IFRS 15

Question 1

Define the term ‘performance obligation’ [2]

Answer 1

Performance obligation is a promise in a contract with a customer to transfer to the customer either:
* a good or service (or a bundle of goods or services) that is distinct; or
* a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer

Question 2

State the criteria which should be met if good or services promised to a customer are to be considered as distinct [2]

Answer 2

A good or service is distinct if both of the following criteria are met:
* the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer; and
* the entity’s promise to transfer the good or service is separately identifiable from other promises in the contract.

Question 3

List any six examples of promised goods and service as per IFRS 15 ‘Revenue form Contract with customer’ [10]

Answer 3

1. Goods produced by an entity for sale
2. Resale of goods purchased by an entity
3. Resale of rights to goods or services purchased by an entity
4. Performing a contractually agreed-upon task for a customer
5. Standing ready to provide goods or services
6. Providing a service of arranging for another party to transfer goods or services to the customer
7. Granting rights to goods or services to be provided in the future that a customer can resell
8. Constructing, manufacturing or developing an asset on behalf of a customer
9. Granting licences
10. Granting options to purchase additional goods/services

Question 4

Five steps involved in recognizing revenue under IFRS 15 [5]

Answer 4

1. Identify the contract/s with a customer
2. Identify the separate performance obligations
3. Determine the transaction price
4. Allocate the transaction price
5. Recognize revenue when or as an entity satisfies performance obligations.

Question 5

List the criteria that must be met to account for a contract with customer under IFRS 15 ‘Revenue from Contracts with Customers’. [5]

Answer 5

1. the parties to the contract have approved the contract.
2. the entity can identify each party’s rights.
3. the entity can identify the payment terms for the goods and services to be transferred.
4. the contract has commercial substance.
5. it is probable that the entity will collect the consideration.

Question 6

Define the term ‘transaction price’

Answer 6

The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts to be collected on behalf of third parties.

Question 7

List down the factors that may affect determination of the transaction price. [5]

Answer 7

Factors affecting determination of the transaction price:
1. Variable consideration
2. Constraints on variable consideration
3. Existence of a significant financing components (time value of money)
4. Non-cash consideration
5. Consideration payable to a customer