IFRS 15 short summary

Question 1

5 step for revenue recognition?

Answer 1

1) identify contract
2) identify performance obligations
3) determine transaction price
4)allocate transaction price between performance obligations
5) recognise revenue as and when performance obligations are satisfied.

Question 2

step 1- identification of contract

Answer 2

-terms are defined
-legal rights (can be written or verbal/ implied)
-probable chances of economic benefit (buyer is not broke,guarantees, asset is imp for buyer, payment terms are good)

Question 3

stage 2- identification of performance obligation

Answer 3

1) separate performance oligations (eg. teacking + books, generator + maintenence, mobile +sim)
2)single performance obligation (eg. teaching one paper, constructing one bungalow)g

Question 4

stage 3- determine transaction price

Answer 4

1) fixed consideration
2) variable consideration (only book to the extent where reversal is impossible, i.e confirm, highly probable)
3)sale or return basis: if sale is confirm you can book sales

Question 5

we provided service now and taking payment after 2 years: entry

Answer 5

-when service is provided:

receivable debit
sales credit

interest unwinding:
receivable debit
interest income credit

payment date:
bank debit
receivable credit

Question 6

payment received now and goods will be provided after two years- treatment

Answer 6

treat it as a loan and book interest using incremental borrowing rate. (remember this)

entries:
payment date:
-bank debit
-loan credit

interest unwinding:
-interest exp
-loan

when performance obligation fulfilled:
-loan debit
-sales credit

Question 7

non cash consideration

Answer 7

must be booked at FV of consideration received

Question 8

stage 4- allocation of transaction price

Answer 8

total price is allocated to different performance obligations on the basis of stand alone prices. (pro rata basis)

Question 9

stage 5- book revenue (point in time)

Answer 9

1) point in time: when there is no obligation for future. book revenue when control transfers.

hints of control transfer:
-possession transferred
-legal title
-risk and reward transferred

Question 10

book revenue (over time) 3 situations are:

Answer 10

1) customer gets benefit simultaneously (eg. teaching)
2) when seller performance creates an asset which comes under control of customer (eg. construction of customer plot)
3) seller creates an asset which is of no use to seller (seller has right for payment of work done)

Question 11

two types of warrantees

Answer 11

1) provided and benefited separately
eg. selling a car + warranty service.
treated like 2 different P.Os
book revenue of car immediately and warranty service over time
2) not provided nor benefited separately (standard warranty) covered under ias 37.
entry:
PnL debit
Warranty provision credit

Question 12

if revenue is booked over time, there are 2 methods to calculate state of completion

Answer 12

1) output method-
work certified to date / total contract price 100
2) input method-
cost incurred to date/ total estimated cost100

Question 13

CONTRACT MODIFICATION MEANS

Answer 13

Changes in scope, price or duties of contract. it could be a separate contract or not.

Question 14

how to determine if modification is a separate contract

Answer 14

if goods/ services are distinct and price reflects standalone price - book it as separate contract

if goods/ services are not distinct OR price does not reflect standalone price of goods/services (means big discount)
MERGE with existing contract (cumulative catch up adjustment)