Revenue and Government Grants

Question 1

What are the examples of revenue?

Answer 1

• sale of goods
• rendering of services
• contracts to construct asset

Question 2

Contract is……

Answer 2

an agreement between two or more parties that creates enforceable rights and obligations

Question 3

Performance obligation is ………….

Answer 3

a promise in a contract with a customer to transfer;

(a) good or service that is distinct(recognizable)

OR

(b) series of distinct goods or services that are the same and have same pattern of transfer to the customer.

Question 4

What is the core principle of IFRS 15?

Answer 4

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

Question 5

when will the revenue be recognised?

Answer 5

when there is transfer of control to the customer from entity supplying goods or services

Question 6

How to identify the contract?

Answer 6

when

• both parties are committed to carrying it out
• each party’s rights to be transferred can be identified
• the payment terms can be identified
• the contract has commercial substance
• it is probable the entity will collect the consideration

Question 7

what is transaction price?

Answer 7

the amount to which the entity expects to be entitled to from the customer in exchange for transferring goods or services

Question 8

how to allocate transaction price to performance obligations?

Answer 8

by multiple deliverables;

transaction price allocated to each separate performance obligation in proportion to the stand-alone selling price

Question 9

when to recognise revenue?

Answer 9

when performance obligation is satisfied

ie when entity transfers control of a promised good or service to a customer

Question 10

IFRS 15 states that a good or service that is promised to a customer is ________ if the criteria are met.

Answer 10

distinct

Question 11

the criteria to determine if good or service is distinct

Answer 11

• the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer
• the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract

Question 12

A performance obligation is ______ when the entity _______ a promised good or service (ie an asset) to a customer.

Answer 12

satisfied, transfers

Question 13

An asset is considered ______ when the customer obtains _______ of that asset

Answer 13

transferred, control

Question 14

______ of an asset refers to the ability to direct the use of, and obtain substantially all of the remaining benefits from the asset

Answer 14

control

Question 15

_________ is recognised when revenue has been earned but not yet invoiced

Answer 15

contract asset

Question 16

Formula of contract asset

Answer 16

revenue recognised (based on % certified to date) - X

Less amounts invoiced to the customer to date - (X)

Contract asset/(liability) - X/(X)

Question 17

Who is a principal?

Answer 17

entity controls the goods or services

revenue = gross revenue

Question 18

Who is an agent?

Answer 18

Entity arranges for goods or services to be provided by the other party

revenue = fee or commission

Question 19

“the customer does not obtain control of the product at the delivery date. The inventory remains in the books of the entity and revenue is not recognised until control passes.”

This is the meaning of ………

Answer 19

consignment arrangements

Question 20

“goods are sold but remain in possession of the seller for a specified period of time. an entity will need to determine at what point customer obtains control of the product”

This is the meaning of ………

Answer 20

bill and hold arrangements

Question 21

What is the accounting treatment for standard warranty (at no cost) ?

Answer 21

Account for warranty in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets

Question 22

What is the accounting treatment for additional warranty (available to the customer at cost)?

Answer 22

Account for warranty as an additional performance obligation in the sales contract under IFRS 15 Revenue from Contracts with Customers by allocating it a portion of the transaction price

Question 23

What is the accounting treatment for additional warranty at no cost?

Answer 23

Same treatment as additional warranty at cost

Question 24

C sold goods to E on 1/1/12 for $200k, payable on 31/12/13. E cannot return the goods

The relevant discount rate is 6%

What amount of revenue and finance income should be recognised in C’s SOPL for year ended 31/12/12?

Answer 24

Revenue = 200k x 0.890 (2 year discount rate at 6%) = 178k

Finance income in 2012 = 178k x 6% = 10,680