F-2 M-1 Revenue Recognition

Question 1

What is the 5-step approach associated with Revenue Recognition?

Answer 1

“I AM A STAR”
1) Identify contract
2) Separate performance obligations?
3) Transaction Price
4) Allocation Transaction Price to performance obligations
5) Recognize revenue as entity satisfies the performance obligations

Question 2

What are the criteria to recognize contract revenue?

Answer 2

1) Approved Contract
2) Rights are identified
3) Payment Terms are identified
4) Commercial Substance
5) Likely that entity will collect substantially all of the consideration

Question 3

What are the criteria for a performance obligation to be considered distinct?

Answer 3

1) Separately identifiable
2) Customer will benefit from the good/service independently

Question 4

What is the transaction price?

Answer 4

Amount of money (consideration) an entity expects to receive for transferring goods/services to a customer

Question 5

How does allocation work when a contract contains more than one performance obligation?

Answer 5

Overall contract transaction price is allocated to each obligation based on the stand-alone selling price expected for satisfying the unique obligation

In other words, proportionate to the services being rendered.

Question 6

What is the difference between performance satisfied over time vs point in time?

Answer 6

1) Satisfied over time - Revenue is measured based on progress toward completion
2) Point in time - Revenue is recognized once the customer obtains control of the asset