Revenue And Inventories (6)

Question 1

What is revenue defined as?

Answer 1

Revenue is defined as ‘income arising in the course of an entity’s ordinary activities’

IFRS 15

Question 2

What is the core principle of IFRS 15?

Answer 2

The core principle of this standard is that an entity shall recognise revenue to depict the transfer of promised 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 or services

Question 3

What criteria must be met for an entity to account for revenue from a contract?

Answer 3

An entity can only account for revenue from a contract if it meets the following criteria:
- the parties have approved the contract and each party’s rights can be identified
- payment terms can be identified
- the contract has commercial substance
- it is probable that the selling entity will receive consideration

Question 4

When would a warranty be treated as a separate performance obligation under IFRS 15?

Answer 4

It would be treated as a separate performance obligation under IFRS 15 when an extra additional service is provided to the customer.

Whereas, if an assurance is provided that the item will work as intended, this is recognised as a provision under IAS 37

Question 5

Variable consideration within a contract can be for things like bonuses or penalty amount. An entity must estimate the amount which it will expect to receive in accordance with IFRS 15. When would the estimate be included in the transaction price?

Answer 5

The estimate can only be included within the transaction price if it is:
- highly probable
- that a significant reversal in amounts will not occur

Question 6

When would an entity not need to adjust for financing component?

Answer 6

‘An entity need not adjust the promised amount of consideration for the effects of a significant financing component if the entity expects, at contract inception, that the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less’
IFRS 15, para 63

Question 7

What are inventories measured at according to IAS2 inventories?

Answer 7

Inventories are measured at the lower of Net realisable value and cost

NRV = sales price less the total of any future costs of completing the asset, and selling costs