Revenue and grants Flashcards
Revenue
received when control transferred (goods delivered/services provided), not when cash received
elements:
1- Identify customer contract-(terms approved by buyer and seller)
2-identify performance obligations (PO)- (goods to be delivered/services to be provided)
3-Determine price(future payments(discounted to PV), non cash consideration at FV, variable consideration: most likely outcome/expected value)
4-Allocate price to PO- (g/s provided together , base of standalone prices, overall discount applied evenly to both)
5- recognise revenue when PO satisfied- goods delivered to customer/customer legally owns goods, service provided to customer
5-Recognise revenue when PO satisfied
Grants
Income recognised when conditions of grant will be met , not when cash received
accounting policy choice:
1) Capital : Recognise grant against cost of asset
- when grant received Cr PPE, Dr cash
- future expenses reduced as Depr will lower
2) Income: Recognise income over the period which the grant conditions are met
- when grant Recieved : Cr deferred income, Dr cash
- Record over grant condition period: Dr deferred income, CR P&L
customer pays before goods delivered/service provided (before PO satisfied)
contract liability (deferred income)
when cash received : Cr contract liability, Dr cash
when goods delivered/ services provided: Cr Revenue , Dr contract liability
customer pays within 12 m after po satisfied
contract asset (accrued income) if still some work to be performed
- when goods delivered/services provided Cr revenue dr contract asset
- when cash received (Cr contract asset) Dr cash
customer pays within 12m after (PO satisfied) (no further work)
receivable if no further work to be performed or if invoice sent
- when goods delivered/services provided: Cr revenue Dr receivable
- when cash received : Cr receivable Dr cash
Customer pays LATER than 12m after PO satisfied
Price needs to be discounted to PV using discount factor/effective interest rate
-Cr revenue Dr recievable
receivable subsequently measured using amortised cost
PO satisfied over time
-constructing/creating asset for customer
revenue recognised based on progress to competition if;
- asset has no alternative use
- right to receive payment for work complete
- output method: value of goods/services transferred as % of total
- Input method: cost of goods/services transferred as % of total
if unable to measure outcome of contract : revenue=recoverable costs incurred
sells asset and holds option/obligation to repurchase it
Repurchase price> original selling price :
- customer does not obtain control of asset as control limited by repurchase 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
repurchase price < original selling price
- treat as lease
sells asset and has obligation to repurchase it at customer’s request
repurchase price> original selling price
-cash received is a loan
repurchase price < original selling price:
-treat as sale with right of return
warranties and sale with right of return
standard warranty is not a distinct PO(may require a provision)
additional warranty is a distinct PO
sales with ror
- 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
bill and hold
principal v agent
bill and hold:
-customer does not have pace to receive goods so seller holds goods for customer
-Revenue recognised if:
substantive reasons for goods to be held
goods identified as belonging to customer and ready to be transferred
principal v 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
