Chapter 4 - Revenue

Question 1

5 step approach

Answer 1

COPAR

Contract

Obligations

Price (transaction price)

Allocate price to obligation

Recognise revenue

Question 2

Revenue is

Answer 2

Income arising in the course of the entities ordinary activities

Normal trading - not a one off item
Elements of the framework

Question 3

What is a performance obligation

Answer 3

Are promises to transfer distinct goods or services to a customer

Question 4

Principle vs agent

Answer 4

Principle = providing the good or service itself

Agent = arranging for the goods or service to be provided by another party

Question 5

Transaction price

Answer 5

The consideration that the selling entity will be entitled to once it has fulfilled the performance obligation in the contract.

Question 6

Issues to consider when = transaction price (Step 3);

Answer 6

Variable considerations. - probable or not

Financing - PV + timing of revenue

Non cash considerations - goods considered “free”

Consideration payable to customer

Question 7

Consideration paid to a customer

Answer 7

If consideration is paid to a customer in exchange for a distinct good or service then it should be accounted for as a separate purchase transaction

Assuming that the consideration paid is not in exchange for a distinct good or service, an entity should account for it as a reduction in transaction price.

Question 8

contract costs - Must capitalise ?

Answer 8

• the costs obtaining a contract
• the costs to fulfil a contact that do not fall within the scope of another standard

These capitalised costs are amortised to the p+l as revenue is recognised

Question 9

Assets and liabilities - If the entity recognises revenue before it has received consideration then it should be recognised either?

Answer 9

A receivable - if the right is unconditional

A contract asset

Contact liability is recognised if the entity receives consideration before the related revenue has been recognised

Question 10

what is a contract

Answer 10

agreement between 2 or more parties that creates rights and obligations

Question 11

when is revenue recognised?

Answer 11

When the entity satisfies the performance obligation by transferring a promised good or service to a customer. Control is passed

Question 12

revenue is which IFRS

Answer 12

15

Question 13

what needs to be met in order for an entity to account for revenue

Answer 13

• parties have approved the contract and each parties rights can be identified
• payment terms can be identified
• has commercial substance
• it is probable that the entity will receive the consideration

Question 14

variable consideration may be included in transaction price if ?

Answer 14

It is highly probable that a significant reversal in the amount of revenue recognised will not occur when the uncertainty is resolved.

Question 15

contract loss? how to deal

Answer 15

If there is an overall loss you have to offset the COS and revenue to meet those costs

Question 16

When the progress of a contract cannot be measured reliably

Answer 16

When the progress of a contract cannot be measured reliably, revenue should be recognised to the level of recoverable costs,

Question 17

for allocating price

Answer 17

either pro rate - if it is margin

or work out discount and x % of each to find stand alone - mark up