Chapter 13 (Revenues from contracts with customers)

Question 1

Which are the levels in the five-step model?

Answer 1

1. Identify a contract with a customer
2. Identify the performance obligations in the contract
3. Determine the transaction price
4. Allocate the transaction price to the performance obligations in the contract
5. Recognise revenue when or as the entity satisfies a performance obligation

Question 2

When identifying the revenue contract, what does the standard say about the
payment?

Answer 2

“It is probable the company will collect the cash”

Question 3

Why is it important to identify the performance obligation?

Answer 3

It is important to identify performance obligations correctly, since the revenue arising from each obligation is accounted for separately

Question 4

If the consideration for a contract may vary because of refunds or performance
bonuses, how should the revenue be measured?

Answer 4

Estimation by either EXPECTED VALUE method or MOST LIKELY AMOUNT method

In these circumstances, IFRS15 requires that the entity SHOULD ESTIMATE the amount of any variable consideration by using either the “expected value” method or the “most likely amount” method. The chosen method should be the one which best predicts the amount of consideration to which the entity is entitled.

Question 5

What is a stand-alone selling price and how does it affect the accounting?

Answer 5

If the performance obligations (like product, services) in a contract were to be sold separately, the revenue must be allocated to each performance obligation

Question 6

Is recurring cleaning services a performance obligation that is satisfied over time
or at a point in time?

Answer 6

Over time!

The customer simultaneously receives and consumes the benefits provided by the entity’s performance whilst the entity performs its obligation (e.g. routine or recurrent cleaning services)

Question 7

What is a contract asset? What is the difference to a receivable?

Answer 7

Goods/services have been delivered to the customer, but not yet invoiced (and thus becoming a customer receivable)

Question 8

Define a contract liability

Answer 8

A “contract liability” should be presented in the statement of financial position if payment is made before the entity transfers the goods or services to the customer.

Question 9

How should the revenue be calculated if the customer is granted the right to return
the products?

Answer 9

ESTIMATE EXPECTED RETURN

The entity should estimate the expected returns (possibly using the expected value method) and recognise as revenue only the amount of consideration to which it expects to be entitled. If the customer pays more than this amount, the entity should also recognise a refund liability for the amount of consideration to which it expects not to be entitled.

Question 10

If the transaction includes a warranty, how should that be accounted for?

Answer 10

As a simultaneous cost in accordance with IAS 37/Provision

Question 11

Is a building contract a performance obligation that is satisfied over time or at a point in time?

Answer 11

Over time (provided that the customer has control over the asset)