Revenue Recognition Flashcards
ASPE Sale of Goods Criteria
- Risks and rewards transferred
- Amount of revenue is measurable
- Collection is reasonably assured
ASPE Sale of Services Criteria
- Amount of revenue is measurable
- Collection is reasonably assured
- Performance is achieved
- Use of either the percentage of completion method or the completed contract method, whichever relates the revenue to the work accomplished
IFRS 5 Step Framework
- Identify the contract(s) with a customer
- Identify the performance obligation(s) in the contract
- Determine the transaction price
- Allocate transaction price to performance obligations
- Recognize revenue when (or as) entity satisfies a performance obligation
IFRS Contract Criteria
- CONTRACT HAS BEEN APPROVED orally, in writing or in accordance with other customer business practices;
- each party’s RIGHTS REGARDING GOODS OR SERVICES can be identified
- PAYMENT TERMS can be identified
- contract has COMMERCIAL SUBSTANCE (timing, risk or amount of future cash flows expected to change)
- PROBABLE THAT CONSIDERATION WILL BE COLLECTED (only consider customer’s ability and intent to pay)
IFRS Contract Criteria - Combination of Contracts
Account for multiple contracts with single customer as one where at lease one of the following is met:
- contracts negotiated as a package with single commercial objective
- amount of consideration in one contract depends on price or performance of other
- goods or services promised in contracts represent single performance obligation
IFRS Contract Criteria - Contract Modification
Contract modifications accounted for as separate / additional contract only if BOTH of the following met:
- scope of contract changes due to addition of promised goods or services that are distinct
- price of contract increases by amount of consideration that reflects vendor’s stand-alone selling price of new goods or services
IFRS Performance Obligation
PERFORMANCE OBLIGATION is a promise to transfer either:
- a good or service that is distinct; or
- a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer
IFRS Performance Obligation - Distinct Goods / Services
Good or service is distinct of BOTH are met:
- customer can benefit from G/S on its own or together with other resources readily available to customer
- promise to transfer the G/S is separately identifiable - it is not HIGHLY INTERRELATED OR INTEGRATED with other G/S in the contract
IFRS Transaction Price - Variable Consideration
Amount is estimated using either
- expected value method: the sum of probability weighted amounts in a range of possible outcomes; OR
- most likely amount (suitable for binary options)
CONSTRAINT: cannot be highly probable that there will be a subsequent significant reversal of revenue once uncertainty is resolved
IFRS Transaction Price - Significant Financing Component
Where the timing of payments provides customer or vendor with significant benefit of financing, transaction price is adjusted accordingly
IFRS Transaction Price - Non-Cash Consideration
Vendor should measure non-cash consideration at its FMV. If not possible, estimate by using stand-alone selling prices of G/S subject to contract
IFRS Transaction Price - Consideration Payable to Customer
Accounted for as reduction of transaction price unless payment to customer is in exchange for distinct G/S that customer transfers to vendor
IFRS Allocate the Transaction Price
Start with relative standalone selling prices of each (estimate if not available)
- discounts allocated proportionately unless evidence it relates only to certain component
- variable consideration allocated to specific obligations to which it relates
IFRS Recognize Revenue - Satisfaction Over Time
PO is satisfied over time if ONE of the following is met:
- customer simultaneously receives and consumes economic benefits of performance
- vendor creates or enhances an asset controlled by customer
- performance does not create an asset for which vendor has an alternative use, and vendor has enforceable right to payment for performance created to date
- if satisfied, revenue is recognized by progress toward completion using either input or output methods
- if these are not satisfied, obligation is satisfied AT A POINT IN TIME
IFRS Recognize Revenue - Point in Time
Revenue recognized when control is transferred, considering:
- vendor has a present right to payment for the asset
- customer has legal title to asset
- customer has physical possession of asset
- possession may not coincide with control
- significant risks and rewards
- acceptance of asset
