IFRS 15 Flashcards
1st step?
Identify the contract
2nd step?
Identify each performance obligation
3rd step?
Determine transaction price
4th step?
Allocate transaction price to performance obligations
5th step?
Recognise revenue as each performance obligation satisfied
identify contract?
Contract approved by all parties
Rights and payment terms identified
Contract has commercial substance
Probable revenue collected
Identify separate performance obligations?
What can be separately sold
If sold alone, account for separately
Example of two performance obligations?
Buy a TV
And a guarantee for 3 years
What is the transaction price?
What am I most likely to receive?
What should be considered in transaction price?
Significant financing components
Variable consideration
Refunds and rebates
How is allocation of price determined?
On each performance obligation based on standalone customer selling price
Richer Co sells home entertainment systems including two-year repair and maintenance package for $10000. Price of home entertainment system without repair and maintenance contract is $9000 and price to renew a two-year maintenance package is $2000?
What are standalone selling prices?
$9000 and $2000 are standalone
($9000/$11000) * $10000 = $8,182
($2000/$11000) * $10000 = $1,818
These then add up to 10000
If performance obligation is transferred over time?
Completion of performance obligation is measured using output or input method
What is the output method?
Revenue recognised based upon value to customer (output company providing)
Output method calculation?
Work certified / Total contract revenue * 100
What is the input method?
Revenue recognised based upon amounts the entity has used (costs incurred over time)
Input method calculation?
(Costs to date / total estimated costs) * 100
What is a contract asset?
Recognsied when revenue has been earned but not yet invoiced
What represents a receivable?
An invoice has been issued
What is a contract liability?
Customer has paid prior to entity transferring control of good/service to the customer
When may revenue recognition occur?
At a single point in time
Over a period of time
How to calculate work certified as complete?
Through input or output method
Cod Co sold goods to Eel Co on 1 January 20X2 for $200000, payable on 31 December 20X3. Eel Co cannot return the goods (Significant financing component)
The relevant discount rate is 6%
Amount of revenue and finance income recognised in SPL for year ended 31 Decemebr 20X2?
Revenue: 200000 * (1/1.06^2) = 178000
Finance cost: 178000 * 6% = 10680
What stage is the input and output method potentially used?
At step 5 (final stage)
Livertech is a computer business that sells computer hardware. As well as selling computers, it also supplies and installs the software to its customers and provides a technical support package over two years. Business commonly sells the supply and installation, and technical support in a combined goods and services contract.
Combined goods and services contract sells for $1600, but is sold separately the supply and installation, and if sold separately supply and installation is sold for $1500 and technical supprot for $500
(Step 1)
Signed agreement
Livertech is a computer business that sells computer hardware. As well as selling computers, it also supplies and installs the software to its customers and provides a technical support package over two years. Business commonly sells the supply and installation, and technical support in a combined goods and services contract.
Combined goods and services contract sells for $1600, but is sold separately the supply and installation, and if sold separately supply and installation is sold for $1500 and technical supprot for $500
(Step 2)
Supply and installation $1500
Technical support $500
Livertech is a computer business that sells computer hardware. As well as selling computers, it also supplies and installs the software to its customers and provides a technical support package over two years. Business commonly sells the supply and installation, and technical support in a combined goods and services contract.
Combined goods and services contract sells for $1600, but is sold separately the supply and installation, and if sold separately supply and installation is sold for $1500 and technical supprot for $500
(Step 3)
Combined goods and services contract $1600
Livertech is a computer business that sells computer hardware. As well as selling computers, it also supplies and installs the software to its customers and provides a technical support package over two years. Business commonly sells the supply and installation, and technical support in a combined goods and services contract.
Combined goods and services contract sells for $1600, but is sold separately the supply and installation, and if sold separately supply and installation is sold for $1500 and technical supprot for $500
(Step 4)
Supply and installation: $1500/$2000 * $1600 = $1200
Technical support: $500/$2000 * $1600 = $400
Livertech is a computer business that sells computer hardware. As well as selling computers, it also supplies and installs the software to its customers and provides a technical support package over two years. Business commonly sells the supply and installation, and technical support in a combined goods and services contract.
Combined goods and services contract sells for $1600, but is sold separately the supply and installation, and if sold separately supply and installation is sold for $1500 and technical supprot for $500
(Step 5)
Supply and installation = On installation
Technical support = Over two years
Livertech is a computer business that sells computer hardware. As well as selling computers, it also supplies and installs the software to its customers and provides a technical support package over two years. Business commonly sells the supply and installation, and technical support in a combined goods and services contract.
Combined goods and services contract sells for $1600, but is sold separately the supply and installation, and if sold separately supply and installation is sold for $1500 and technical supprot for $500
If conbined contract sold on 1 July 2017, how transaction presented in FSs at (31 December 2017)
SPL:
Revenue (1200 + 400*6/24) = 1300
Debit: Bank 1600
Credit: Revenue 1300
Credit: Deferred income 300
Deferred income in SFP
Split between current and non-current
How to calculate contract asset in SFP for current year
(Price of contract * percentage completed to date) - amounts invoiced
Revenue for one year when there’s a previous year?
Progress towards completion - measured progressed
When revenue recognised?
When entity transfers a good or service to a customer
Principal vs agent? (What is a principal)
Entity controls the goods or services
Revenue = gross revenue
Principal vs agent? (What is an agent)
Entity arranges for goods or services to be provided by the otehr party
Indicator that an entity controls goods or services before transfer and therefore classified as a principal? (Responsible)
Entity is responsible for fulfilling prmose to provide specificed good or service
Indicator that an entity controls goods or services before transfer and therefore classified as a principal? (inventory)
Entity has inventory risk
Indicator that an entity controls goods or services before transfer and therefore classified as a principal? (discretion)
Entity has discretion in establishing the price for the specified good or service
Repurchase agreement examples?
A forward contract
A call option
A put option
If repurchase price lower than original selling price?
Contract should be accounted for as an outright sale, with a right to return
if customer is considered to have a significant economic incentive to exercise the option?
Entity should account for the agreement as a lease
If repurchase price greater than original selling price?
Should be treated as a financing arrangement
What is a consignment arrangement?
Third party does not take control of product transferred
What happens if a product is held under a consignment arrangement?
Revenue should not be recognised
No cost of sales recognised
Inventory remains in books of entity
What is a bill and hold arrangement/
Goods are sold but remain in possession of seller for a specified period of time
For customer to have obtained control of a product?
Reason substantive
Product must be separately identified
Product must be ready for physical transfer
Entity cannot have ability to use/transfer product
Additional warranty available to the custoemr at cost OR provides assurance beyond funciton intended?
IFRS 15 as additional performance obligation
Standard warranty at no cost to customer?
Use IAS 37 Provisions
Additional warranty that provides customer the right to an annual service of the machine for four years from the date of purchase. An annual service is usually charged at $2000 per annum? How should it be allocated?
$2000 * 4 years = $8000
Sales with a right of return?
Company sells goods to customers and transfer control of product to customer with a right to return
Revenue in a right to return?
Amount of consideration to which entity expects to be entitled
Liabiltiy in a right to return?
A refund liability
Asset in a right to return?
An asset for the right to recover products from customers on settling refund liability
An example of a performance obligation satisfied over time?
The provision of a streaming services over a two-year period
How should revenue be measured in progress of performance obligation?
Output method
Input method
Revenue recognised in a contract asset or contract liability?
Revenue recognised based on % work certified to date
Output method calcuation?
Work certified to date / Total contract revenue
As revenue recognised base don value to customer e.g. work certified
Input method calculation?
Costs to date / Total estimated costs
Revenue recognised based upon amonuts entity has used e.g. costs incurred
Contract asset and contract liability calculation?
Revenue recognised to date - Amounts invoiced to date = Contract asset/(liability)
When something isn’t exposed to credit risk?
It is an agent
When does contract not exist?
If each party can terminate the contract
