FR - Revenue (IFRS)

Question 1

What is the Handbook used for revenue under IFRS

Answer 1

IFRS 15

Question 2

What is defined as revenue & income under IFRS

Answer 2

• Income arising in the course of an entity’s ordinary activities
  Income - increase in economic benefit during the accounting period in the form of inflow or enhancement of assets of decrease of liabilities

Question 3

Provide 3 examples of revenue exclusion

Answer 3

1. Income arising from incidental transaction
2. Amount collected on behalf of third party - Gain on disposal of PPE
3. Amount collected on behalf of the third party in an agency relationship.

Question 4

What is the definition of recognition under IFRS

Answer 4

Recognition - process of items being included in the F/S of an entity under accrual accounting

Question 5

Provide the 5 steps of Revenue Recognition of the Contract

Answer 5

1. Identify a contract
2. Identify the performance obligation
3. Determine the transaction price
4. Allocation based on stand-alone selling price
5. Recognition of revenue when all obligation are satisfied

Question 6

How do you determine if a contract has been identified

Answer 6

1. Contract has been approved by all parties
2. Right regarding goods and services to be transferred can be identified
3. Payment terms can be identified
4. Contract that the entity will collect the consideration to which it is entitled. Consider customer intention
5. Probable that the entity will collect the consideration, considering only the customer’s ability

Question 7

Explain what commercial substance is

Answer 7

The risk, timing, or amount of the entity’s future cash flow is expected to change because of the contract.
Variable consideration - transaction price, part of transaction price

Question 8

Explain what is determine with the combination of contract and modification

Answer 8

1. Combination of contracts - contracts are negotiated as a package with a single commercial substance
   The amount of consideration to be paid in one contact depends on price or performance of other contract
2. Modification - must result in either new enforceable right and obligation or change to existing right and obligation
   - Change in the scope of the contact is due to the addition of distinct good
   - Price of the contract is increased by the amount of sell stand-alone selling price of the additional promised good, service

Question 9

How do you identify a performance obligation

Answer 9

• It is a promise to a customer to transfer
• The seller must also consider whether there are goods or services not explicitly stated but implied based on the customary business practice

Question 10

What are the questions to ask for the distinct goods or service

Answer 10

1. Can the customer benefit from the goods or services on its own? No - not distinct, If yes move to 2.
2. Promise to transfer the goods or services separately identifiable from other promises of the contract
   - Factor consider
   2a. Part of the contract includes putting together goods or services to produce new good or service
   2b. One good or service significantly modifies another goods service
   2c. Good or service are highly integrated

Question 11

Explain what the Series of distinct goods or services that are substantially the same

Answer 11

• Goods or services are considered to be transferred to the customer in the same pattern . When goods or services in the series would be considered to meet the contract performance obligation

Question 12

Provide the performance obligation to detemrine for customer incentive and upfront fee

Answer 12

1. Customer incentives use marketing incentives such as customer loyalty programs to increase sales. These awarded points are redeemed something to value
2. Upfront fee - non-refundable fee, must determine whether the fee relates to transfer of good or service, can be separate performance obligation

Question 13

Explain what transaction price is

Answer 13

• the amount of consideration that a seller expects to be entitled to in exchange for the promised goods or services to a customer, excluding amount collected on behalf of third party

Question 14

How can you determine transaction price

Answer 14

1. Variable consideration - transaction price may be variable such as discounts, rebates, performance bonuses
   - Two uncertainties related to the amount of consideration will be due to a seller
   Expected value
   - Taken the range of possible outcome and consider the probability
   and the Most likely amount - takes the one outcome that is the single most likely amount in the range of possible amounts and uses this as a measurement

Question 15

Provide the financing that is significant components

Answer 15

1. Combined effect - Expected length of time between when the entity transfers the promised good or services to the customer and the customer pays
   - Prevailing interest rate to relevant market
   - Substantial amount of consideration promised by the customer or non-occurrence of a future event that is not substantially within the control
   Noncash consideration
   - Two companies may exchange goods or services instead of transacting in cash . Determine whether the goods given up or service provided represent a transaction that is in keeping with ordinary activities

Question 16

How do you determine the transaction price for each performance obligation

Answer 16

• The seller determines the stand-alone selling price at contract inception of each distinct good or service and allocates the transaction price

Question 17

Provide what the three approaches are for the stand-alone price

Answer 17

1. Adjusted market assessment approach
   - Seller evaluates the market in which the goods or service is sold and estimates the price that the customer in that market would be willing to pay good or service
2. Expected cost plus margin approach
   - Forecast its expected cost of satisfying a performance obligation and then adds an appropriate margin for goods or service
3. Residual approach
   - Seller estimates the stand-alone selling price by reference to the total transaction price less the sum of the known stand-alone selling price and other goods promised

Question 18

How is the allocation of discount and variable consideration determined

Answer 18

1. Allocation of discount - contain multiple goods and services and the some of stand-alone selling prices exceed the promised consideration in a contract
2. Allocation of variable consideration - Attribute to the entire contract or a specific part of the contract. Variable consideration is allocated on a relative basis to multiple performance obligations to contact

Question 19

What is the final step of the revenue recognition of IFRS

Answer 19

• Revenue is recognized when all performance obligation have been satisfied
• Control over an asset is the major consideration of when the performance obligation is met.
• The benefit of an asset is the potential cash flow

Question 20

How to you account for when the obligation is satisfied over time

Answer 20

• customer simutaneuosly receives or consumes the benefit provided by seller performance
• Seller performance creates or enhances an asset that the question controls as the asset enhance
• Seller performance does not create an asset with alternative use to the seller

Question 21

What is the methods of measuring progress towards completion

Answer 21

-Output method - revenue based on direct measurement
- input method - recognize based on an estimate of % completion of the project, use input measure such as resource