Revenue - ASPE

Question 1

ASPE 3400: Criteria to recognize revenue

PMC

Answer 1

1. Performance has been achieved
2. Revenue can be measured reliably
3. Consideration is reasonably assured

Question 2

Completed contract method

Performance — provision of services and long-term contracts

Answer 2

• method of accounting that recognizes revenue only when the sale of goods or the rendering of services under a contract is completed or substantially completed
• This is only used when there is one act by the seller or progress to completion cannot be reliably measured.
• Revenue is recognized on completion only.

Question 3

Percentage of completion method

Performance — provision of services and long-term contracts

Answer 3

• method of accounting **that recognizes revenue proportionately **with the degree of completion of goods or services under a contract
• This is used when the contract includes more than one act by the seller
• Revenue is recognized over time, based on a reasonable method such as passage of time, cost completed, or number of acts.

Question 4

ASPE 3400.05

Performance regarding sale of goods

Answer 4

Performance shall be regarded as having been achieved when the following conditions have been fulfilled:

(a) the seller of the goods has transferred to the buyer the significant risks and rewards of ownership, in that all significant acts have been completed and the seller retains no continuing managerial involvement in, or effective control of, the goods transferred to a degree usually associated with ownership; and

(b) reasonable assurance exists regarding the measurement of the consideration that will be derived from the sale of goods, and the extent to which goods may be returned.

Question 5

ASPE 3400.06

Performance for services and long term contracts

Answer 5

• Performance shall be determined using either the percentage of completion method or the completed contract method, whichever relates the revenue to the work accomplished.
• Such performance shall be regarded as having been achieved when reasonable assurance exists regarding the measurement of the consideration that will be derived from rendering the service or performing the long-term contract.

Question 6

FOB shipping

Answer 6

A: title transfers when goods leave seller’s warehouse

Question 7

FOB destination

Answer 7

A: title transfers when goods arrive at customer location

Question 8

Determination of price can be complicated by the following factors

Answer 8

1. cancellable sales arrangements
2. right of return
3. price protection
4. refundable fees

Question 9

Payments from a seller to a customer - are recognized as follows:

Answer 9

*Any discounts and rebates are netted against the revenue from the sales to the customer.

*Any **reimbursement of specific costs **incurred by the customer **that provides an identifiable
benefit ** to the seller is recognized as a separate cost incurred.

*Any goods or services provided by the customer to the seller are treated as a separate transaction
and considered an expense or asset purchase, depending on their nature.

Question 10

Multiple deliverables are usually recorded separately if the following criteria are met:

multiple deliverables is often referred to as a bundled sale

Answer 10

*Performance of any remaining deliverables is probable.

*Deliverables have value on a stand-alone basis.

Question 11

When the stand-alone selling prices are not available, the seller estimates the stand-alone selling prices.

Methods of estimation include:

Answer 11

***Adjusted market assessment approach **— This method involves evaluating market conditions
and estimating the price that customers would be willing to pay for the goods or services.

***Expected cost plus a margin approach **— In this method, the seller estimates the costs of each
deliverable and adds an appropriate margin to each, to estimate the selling prices.