Learning Unit 3 - Revenue from contracts with customers

Question 1

Which IFRS standard discusses revenue from contracts with customers?

Answer 1

IFRS 15

Question 2

What is the five step process regarding recognition of revenue from contracts with customers?

Answer 2

Step 1 - Identify the contract/s with a customer
Step 2 - Identify the performance obligations in the contract
Step 3 - Determine the transaction price
Step 4 - Allocate the transaction price to the performance obligations in the contract
Step 5 - Recognize the revenue when/as the entity satisfies the performance obligation

Question 3

What is the definition of revenue in terms of IFRS 15

Answer 3

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

Question 4

What is the definition of income in terms of IFRS 15?

Answer 4

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

Question 5

When is revenue recognized in terms of IFRS 15?

Answer 5

Revenue is recognized when:
- we have identified the contract with a customer
- We have identified the performance obligations and
- the performance obligation are satisfied.

Question 6

What are performance obligations IFRS 15?

Answer 6

Performance obligations are promises to transfer:
- goods or services/bundles thereof
- that are distinct

Question 7

How do you measure revenue in terms of IFRS 15?

Answer 7

Revenue is measured:
- by first calculating the transaction price (TP); and
- By then allocating this to each performance obligation based on the relative standalone selling price of the underlying goods or services

Question 8

What is the transaction price - IFRS 15?

Answer 8

The transaction price is the amount of consideration to which the entity expects to be “entitled” for having transferred the goods and or services to the customer (excluding amounts collected on behalf of third parties such as VAT).

Question 9

How do we allocate the transaction price where there is more than one performance performance obligation?

Answer 9

If a contract involves more than one performance obligation the transaction price will be allocated to each separate performance obligation.

Question 10

What is the transaction price?

Answer 10

The transaction price is defined as:
- the amount of consideration
- to which an entity expects to be entitled
- in exchange for transferring goods/services to a customer,
- excluding amounts collected on behalf of third parties

Question 11

List the factors that must be considered in the determination of the contract price.

Answer 11

• variable consideration (we need to estimate it and constrain it)
• significant financing components
• non-cash consideration
• consideration payable to the customer

Question 12

In terms of IFRS 15.35 what are the three criteria used to determine whether a Performance obligation is satisfied over time?

Answer 12

Criterion 1
Does the customer receive the asset & consume its benefits at the same time that the entity performs its obligations

Criterion 2
If the entity is creating or enhancing an asset, does the customer obtain control of the asset as its being created or enhanced

Criterion 3
If the entity is creating an asset, does:
- the asset have no alternative use for the entity; and does
- the entity have an enforceable right to payment for performance completed to date

Question 13

What are the indicators of control in terms of IFRS 15.38?

Answer 13

• The entity has a present right to payment for the asset
• The customer has legal title to the asset
• The entity has transferred physical possession of the asset
• The customer has the significant risks and rewards of ownership of the asset
• The customer has accepted the asset