Revenue Flashcards
What does IFRS 15 say about when to recognise revenue?
when control is transferred not when the cash is received
What are the 5 steps?
- identify customer contract
- identify the distinct performance obligations
- determine price
- allocate price to performance obligation
- recognise revenue when performance obligation is satisfied
What are the different things that can happen when determining price?
- future payments = discount to PV
- non-cash consideration = fair value
- variable consideration = most likely outcome/expected value
What happens when goods and services are provided together when allocating price?
allocate based on standalone prices, if there is a discount, use the overall discount applied evenly to standalone prices
How is it classified when a customer pays before the goods are delivered/services provided (pays before the performance obligations are satisfied)?
this is a contract liability so initially recognised as deferred income
when the cash is received Dr cash and Cr contract liability
When the PO satisfied Dr contract liability and Cr revenue
How is it classified when the customer pays within 12 months after the PO is satisifed (pays after PO satisfied)?
this is a contract asset so initially recognised as accrued income if still some work to be performed, but receivable if no further work to be performed or invoice sent
when PO satisfied Dr contract asset (or receivable) and Cr revenue
when cash received Dr cash and Cr contract asset (or receivable)
How is it classified when the customer pays later than 12 months after PO satisfied?
price needs to be discounted to PV using discount factor/effective interest rate
Dr receivable
Cr revenue
receivable subsequently measured using amortised cost: b/f, interest income, cash, c/f
EIR will increase the initial asset up to the actual amount of cash received
What happens if the PO is satisfied over time such as when an asset is being constructed or created for a customer?
revenue is recognised based on the progress to completion if:
- asset has no alternative use and
- right to receive payment for complete work measured as output method or input method
if unable to measure outcome of contract then revenue = recoverable costs incurred
What is the output method?
Value of goods/services transferred as a % of total
What is the input method?
Cost of goods/services transferred as % of total
What happens when the asset has been sold and we have the option/obligation to repurchase it?
If the repurchase price > original selling price:
- customer does not obtain control of asset as control limited by repurchased option
- substance over form: loan with asset used as security
- cash received is a loan (financial liability)
- additional amount paid is interest expense
- asset continues to be recognised
if repurchase price < original selling price:
- treat as a lease
What happens when the asset has been sold but we have the obligation to repurchase it at a customers request?
if the repurchase price > original selling price:
- cash is received as a loan
if the repurchase price < original selling price:
- treat as a sale with the right of return if fair value < repurchase price
- treat as a lease if FV > repurchase price
What happens with warranties?
- standard warranty is not a distinct PO (may require a provision)
- additional warranty is a distinct PO
What happens with a sale with the right to return?
- do not recognise revenue and cost of sales for items expected to be returned
- refund liability for expected returns
- asset for CA of inventory to be returned
What is principal vs agent?
- agent business selling goods/services which principal business will provide to customer
- agent only recognises commission as revenue
- principal recognises revenue when PO to end customer is satisfied
