Revenue recognition

Question 1

Criteria to for when a contract exists IFRS

Answer 1

• contract has been approved by all parties
• rights regarding goods and services to be transferred can be identified
• pmt terms can be identified
• contract has commercial substance
• probable will collect

Question 2

What is commercial substance

Answer 2

When future cash flow is expected to change as a result of a contract

Question 3

What is a distinct good

Answer 3

• customer can benefit from the good on its own.

- the promise to transfer the g/s is separately identifiable from other promises in the contact

Question 4

How to deal with returns

Answer 4

• If estimate cannot be made revenue is not recognized … set up a as deferred instead. Until the uncertainty around the return has passed.
• If estimate can be made. Record revenue up to expected amount. Refund liability is recognized for any consideration not expected to receive. Also record an asset for the inventory expected to be returned.
  Dr cash
  Cr revenue
  Cr refund liability

Dr cogs
Dr asset - right to recover
Cr inventory

Question 5

ASPE criteria for revenue recognition

Answer 5

• risks and rewards of ownership have transferred OR Performance has been achieved
• revenue can be measured reliably
• collection is reasonably assured

Question 6

Combination of contracts necessary if

Answer 6

Contracts are a package w/ single objective
Amt of consideration depends on other
Good and services are one single obligation

Question 7

2 Methods for variable consideration i.e returns, rebates (Uncertainties)

Answer 7

1. Expected value. Range of outcomes x prob
   If you will either receive it or not.
2. Most likely. Choose most likely out of the range
   If there is a variety of outcomes

Question 8

To record the returns that actually happen

Answer 8

dr. refund liability

cr. cash

Question 9

Entry if return liability is larger than actual returns at end of uncertainty period

Answer 9

dr. refund liability (to nil)
cr. revenue (can now record revenue)

dr. cogs
cr. Asset - right to recover (to nil)

Question 10

Note Receivable (over 1 year)

Answer 10

Date of sale:
Dr. Note Rec
Cr. Inventory - At fair value of inventory at date

Interest recorded using effective interest rate each year

Question 11

Non cash consideration

Answer 11

At FMV

Question 12

ASPE & IFRS

Answer 12

IFRS 15

ASPE 3400

Question 13

When to record revenue ASPE

Answer 13

• risks and rewards of ownership have transferred
• Revenue can be measured reliably
• Collection is reasonably assure

Question 14

steps to record revenue IFRS

Answer 14

1. Identify contract
2. Identify performance obligation
3. Determine trans P
4. Allocate trans P to each performance obligation
5. Recognize revenue when all obligations satisfied