Chapter 3: Revenues from Contracts with Customers

Question 1

Outline shortly the 5-step model of IFRS 15:

Answer 1

1. Identifying of customer contract
2. Identifying Performance Obligations (PO)
3. Determining the transaction´s price (TP)
4. Allocating the TP to the performance obligations
5. Recognize revenues when the entity fulfills its performance obligations (transfer of control)

Question 2

Why can IFRS 15 revenues differ from invoiced amounts?

Answer 2

They may differ e.g. due to revenue recognition over time (IFRS), unlike in the local GAAP.

Question 3

Why can´t the Completed-Contract- Method ensure a true and fair view of the economic performance withing the P&L?

Answer 3

This method does not show the true nature of any given economic performance, because both revenues and costs are only considered at the very end of the performance, ignoring the fact that both revenues and cost have been taking place throughout the contract period.

Question 4

Explain (Net) Working Capital:

Answer 4

(Net) working capital = current assets (w/o liquid assets) - current liabilities

Basically inventory with the intent to be sold

Question 5

Explain contract assets:

Answer 5

In simple words, contract assets are receivables still to be paid throughout e.g. the performance of any given contratct.

Question 6

Explain Contract liabilities:

Answer 6

In simple words, contract liabilities are performance obligation yet to be fulfilled, despite having already received cash for them. In US GAAP = (Deferred revenues)

Question 7

Explain cost-to-cost method:

Answer 7

Costs and revenues are recognized throughout any contract period given their percentage of completion based on expected costs on a moment in time in comparison to total expected costs.

Question 8

Explain work-in-progress:

Answer 8

Moment in time when a product is being built but not yet complete.