Revenue Flashcards

1
Q

IFRS 15 Revenue definition:

A

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

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2
Q

What is the Core Principle of IFRS 15 Revenue?

A

Entity recognises revenue to depict the transfer of promised goods or services customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

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3
Q

What is the 5 step approach to recognise revenue?

A

1.) Identify the contract with the customer
2.) Identify performance obligations in the contract
3.) Determine the transaction price
4.) Allocate the transaction price to the performance obligations in the contract
5.) Recognise revenue when (or as) the entity satisfies a performance obligation.

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4
Q

Contract:

A

An Agreement between two or more parties that creates enforceable rights and obligations.

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5
Q

Entity should account for a contract with a customer when all of the criteria has been met (IFRS 15):

A
  • Parties have approved the contract
  • Entity can identify parties rights
  • Entity can identify payment terms
  • Contract has commercial substance
  • It is probable that the entity will collect the consideration
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6
Q

What is the definition of a Performance Obligation (Step 2) ?

A

A promise in a contract with a customer to transfer to the customer either:
- a good or a service that is distinct
- series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer.

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7
Q

What is the definition of Transaction price?

A

Amount of consideration to which an entity expects to be entitled in exchange for transferred promised goods or services to a customer, excluding amounts collected on behalf of third parties.

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8
Q

How to determine the point in time when a customer obtains control of a promised asset and an entity satisfies a performance obligation, what would would the indications of transfer of control be?

A
  • entity has present right to payment for asset
    -customer has legal title to asset
    -entity has transferred physical possession of the asset
  • customer has significant risks and rewards of ownership of the asset
  • customer has accepted the asset
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9
Q

Satisfaction over time:

A

An entity transfers control of good or service over time and satisfies performance obligation and recognises revenue over time if one of the following criteria is met:
-Customer simultaneously receives and consumes benefit
- Entity’s performance creates or enhances an asset that the customer controls as asset is created or enhanced
-Entity’s performance does not create an asset with an alternative use to the entity and entity has an enforceable right to payment.

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10
Q

Sale with a Right of Return:

A

IFRS 15 requires entity to recognise all of the following:
- Revenue for transferred products in the amount of consideration to which entity expects to be entitled
- Refund liability
- Asset for its right to recover products from customers on settling the refund liability

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11
Q

According to IFRS 15 What are the 3 different Warranties?

A

1.) Standard warranty - no cost to customer
2.) Additional warranty - available to customer at cost
3.) Additional warranty at no cost to customer that provides additional service beyond assurance.

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12
Q

What should be considered when assessing whether something is an additional or standard warranty?

A
  • Whether warranty is required by law (standard warranty)
  • Length of warranty coverage period (longer the cover, more likely it is an additional warranty)
  • Nature of tasks that entity promises to perform (do they relate to providing assurance that product will function as intended)
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