Chapter 6 - revenue & inventories

Question 1

what is revenue and what can it result from

Answer 1

Revenue is defined as ‘income arising in the course of an entity’s ordinary activities’.

Revenue can be earned from:

selling goods
rendering services
receiving interest, royalties or dividends.

Question 2

5 step process

Answer 2

1. identify the contract
2. identify the seperate performance obligations
3. Determine the transaction price
4. Allocate the transaction price to the performance obligations
5. Recognise revenue as or when a performance obligation is satisfied

Question 3

Performance obligation

Answer 3

promises to transfer distinct good or services to a customer

Question 4

warranty providing extra service:

Answer 4

treated as a separate obligation

Question 5

warranty that provides assurance that the item will work as intended

Answer 5

recognised as a provision

Question 6

The estimate of variable consideration will only be included in the transaction price if

Answer 6

• highly probable
• that a significant reversal (in revenue amounts) will not occur.

Question 7

If a contract includes a variable consideration then:

Answer 7

the entity must estimate the amount it expects to have

Question 8

consignment sales

Answer 8

where the buyer of the goods undertakes to sell them on behalf of the original seller. The original seller only recognises the sale when the buyer sells them on to a third party

Question 9

Bill and hold arrangements

Answer 9

• An entity bills of a customer but delivery is delayed with agreements of the customer
• The entity must determine whether control has been transferred to the custommer

Question 10

Sale with right of return (refunds)

Answer 10

Recognises revenue for the goods transferred and a liability for refunds

Question 11

Warranties

Answer 11

If the warranty has been separately purchases by the customer, or provides a service, it should be recognised as a separate performance obligation.

Otherwise it is accounted for