Revenue

Question 1

What is the 5-step approach for revenue recognition?

Answer 1

1. Identify the contract
2. Identify the separate performance obligations
3. Determine the transaction price
4. Allocate the transaction price to the performance obligations
5. Recognise revenue when (or as) a performance obligation is satisfied

Question 2

If the expected outcome of a revenue contract with a customer is a profit, how should revenue be recognised?

Answer 2

According to the progress of the contract

Question 3

If the expected outcome of a revenue contract with a customer is a loss, how should revenue be recognised?

Answer 3

According to the progress of the contract
The whole loss should be recognised immediately be recording a provision as an onerous contract and increasing cost of sales

Question 4

If the expected outcome of a revenue contract with a customer is unknown, how should revenue be recognised?

Answer 4

Revenue should be recognised to the level of recoverable costs
Contract costs should be recognised as an expense in the period in which they are incurred

Question 5

What are the 4 steps to calculating the entries on a revenue contract satisfied over time?

Answer 5

1. Calculate the overall profit or loss
2. Determine the progress of a contract (input or output method)
3. Calculate the entries for the statement of profit or loss
4. Calculate the entries for the statement of financial position