F2 - Revenue Recognition

Question 1

What is the 5 Step Approach to Revenue Recognition?

Answer 1

1. Identify contract with the customer
2. Identify the separate performance obligations in the contract
3. Determine the transaction price
4. Allocate the transaction price to the separate performance obligations
5. Recognize revenue when or as the entity satisfies each performance obligation

Question 2

When should revenue be recognized?

Answer 2

As services are provided

Question 3

What is a contract modification? How is it treated in relation to the original contract?

Answer 3

A change in the price or scope (or both) of a contract approved by both parties

When a modification occurs, it’s treated as a new contract or a modification of the existing one

Question 4

What is a performance obligation?

Answer 4

A promise to transfer a good or a service to a customer

Can be an individual good or service (or a bundle of goods and services) that is distinct

Question 5

True or False: Each performance obligation must be separate and distinctly identifiable

Answer 5

True

Question 6

What is the output method in recognizing revenue?

Answer 6

Recognizing revenue based on the value to the customer of the goods or services transferred

Ex: Units produced/delivered, time elapsed, milestones achieved

Question 7

What is the input method in recognizing revenue?

Answer 7

Recognizing revenue based on the entity’s efforts or inputs

Ex: costs incurred, labor-hours expended, time elapsed