Revenue Recognition - FAR Flashcards
The 5 steps approach to revenue recognition
CPA APP for Revenue Recognition
CPA APP for RR
C- contract
P - performance obligation
A - amount
APP - allocate the transaction price to performance obligation in the contract
RR - revenue recognition
The necessary criteria for a contract is
AICIC
AICIC
A - approval and commitment of all the parties
I - identification of rights
C - commercial substance existent
I - identification of payment terms
C - collectibility is probable
If not meeting the AICIC criteria the alternate if these are true
- entity has no remaining obligations
- contract has to be terminated
In a contract to transfer more the one good or services to the customer the entity should account for each promised good or service as a Performance obligation
That can be distinct good or services or a series of distinct good or service
It’s is Distinct good or service if the credit is met
- Capable of being distinct
- Distinct within the context of the contract
Distinct within the context of contract
Separately identifiable
- Identify the Contract with the Customer
• A contract is an agreement with enforceable rights and obligations.
• It must have commercial substance, approved terms, and clear payment conditions.
- Identify Performance Obligations
A performance obligation is a distinct good or service promised to the customer.
• If multiple goods/services are in the contract, each distinct item is treated separately.
Determine the Transaction Price
This is the total amount the seller expects to receive.
• Consider variable consideration, discounts, incentives, or financing components.
- Allocate the Transaction Price to Performance Obligations
If multiple obligations exist, the price is split based on their standalone selling price.
• Discounts or variable considerations are allocated accordingly.
Contract in which an entity sells assets and also promise tor has the option to repurchase the asset
Repurchase agreement
Forward it or call option
Repurchase agreement
Variable considerations
Expected value I.e probability weighted amount or the most likely amount
Existence of significant financing component
Time value of money
For a contract with more than one performance obligation, allocate the transaction price to each performance obligation
APP
Man entity shall allocate the transaction price to each performance obligation identified in the contract on a ————
Relative standalone selling price of each good and service promised
RR For each performance obligation, determine if it is satisfied
Over time
RR if not satisfied under over time use
Point in time
Over time if it satisfies any one of the three
1.Customer simultaneously receives and consumes the benefits provided by the entity performance as the entity performs
2. Entity performance creates or enhances an asset
3. Entity performance does not create an asset with an alternative use to the entity
Point in time
Need to indicate if the trader of control
- entity has a present right to payment for the asset
- legal title of assets owned by customers
- referred physical possession of assets
- significant risk and reward of ownership of assets
- customer has accepted the asset
