IFRS 15 - Revenue Recognition Flashcards
When do you recognize revenue?
When performance obligation is satisfied
What is the five step framework for Revenue Recognition?
- Identify the contract with customer
- Identify the separate performance
- Determine the transaction price
- Allocation of transaction price
What are the most common types of contracts?
- Contract of Sale
- Subscriptions Contract
- Construction Contract
- Franchise Contract
Will you still recognize revenue if the collection (consideration) is not probable?
No
This is the obligation of a seller to a customer.
Performance Obligation
What are the two types of Performance Obligations?
- Separate (or distinct) PO
- Not separate (or not distinct) PO
What is the difference between:
1. Separate (or distinct) PO
2. Not separate (or not distinct) PO
- Separate PO is not dependent with other POs in the other contract (satisfied once the PO is finished)
- Not separate (or distinct) PO is interrelated with other goods or services.
How do you treat not separate (or not distinct) PO?
Treat all the performance obligations as one performance obligation.
The amount at which revenue will be measured.
Transaction Price
What is the treatment of the amount collected on behalf of third parties?
ex: Sales Tax or VAT
Excluded
because this money is not ours but for others (ex: the government)
What is the measurement for each item when it comes to transaction price?
- Time value of money
- Non-cash consideration
- Estimates of variable consideration
- Any consideration payable to the customer
- Time value of money - PRESENT VALUE
- Non-cash consideration - FAIR VALUE
- Estimates of variable consideration - EXPECTED VALUE or MOST LIKELY VALUE
- Any consideration payable to the customer - REDUCTION IN TRANSACTION PRICE
If payment for 4 is unrelated, then don’t recognize (ex: goods from customer)
What are the two approaches for variable considerations?
- Expected value approach
- Most likely amount approach
What is the difference between the two approahces for variable considerations?
- Expected value approach - compute the WAVE of each projection. (Amount na pwede mong makuha x percentage probability of it happening)
- Most likely amount approach - the amount most likely to happen (just choose)
How do you find the transaction price itself?
Fixed Price + Variable Price = Transaction Price
If the stand-alone selling price is not determinable, what are the estimates possible?
- Adjusted market assessment approach
- Expected cost plus margin method
- Residual approach
What is being done when it comes to allocation of transaction price?
Transaction price is allocated to each performance obligation identified based on the relative stand-alone price of the goods or services.
The two types of timining when you recognize revenue?
(and its differences)
- At a point in time - when customer gains control of the asset
- Over a period of time - when the entity progresses towards the satisfaction of an obligation
When it comes to contracts with customers, what are three types of accounts to be presented?
- Contract Asset
- Accounts Receivable
- Contract Liability
What is the similarity between Contract Asset and Accounts Receivable?
Showcases entity’s right to receive payment from the customer.
This is synonymous to unearned income.
Contract Liability
What is the difference between contract asset and accounts receivable?
- CONTRACT ASSET - right to receive is conditional (entity still has to satisfy something – future performance)
- ACCOUNTS RECEIVABLE - right to receive is unconditional (passage of time nalang hinihintay ni entity)
