Chapter 4 - IFRS 15 Flashcards
What are the five steps in approaching contracts with customers ? IIDAR
- Identify the contract
- Identify the performance obligation
- Determine a transaction price
- Allocate the TP to the POs
- Recognise the revenue as/when POs are satisfied
How do you identify a contract?
Does not have to be written, can be verbal/ implied
- Both parties agree on contract
- Rights and payment terms can be IDed
- Contract has commercial substance
- Probable that revenue will be collected
What are performance obligations and how do you identify them ?
Performance obligations represent the goods and services to be exchanged for payment. They can be distinct i.e. accounted for separately or they can be substantially the same accounted for as a single item
What is a transaction price and what should you consider when determining it?
A transaction price is the total value for the contract
- Financing component
- Variable consideration
- Refunds/ Rebates
How do you allocate the price for each performance obligation?
You allocate the transaction price proportionately according to standalone selling prices of the performance obligations.
How do you recognise the revenue from the contract?
Revenue recognition should either be recognised at the date or over time as the acid is transferred
- Present rights for payment
- Transfer of legal rights
- Transfer of physical control
- Transfer of risk and reward
- Customers has accepted contract
What are the two methods of revenue recognition?
The output method – The certified work completed/the total contract revenue
The input method – the total costs incurred to date/ the total estimated cost
How should the contract be represented in the statement of financial position ?
- Costs incurred to date
- Recognised profits
- Recognised Labilities
- Receivables
- CONTRACT ASSET / Liability
What is the difference between a principal and a agents?
A principal is when the selling party is directly responsible for the transfer of the assets.
A agents is when the selling party goes through a third party who is responsible for the transfer of the assets.
What is a repurchase agreement?
A re-purchase agreement is when the something entity, may/ be required to re-purchase the assets at some given point in time. more the loan against the exit. Always recorded as a sale followed by a purchase.
What is a bill and hold arrangement?
A bill and hold arrangement is where the seller bills the customer for an asset but retains it in there physical possession until it is transferred to the customer at a later point in time.
What are consignments?
When a vendor delivers products to another party for sale to the end customer. The inventory is recognised in the parties books.
