Performance reporting and Appraisal

Question 1

What are the two categories that items of other comprehensive income must be presented under?

Answer 1

Items that will not be reclassified to Profit or loss in the future;

• Changes in the revaluation surplus
• Re measurement Components
• Re measurement of investments in equity instruments.

Items that may be classified to profit or loss in the future;

• Foreign exchange gains or losses on the translation of a foreign operation.
• Gains and losses on Cash flow hedges
• re measurement of investments in debt instruments.

Question 2

How is revenue recognition approached under IFRS 15 revenue from contracts with customers?

Answer 2

Revenue recognition is a 5 part process;

1. Identify the contract - An agreement between two parties that creates rights and obligations
   
   1. Both parties must approve the contract and their rights can be identified.
   2. Payment terms can be identified
   3. The contract has commercial substance.
   4. It is probable that the selling entity will receive the consideration.
2. Identify the separate performance obligations - promises to transfer distinct goods or services to a customer.
   
   1. Distinct = can be benefited from on it’s own and is separably identifiable from other contractual promises.
3. Determine the transaction price - There will be a number of considerations:
   
   1. Is the consideration variable, an estimate of the amount to be received may be required.
   2. Financing - consideration may need to be discounted to present value if there is a significant Financing component.
   3. Non Cash consideration - is measured at fair value.
   4. Consideration payable to a customer - should be accounted for as a separate purchase transaction.
4. Allocate the transaction price to the performance obligation - in proportion to the stand alone selling price of each component. This may require estimate if a price is unobservable.
5. Recognise revenue when a performance obligation is satisfied. - satisfaction may ocurr:
   
   1. Over time - The customer simultaneously receives and consumes the benefit, the entity is creating or enhancing an asset controlled by the customer, the entity cannot use the asset for an alternative use and payment can be demanded for performance to date.
   2. At a point in time - customer has physical possession, significant rewards and risks of ownership, legal title and the seller has the right to payment.

Question 3

Are there any other considerations when recognising revenue from contracts?

Answer 3

Recognition over time - revenue is recognised based on the progress towards completion.

Contract Costs - An entity must capitalise the following costs in relation to contracts, and amortise as the profit is recognised.:

• The costs of obtaining the contract, unless the cost would be incurred even if the contract was not won.
• Costs of Fulfilling a contract that do not fall within the scope of other standards if recovered.

Assets and Liabilities

If revenue is recognised before consideration is received then either of the following should also be recognised:

• A receivable - if the right to consideration is unconditional.
• A contract asset, note a contract liability should be recognised if consideration is received before revenue has been recognised.