Part 10 - Revenue Flashcards
What are the 5 steps to Revenue IFRS 15?
1) Identify the contracts with the customers
2) identify separate performance obligation
3) determine the transaction price
4) allocate the transaction price to performance obligation
5) recognize revenue when performance obligation is satisfied
When to classify as contracts?
must meet all obligations:
- both parties approve contracts/committed to perform obligation
- can identify each parties’ right
- identify payment terms
- commercial substances
- collection is probable
When to account for combination of contracts in a single contract?
when any one of the criteria is met:
- contracts negotiated as a package with a single commercial objective
- amount of consideration to be paid in one contract depends on the price or performance of the other contract
- G/S promised in the contract are a single performance obligation
When to account for modification as separate contracts?
if both conditions are met:
- scope of contract increases bc of additional promised G/S that are distinct
- price of contract increases by the amount of consideration that reflects the entity’s stand-alone selling price of the additional G/S
How to determine if a good/services is distinct?
if the following both criteria are met:
- customer can benefit from g/s either on its own or with other readily resources
- entity’s promise to transfer the g/s to the customer is separately identifiable from other promises in the contracts
How to determine a performance obligation?
- a g/s (or bundle) that is distinct or:
- a series of distinct g/s that are substantially the same and have the same pattern of transfer to the customer
How to account for refunds/sales with a right of return?
expected amount set up when sales recognize as a reduction in revenue with an offsetting liability
how to record if there is an existence of significant financing component?
if period of time between payment and date of transfer of g/s is more than 1 yr, discount and recognize interest revenue separately
how to account for consideration payable to customers?
reduce transaction price by consideration payable
What are stand-alone selling price?
price at which the g/s would be sold separattely to the customer
How to allocate transaction price when a customer purchases a bundle of g/s at a lower price than the individual stand-alone price?
allocate discount proportionately to all performance obligation
When to recognize revenue?
when a performance obligation is satisfied when control of the g/s is transferred to the customer
How to account for a repurchase asset obligation when the repurchase price is less than the original selling price
lease
how to account for a repurchase obligation when the repurchase price is more than the original selling price
financing arrangement
how to account for a repurchase asset right but no significant incentive to exercise
agreement of sale with right to return
The performance obligation are satisfied over time if one of the following criteria is met:
- customer simultaneously receives and consumes the benefits provided by the entity as the entity performs
- entity’s performance creates or enhances an asset (WIP) that customer controls as the asset is created or enhanced
- entity’s performance doesn’t create a asset with an alternative use to the entity and entity has an enforceable right to payment for performance completed to date
How to recognize revenue when performance obligation are satisfied over time?
measuring progress towards satisfaction of performance obligation. choice of 2 methods:
- output methods - recognize revenue on the basis of direct measurement of the value of g/s transferred to the relative remaining g/s promised
- input method - basis of entity’s efforts or input to the satisfaction of a performance obligation relative to the total expected input
How to assess whether a warranty provides is a performance obligation?
- require by law - most likely not a performance obligation
- length of warranty coverage period - longer more likely
- nature of the task the entity promises to perform
How to account for assurance-type warranty:
- estimate warranty liability and offsetting warranty expense will be recognize at the time of sale
How to account for service-type warranty:
- service type is when entity provide customer with a service in addition to the assurance (type warranty) that the product complies with agreed-upon specification
- account for it as a separate performance obligation
- allocate a portion of the transaction price accordingly. unearned revenue will be set up as a liability on the BS
How to determine if the entity is a principal or agent?
agent’s performance obligation is to arrange for the provision of the specified g/s by another party
- agent doesn’t control specified g/s
- recognize net fee or commission earned on transaction
- not primarily responsible for fulfilling the promise to provide the specified g/s
- inventory risk b4/after transfer to customer
- discretion in establishing price
How to account for customers options for additional g/s
- treat as performance obligation if the option provides a material right to the customer that it would not receive without entering into that contract
- if stand alone price can’t be estimated - reflect customer would obtain adjust for discount customer would receive without exercising option and likelihood the option will exercise
how to recognize customer’s unexercised right?
record as a contract liability
when g/s transferred, transfer from liability to revenue
if non-refundable customer prepayment - expected to be entitled to the breakage - revenue based on past experience
- if not expected to be entitled - recognize when likelihood of customer exercising becomes remote
how to recognize non-refundable upfront fee
- does it related to activities that entity is required to take at or near contract inception? - recognize revenue upfront
- advance payment for future g/s? recognize when g/s provided
- is it separate performance obligation?
