Chapter 5 - IFRS 15 - Revenue from Contracts with Customers

Question 1

Definition

• Contract

Answer 1

An agreement between two or more parties that creates enforceable rights and obligations

Question 2

Definition

• Customer

Answer 2

A party that has contracted to obtain goods or services that are an output of the entities ordinary activities in exchange for consideration

Question 3

Definition

• Income

Answer 3

Increases in economic benefits from inflows or enhancements of assets or decreases in liabilities that result in an increase in equity, other than contributions from other equity participants

Question 4

Definition

• Revenue

Answer 4

Income arising form the entities ordinary activities

Question 5

Definition

• Performance Obligation

Answer 5

A promise in a contract with a customer to transfer to the customer either:

• A distinct good or service
• A series of distinct goods or services

Question 6

Definition

• Transaction Price

Answer 6

The amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services

Question 7

The Five Step process for recognising a Contract:

Answer 7

STEP 1:- Identify the contract with the customer

STEP 2:- Identify the performance obligations of the contract

STEP 3:- Determine the transaction price

STEP 4:- Allocate the transaction price to the performance obligations of the contract

STEP 5:- Recognise revenue when a performance obligation has been satisfied

Question 8

Criteria for Identifying the Contract:

Answer 8

• The parties involved have agreed and approved the contract
• Each parties rights for the goods and services to be transferred can be identified
• The payment terms for the transfer for the goods and services can be identified
• The contract has commercial substance (e.g - risk, timing or amount of the entities future cash flows is expected to change as a result of the contract)
• It is probable that the entity will collect the consideration it will be entitled to for the transfer of the goods or services

Question 9

Allocating the transaction price to the performance obligations of the contract:

Answer 9

• The objective is to allocate the transaction price to each performance obligation to which the entity EXPECTS to be entitled in exchange for the transfer of goods or services.

IE - If the contract states that if X amount of Y are purchased, a price of X will be discounted per item. If the purchases are in line with the obligations of the discount, then it should be expected to pay the discounted price.

Question 10

How is revenue to be measured in exchange for goods and services?

Answer 10

At the consideration to which the entity expects to be entitled