IFRS 15 Revenue From Contracts Flashcards
True or False: IFRS 15 applies only to contracts with customers in the construction industry.
False
What are the five steps in the IFRS 15 revenue recognition model?
- Identify the contract with a customer,
- Identify the performance obligations,
- Determine the transaction price,
- Allocate the transaction price,
- Recognize revenue when the performance obligation is satisfied.
conditions for contract to exist as per IFRS 15
- Both parties Approve and are committed to contract.
- Rights of both parties related to goods/services are identified,
- Payment Terms are idnetified,
- Contract have commercial Substance to it
- Entity is expected to receive consideration as a result of performance obligation being satisfied
If Conditions to contract does not exist
if Conditions to contract does not exist, Revenue will be recorded only if
1. Entity has satisfied performance obligation and substantially all of consideration has been received and is non refundable; or
2. Contract is terminated and consideration received is non refundable.
When does no contract exist?
When each party has unilateral right to terminate wholly underperformed contract without compensating other party no contract exits.
Fill in the blank: IFRS 15 requires entities to recognize revenue when a __________ is satisfied.
performance obligation
What is a performance obligation under IFRS 15?
A promise to transfer a distinct good or service to a customer.
What criteria must a contract meet to be within the scope of IFRS 15?
The contract must create enforceable rights and obligations, have commercial substance, and be approved by the parties involved.
How is the transaction price allocated to performance obligations?
Based on the relative standalone selling prices of the goods or services.
What is the significance of ‘distinct’ in identifying performance obligations?
A good or service is distinct if the customer can benefit from it on its own or together with other readily available resources.
What is meant by ‘contract modification’ in IFRS 15?
A change in the scope or price (or both) of a contract that is approved by the parties.
When to modify and when not to
- if additional G/S not distinct> adjust existing contract
- If additional G/S are distinct>check if their additional consideration reflect their stand alone price?
- if additional consideration reflect stand alone price> Separate contract
- if additional consideration dont reflect stand alone price> Terminate old contract, make new
What to do When additional G/S are distinct and their consideration does not reflect their stand alone price
- Terminate Old contract and create new
- Consideration allocated to new PO= Consideration from previous PO not yet recognized+ Consideration in contract modification
What is the impact of the time value of money on the transaction price under IFRS 15?
If the contract involves a significant financing component, the transaction price should be adjusted to reflect the time value of money.
How is revenue recognized for long-term contracts under IFRS 15?
Revenue is recognized over time if one of the criteria for recognizing revenue over time is met.
