IFRS 15 Flashcards
WHat is IFRS 15
Revenue from customers with customers
What does IFRS 15 state
IFRS 15 Revenue from customers requires that revenue should not be recognised until the significant risks and rewards of the ‘asset’ or service have been transferred to the customer
What is the 5 step model?
- Identify a contract
- Identify the performance obligations in the contract
- Determine the transaction price.
- Allocate the transaction price for the performance obligation performed in the contract.
- Recognise revenue when or as the entity satisfies a performance obligation.
WHat do you do if conditions are not satisfied and the payment has been received?
Recognise the payment as a liability. This represents the amount that needs to be repaid, or the value of the GorS that still needs to be transferred to the custoemr.
what can the consideration for a contract be?
Variable or fixed.
What does IFRS 15 say to do if the consideration for a contract is variable?
Use:
- The expected value method.
- This is when you multiply all probable values by their lickliness of return and add them together.
- Most likely method.
- This is looking at the amounts and selecting the most likely one as a result.
When is there a finance component?
When the agreed date of the payment is later than the date on which the the good or service is transferred, and the effects of the time value of money (NPV) should be considered.
How do you account for:
Sale of services for £500,000
20% deposit up front.
Rest paid 2 years later at 10% lending rate.
Revenue recognition, therefore, needs to be split between the:
- Fair value of the service recognised; and
- Finance element which will be recognised over the finance period.
Deposit rec’d = 100,000
Discount amount to be rec’d in 2 years:
400,000/(1.01)^2 = 392,118
Total to receive = 392,118 +100,000 = 492,118 (assuming use is same over 2 years so receive 246,059 each year).
r income year 1:
0.1 x 392,118 = 39,212
r income year 2:
0.1 x (392118 +39212) = 43,133
Year 1 entries:
Dr Bank deposit 100,000
Dr TR 246,059 +39212(interest income + split of amount receivable)
Cr Revenue 246059
Cr Interest income 39212
What do you do if there has been a discount applied to a bundle of goods?
Allocate the discount proportionally to the price of each individual good. So compare the sale price with the FV amount and see the Discount value. Then apply the % difference to each good.
When should you recognice revenue?
The performance obligation is satisfied. The customer must obtain control of the good or service.
When does the customer have control??
When they have the ability to obtain the use of, and obtain substantially of the remaining benefits from the asset.
What do you do if you make a large number of sales and they are identified contracts, but there is a chance that some of the goods can be returned?
Recog the revenue of the goods not expected to be returned.
Place a provision for the % of goods that could be returned (liability), and also recog this amount in your inventories.
Option to buy back and the repurchase price is greater than the original sale price?
This should be treated as a loan arragement (use scenario to explain why).
recog the r as an interest expense.
recog the value of the orig sale proceeds as a liability (add it back from COS and remove from sales).
