LU3 - Revenue from contracts with customers & leases (IFRS 15)

Question 1

Revenue - 5 Step model for the revenue side of this LU

Answer 1

1. Identify contract
2. Identify POs in the contract. How many are there?
3. Determine the TP
   4.Allocate the TP to POs (Individually baba)
4. Recognize Rev as POs satisfied. (Each PO must have their own Rev)

Question 2

Revenue - Step 1 Id a contract - conditions for an agreement to to be accounted as contract

Answer 2

1. Contract has been approved by both parties
2. Each party’s rights in relation to the G/S can be identified.
   3.Payment terms for G/S can be identified.
3. Contract has commercial substance. (Can be assigned a value)
4. It is probable that the consideration entity is entitled to will be collected.

Question 3

Revenue - Step 1 Combination/Modification of contract - Modify contract if 2 conditions are met

Answer 3

1. Scope of contract increases
   2 Price of contract increases by stand alone selling prices of added G/S
   *Change in scope and/or price obviously has to be approved by both parties

Question 4

Revenue - Step 1 Comb/Modi of contract - Combine if one or more of this criteria is met

Answer 4

1. Negotiated as package w single commercial objective
   2.Amount of consideration in one contract depends on price/performance of other contract.
   3.G/S promised in contracts are a single PO

Question 5

Revenue - Step 2 - Identify PO’s in the contract - What is a PO?

Answer 5

Promise in a contract with a customer to transfer a G or S.

Question 6

Revenue - Step 2 - G/S = Distinct if both criteria are met (Key Step)

Answer 6

1. Customer can benefit from G/S either on its own or together with other resources that are readily available to the customer.
   2.Entity’s promise to transfer G/S to customer is separately identifiable from other promises in the contract.
   *If both criteria met=distinct PO.. If not, then not distinct = combine PO

Question 7

Revenue - Step 2 - If G/S not distinct

Answer 7

Account for PO separately UNLESS:
1. G/S are highly interrelated and significant integration service is required
2. Bundle is significantly modified or customized to fulfil contract

Question 8

Revenue - Step 3 Determine TP

Answer 8

*Is consideration variable? Yes
1. Estimate amount using expected value or most likely amount.
2.Determine the portion if any, of that amount for which it is highly probable that a significant revenue reversal will not subsequently occur.
3.Include in TP
*Is consideration variable? No
1.Include amount in TP

Question 9

Revenue - Step 4 Allocate TP to POs in the contract

Answer 9

1. If contract has multiple POs, entity will allocate TP to PO by reference to Standalone Selling prices.
2. If Standalone price not directly observable, you need to estimate it using certain methods in std.

Question 10

Revenue - Step 5 - Recognise revenue as PO is satisfied (When to recognise rev?)

Answer 10

1. Recognise revenue as and when control of G/S is transferred to customer.
   *Control may be transferred at a point in time or over time.

Question 11

Revenue - Contract Costs

Answer 11

*Costs of obtaining a contract recognized as asset if:
*Costs of fulfilling a contract recognized as asset if: