F2B - Chapter 6: Revenue from contracts with customers Flashcards
What is IFRS 15?
Revenue from contracts with customers
What does IFRS 15 define revenue as?
Income arising in the course of an entity’s ordinary activities
What does revenue not include?
Proceeds from sale of non-current assets
Sales tax and other similar taxes
Other amounts collected on behalf of others
What is the five step process of recognising revenue in IFRS 15?
- Identify the contract
- Identify the separate performance obligations within a contract
- Determine the transaction price
- Allocate the transaction price to the performance obligations in the contract
- Recognise revenue when a performance obligation is satisfied
What can the five steps of recognising revenue be remembered as?
COPAR
Contract
Obligations
Price
Allocate price
Recognise revenue
What is a contract?
agreement between two or more parties that create rights and obligations
What criteria must a contract meet in order for the entity to account for revenue?
The parties to the contract have approved and are committed to fulfilling the contract
each party’s rights can be identified
the payment terms can be identified
the contract has commercial substance
it is probable that the entity will be paid
What are performance obligations?
Promises to transfer distinct goods or services to a customer
What is the nature of a performance obligation?
To provide the specified goods or services itself
OR
to arrange for another party to provide the goods or service
What is the transaction price?
Amount of consideration an entity expects in exchange for satisfying a performance obligation
What must be considered when determining the transaction price?
Variable considerations
Significant financing components
non-cash consideration
consideration payable to a customer
When would a variable consideration be included?
It is highly probable that a significant reversal in the amount of cumulative revenue will not occur when the uncertainty is resolved
The existence of a financing element to the sale can be identified by what?
A difference between the amount paid and the cash selling price
An extended time period between the transfer of the goods or service and the payment date
What should the non-cash considerations be valued at?
Its fair value
When is revenue recognised?
When the entity satisfies a performance obligation by transferring a promised good or service to a customer