IFRS 15 - Revenue - Melville Chapter 13

Question 1

What is the purpose of IFRS 15?

Answer 1

To apply principles that an entity should apply to report useful information in the financial statements concerning “the nature amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer.

Question 2

Define revenue

Answer 2

income arising in the course of an entity’s ordinary activities

Question 3

Define income

Answer 3

Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in an increase in equity, other than those relating to contributions from equity participants.

Question 4

Types of income excludes from IFRS 15? 2

Answer 4

Rental income

Interest and dividends

Question 5

What is the core principle of IFRS15

Answer 5

The entity should recognise revenue “to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services”

Question 6

What is the five-step model?

Answer 6

1. Step 1 - Identify the customer
2. Step 2 - Identify the performance obligations in the contract
3. Step 3 - Determine the transaction price
4. Step 4 - Allocate the transaction price to the performance obligations in the contract
5. Step 5 - Recognise revenue when or as the entity satisfies a performance obligation.

Question 7

Conditions to satisfy in order to identify the contract? 5

Answer 7

1. The parties concerned have approved the contract and are committed to perform their contractual obligations.
2. The entity can identify each party’s right with regard to the goods or services which are to be transferred under the contact.
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 to which it is entitled in exchange for the goods and services that will be transferred to the customer.

Question 8

Main point to identify performance obligations?

Answer 8

Distinct

Question 9

Performance obligations satisfied over time if any of the following conditions are satisfied:

Answer 9

1. the customer simultaneously receives and consumes the benefits provided by the entity’s performance whilst the entity performs its obligation
2. the entity’s performance creates an asset that the customer controls as it is created (eg building)
3. the entity performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for the performance that has been completed to date.

Question 10

Methods for measuring progress:

Answer 10

Output methods - measure progress on the basis of direct measurements of goods and services transferred to date, relative to the goods and services that remain to be transferred.
Input methods. These methods measure progress on the basis of the entity’s efforts or inputs to date relative to total expected inputs required in order to achieve the performance obligation.

Question 11

No reasonable measure of progress?

Answer 11

If progress cannot be measured, sufficient revenue may be recognised to cover the costs incurred to date so long as the entity expects to recover the costs incurred in order to satisfy the performance obligation

Question 12

Performance obligations satisfied at a point in time

Answer 12

Revenue will be recognised when the customer obtains control of the promised asset and the obligation is satisfied. Indications of transfer of control are:

1. the entity is now entitled to payment for goods and services provided.
2. the customer has legal title to the asset concerned.
3. the entity has transferred physical possession of the asset
4. the customer now has the significant risks and rewards that would normally be associated with ownership of the asset.
5. the customer has accepted the asset