Revenue from contracts with customers

Question 1

Difficulties arise in accounting for revenue when:

Answer 1

• there’s significant probability that the amount invoiced will not be received in full
• gains arise from unusual or infrequent transactions
• transactions are spread over several accounting period
• a single contract involves the supply of multiple goods and services
• the value of the transaction is difficult to determine

Question 2

challenges for revenue recognition

Answer 2

• a fair view - does the recognition give. fair view of the situation
• recognising economic substance - problems defining revenue

Question 3

Objective of IFRS15

Answer 3

to establish principles that an entity shall apply to report useful information about nature, amount, timing and uncertainty of revenue and cash flow arising from contract with a customer

• moves away from risk and reward and towards control

Question 4

factors causing uncertainty as to amount finally due under contract

Answer 4

• may depend on future events
• only report amounts which are highly probable of being achieved
  standard given examples of factors to consider

Question 5

cause of failure to recover the amount due

Answer 5

dealt with in traditional manner (bad and doubtful debt)

Question 6

COPAR steps in revenue recognition

Answer 6

1. Identify the contract
2. identify separate performance obligations within a contract
3. determine the transaction price
4. allocate the transaction price to the performance obligations in the contract
5. recognise revenue when a performance obligation is satisfied

Question 7

Performance obligation

Answer 7

a promise in a contract with a customer to transfer to the customer goods or services

Question 8

transaction price

Answer 8

amount of consideration to which and entity expects to be entitled to in exchange for transferring promised goods or services to a customer

Question 9

Criteria to be met for an entity to account for revenue from a contract

Answer 9

• parties have approved the contract and each part’s rights can be identified
• payment terms can be identified
• the contract has commercial substance
• it’s probable that the selling entity will recieve consideration