Revenue

Question 1

What is IFRS 15?

Answer 1

Contract with customers

Question 2

What are the 5 key criteria you need to meet if you want to use IFRS 15?

Answer 2

1) Agreement with enforceable rights/obligations
2) All parties approve and committed
3) Payment terms and right identifiable
4) Commericial substance
5) Consideration Collection Probable

Question 3

If the collection is not probable, how is Cash recorded?

Answer 3

You record cash as a liability

Dr Cash Cr Contract Liability

Question 4

If there are no more performance obligation and substantially all consideration has been received, what do you record cash as?

Answer 4

As the collection was not probable at first, it was DR Cash and Cr Contract Liability.

Once there are no more performance obligation and all consideration has been received, then it is DR Contract Liability CR Revenue

Question 5

Can you use the 5 steps of IFRS 15 if Criteria has not been met

Answer 5

No

Question 6

What are the 5 steps of IFRS 15?

Answer 6

1) Identify the contract
2) Identify the distinct Performance obligation
3) Determine the Transaction Price
4) Allocate Transaction price to Performance obligations
5) Recognise Revnue as Performance obligation is satisfied

Question 7

When identifying the contract, the contract always has to be written.

True or False

Answer 7

False, it can be said orally.

Question 8

What is unbundling?

Answer 8

This is a term used for a promise in Performance

Question 9

Does the performance obligations have to distinct and seperate in order for the item to be recognised?

Answer 9

Yes

Question 10

What is a distinct PO?

Answer 10

When benefits can be gained from it alone without highly dependent on other promises.

It needs to be separately identifiable ( Not dependent on other promises)

Question 11

How do we determine the transaction prices

Answer 11

The amount of consideration we are entitled to

Excluding amount collecting on behalf of thrid party for example government taxes

Any variable considerations, use the most/likely amount e.g. discounts, refund, discounts

Variable consideration can only be included if it highly probaly no significant reversal

Use time value of money if payment> 1 year and significant financing component ( Use entity incremental borrowing rate)

Question 12

When allocating the transaction price to Performance obligation, do we use stand alone selling prices

Answer 12

Yes

Question 13

What do do if the transaction price is not observable when allocating to perfomance obligation?

Answer 13

Estimate but maximise observable inputs.

Question 14

Is the performance obligation satisfied when control has not been transferred to the customer?

Answer 14

No, We have to satisfy obligations by transferring control to the customer either over time or point in time

Question 15

Performance obligation is satisfied when the posession is directly used by others.

True or False

Answer 15

False, Performance obligation is satisfied only when the control includes preventing others from directing use and getting benefit.

Question 16

Passing of control includes; legal title of customer ; does not have the right to payment or physical posession.

True or False

Answer 16

False,

Passing of control includes legal title of customer; right to payment or physical possession.

Question 17

Tell me 3 ways in which you can recognise something over time and what happens if you do meet these 3 criteria?

Answer 17

1) Customer receives and consumes benefits at the same time
2) Customer control the asset as it is being created/enhanced
3) We sell an asset without an alternative use to us and we can enforce payment for work to date

Question 18

What are contract cost split up into?

Answer 18

Obtaining the contract and fulfilling the contract

Question 19

If the item is not recoverable e.g. due diligence on customer, do we capitalise or or do we expense?

Answer 19

We expense because we only capitalise if the item is recoverable.

Question 20

What does Fulfilling contract focus on?

Answer 20

Relating directly to contract and enhancing resources

Question 21

When obtaining the contract, if these are recognised as an asset, what sort of cost should the contract be?

Answer 21

Incremental cost which means these costs ONLY occurred due to the contract eg Sales commission

Question 22

Commission to sales employees, do we capitalise or expense?

Answer 22

We capitalise because it incurred only for the customer contract & recovery expected through future sales

Question 23

Can the contract cost be recognised as an asset if it falls under any other IFRS other than IFRS 15?

Answer 23

No

Question 24

Considering Fulfilling the contract under IFRS 15, when can recognise the cost as an asset?

Answer 24

1) Relate Directly to contract
2) Enhance resources
3) Expected recovery

Question 25

If the customer has the right to return in 90 days and has no historic evidence, what do you do?

Answer 25

We do not recognise revenue and we credit a refund liability.

Question 26

After 90 days, we now know that there are no refunds, what do you do?

Answer 26

We Dr Refund Liability and CR Revenue.

Question 27

What are the two types of Warranty?

Answer 27

1) Assurance Warranty

2) Service Warranty

Question 28

What is Assurance Warranty?

Answer 28

Standard Warranty, it is an assurance.

IAS 37

Dr Expense Cr Provision for the amount you think it will cost you

Question 29

What is Service Warranty?

Answer 29

An option to purchase separately

Question 30

What is a Principle?

Answer 30

If the person who control goods even though they are being supplied by someone else who passes onto the customer

Question 31

What is an agent?

Answer 31

Someone who works on behalf of the pirnciple and passes on good to customers but have no control of the goods.