IFRS 15 - Revenue Recognition

Question 1

When do you recognize revenue?

Answer 1

When performance obligation is satisfied

Question 2

What is the five step framework for Revenue Recognition?

Answer 2

1. Identify the contract with customer
2. Identify the separate performance
3. Determine the transaction price
4. Allocation of transaction price

Question 3

What are the most common types of contracts?

Answer 3

1. Contract of Sale
2. Subscriptions Contract
3. Construction Contract
4. Franchise Contract

Question 4

Will you still recognize revenue if the collection (consideration) is not probable?

Answer 4

No

Question 5

This is the obligation of a seller to a customer.

Answer 5

Performance Obligation

Question 6

What are the two types of Performance Obligations?

Answer 6

1. Separate (or distinct) PO
2. Not separate (or not distinct) PO

Question 7

What is the difference between:
1. Separate (or distinct) PO
2. Not separate (or not distinct) PO

Answer 7

1. Separate PO is not dependent with other POs in the other contract (satisfied once the PO is finished)
2. Not separate (or distinct) PO is interrelated with other goods or services.

Question 8

How do you treat not separate (or not distinct) PO?

Answer 8

Treat all the performance obligations as one performance obligation.

Question 9

The amount at which revenue will be measured.

Answer 9

Transaction Price

Question 10

What is the treatment of the amount collected on behalf of third parties?
ex: Sales Tax or VAT

Answer 10

Excluded

because this money is not ours but for others (ex: the government)

Question 11

What is the measurement for each item when it comes to transaction price?

1. Time value of money
2. Non-cash consideration
3. Estimates of variable consideration
4. Any consideration payable to the customer

Answer 11

1. Time value of money - PRESENT VALUE
2. Non-cash consideration - FAIR VALUE
3. Estimates of variable consideration - EXPECTED VALUE or MOST LIKELY VALUE
4. Any consideration payable to the customer - REDUCTION IN TRANSACTION PRICE

If payment for 4 is unrelated, then don’t recognize (ex: goods from customer)

Question 12

What are the two approaches for variable considerations?

Answer 12

1. Expected value approach
2. Most likely amount approach

Question 13

What is the difference between the two approahces for variable considerations?

Answer 13

1. Expected value approach - compute the WAVE of each projection. (Amount na pwede mong makuha x percentage probability of it happening)
2. Most likely amount approach - the amount most likely to happen (just choose)

Question 14

How do you find the transaction price itself?

Answer 14

Fixed Price + Variable Price = Transaction Price

Question 15

If the stand-alone selling price is not determinable, what are the estimates possible?

Answer 15

1. Adjusted market assessment approach
2. Expected cost plus margin method
3. Residual approach

Question 16

What is being done when it comes to allocation of transaction price?

Answer 16

Transaction price is allocated to each performance obligation identified based on the relative stand-alone price of the goods or services.

Question 17

The two types of timining when you recognize revenue?
(and its differences)

Answer 17

1. At a point in time - when customer gains control of the asset
2. Over a period of time - when the entity progresses towards the satisfaction of an obligation

Question 18

When it comes to contracts with customers, what are three types of accounts to be presented?

Answer 18

1. Contract Asset
2. Accounts Receivable
3. Contract Liability

Question 19

What is the similarity between Contract Asset and Accounts Receivable?

Answer 19

Showcases entity’s right to receive payment from the customer.

Question 20

This is synonymous to unearned income.

Answer 20

Contract Liability

Question 20

What is the difference between contract asset and accounts receivable?

Answer 20

1. CONTRACT ASSET - right to receive is conditional (entity still has to satisfy something – future performance)
2. ACCOUNTS RECEIVABLE - right to receive is unconditional (passage of time nalang hinihintay ni entity)