Further Accounting Standards Flashcards
What is revenue defined as?
Income arising in the course of an entities ordinary activities
What are the 5 steps to recognise revenue?
1) identify the contract with the customer
2) identify the separate performance obligations
3) determine the transaction price
4) allocate the transaction price
5) recognise revenue as each performance obligation is satisfied
When does a contract fall inside the scope of IFRS 15 and therefore can be considered?
When the following are satisfied:
1) the parties have approved the contract and are committed to carrying it out
2) the rights and payment terms regarding the good and services to be transferred can be identified
3) the contract has commercial substance
4) it is probable that the entity will collect the consideration to which it will be entitled
When would a company account for a performance obligation separately?
When there is a distinct separation between the goods and services. Ie the customer can benefit from the goods or service in its own.
What is meant by the transaction price?
The amount of consideration to which the entity expects to be entitled to receive.
What must be considered when calculating the transaction price?
The time value of money and discount amounts received in the future. If just 30 days it can be ignored but if received annually it would need to be considered.
What is meant by allocating a transaction price?
Allocating a price to each obligation.
When is revenue recognised?
When the customer obtains control of the goods or uses the service.
What must a seller determine when knowing when to recognise revenue?
They must identify when the control passes over to the customer. Eg in a phone contract control won’t necessarily pass straight away because you may not control the item until a certain percentage of the contract being complete.
