

1. the change in scope is due to the addition of distinct goods or services
2. the change in price is the amount of the vendor’s stand-alone selling price of the additional promised goods

Question 5

Identify the performance obligations - distinct goods and services are those that:

Answer 5

1. can the customer benefit from the good/service on its own, and
2. is the good/service separately identifiable from others

Question 6

Determine the transaction price - things to consider

Answer 6

1. variable consideration
2. constraining estimates of variable consideration
3. significant financing components
4. non-cash consideration
5. consideration payable to a customer

Question 7

Determine the transaction price - variable consideration

1. options for measurement
2. when to use each option
3. what to use when you use each option

Answer 7

1. expected amount
   a) when there are multiple likely outcomes
   b) take weighted probability
2. most likely amount
   a) when there is one most likely outcome
   b) use the most likely

Question 8

Determine the transaction price - constraining estimates

1. what to include in income
2. factors to consider

Answer 8

1. should only include amounts that are highly probable in income
2. consider
   a) factors outside the entities influence
   b) term of the contract
   c) entities experience with similar contracts
   d) the number and range of constraints

Question 9

Determine the transaction price - Right of Return

1. two scenarios for estimates

Answer 9

1. scenarios
   a) an estimate cannot be made - the revenue cannot be recognized, set up as deferred revenue
   b) an estimate can be made - recognize revenue to the extent they expect to receive, and refund liability for the remainder

Question 10

Determine the transaction price - what to do if there is non-cash consideration

Answer 10

follow the rules for non-monetary transactions

Question 11

Determine the transaction price - consideration payable to the customer

1. includes
2. how to record

Answer 11

1. items such as credit, coupons, etc.

2. recorded as a reduction of the revenue

Question 12

Allocate the transaction price to each performance obligation - suitable methods include:

Answer 12

1. Adjusted market assessment approach
2. Expected cost plus a margin approach
3. Residual approach

Question 13

Allocate the transaction price to each performance obligation - Adjusted market assessment approach

Answer 13

Assess the amount that would be received for the good/service in an open market

Question 14

Allocate the transaction price to each performance obligation - Expected cost plus a margin approach

Answer 14

forecast expected costs of the obligation and add an appropriate margin for that good/service

Question 15

Allocate the transaction price to each performance obligation - Residual approach

Answer 15

All known prices are allocated, and the residual is allocated proportionally to the remainder

Question 16

Allocate the transaction price to each performance obligation - Allocation of a discount

Answer 16

allocate the discount proportionally to the whole contract, unless:

1. the vendor regularly sells the distinct goods/services on a stand-alone basis;
2. the vendor regularly sells some of the distinct goods at a discount; and
3. the discount is the same as what the vendor regularly offers

Question 17

Allocate the transaction price to each performance obligation - Allocation of Variable Consideration

Answer 17

variable consideration should be allocated to the good/service that it relates to

Question 18

Allocate the transaction price to each performance obligation - How to handle changes in the transaction price

Answer 18

1. for obligations not performed, recognize when obligation is met
2. for obligations performed, recognize in current period

Question 19

Recognize revenue when each obligation is satisfied - recognize over time if:

Answer 19

1. the customer simultaneously receives and consumes the benefits provided by the vendors performance;
2. The vendor’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or
3. There is no alternative use of the asset to the vendor, and the vendor has enforceable right to receive payment

Question 20

Recognize revenue when each obligation is satisfied - recognize at a point in time (indicators of a transfer of control)

Answer 20

1. There is a present right to payment
2. Legal title has passed to the customer
3. physical possession of the asset

Question 21

ASPE revenue recognition criteria

Answer 21

1. Performance is achieved
2. Revenue can be reasonably measured
3. collection is reasonably assured

Question 22

ASPE - methods to recognize revenue for long-term projects

Answer 22

1. Percentage of completion

2. Completed contract method

Question 23

ASPE when to use completed contract

Answer 23

when the project consists of a single act, or the extent of progress cannot be measured

Question 24

What is an onerous contract

Answer 24

a contract where unavoidable costs outweigh the benefits of carrying through with the contract

Question 25

what to do if there is an onerous contract

Answer 25

record a liability at the lesser of costs to cancel and costs to carry through with contract

Question 26

Principal vs agent - how to recognize revenue

Answer 26

Principal - recognize gross

Agent - recognize net

Question 27

Revenue vs gain - gain definition

Answer 27

Increase in equity other than those resulting from revenue and equity contributions

Question 28

Revenue vs gain - gain recognition criteria

Answer 28

1. There is an appropriate measurement basis

2. Items to be given up or received are likely to be given up or received

Question 29

ASPE - Performance has been achieved (long-term)

Answer 29

1. Persuasive evidence of an arrangement exists

2. Determined using the percentage of completion or completed contract method

Question 30

bill and hold arrangements - Revenue can be recognized if:

Answer 30

1. Reason for delayed shipping is substantive
2. product is identified as belonging to the customer
3. Product is physically ready for transfer
4. Vendor cannot use the product or sell to anyone else