Revenues And IFRS 15

Question 1

What is the definition of Revenue in IFRS 15?

Answer 1

Revenue is income arising in the course of an entity’s ordinary activities.

Question 2

How is Income defined in IFRS 15?

Answer 2

Income refers to increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in an increase in equity, other than those arising from contributions from equity participants.

Question 3

What is a Contract Asset?

Answer 3

A Contract Asset is an entity’s right to consideration in exchange for goods or services transferred to a customer, where the right is conditioned on something other than the passage of time.

Question 4

What is a Contract Liability?

Answer 4

A Contract Liability is an entity’s obligation to transfer goods or services to a customer for which the entity has received consideration (or the amount is due) from the customer.

Question 5

What is a Performance Obligation?

Answer 5

A Performance Obligation is a promise in a contract to transfer a good or service (or a bundle of goods and services) to a customer that is distinct or a series of distinct goods or services with the same pattern of transfer.

Question 6

What is a Stand-alone Selling Price?

Answer 6

The Stand-alone Selling Price is the price at which an entity should sell a promised good or service to a customer.

Question 7

What is excluded from Revenue under IFRS 15?

Answer 7

Revenue excludes borrowings, contributions from shareholders, revaluation gains, rental income (IFRS 16), interest and dividends (IFRS 9), and gains on the disposal of non-current assets.

Question 8

What is the scope of IFRS 15?

Answer 8

IFRS 15 applies to contracts with customers, including licenses of intellectual property (e.g., software licenses, franchises, copyright licenses).

Question 9

What are the five steps in the IFRS 15 revenue recognition model?

Answer 9

1. Identify the contract with the customer.
2. Identify the separate performance obligations.
3. Determine the transaction price.
4. Allocate the transaction price to the performance obligations.
5. Recognize revenue when the performance obligation is satisfied.

Question 10

What is required to identify a contract with the customer under IFRS 15?

Answer 10

A contract must be approved by the parties, the rights and payment terms must be identifiable, it must have commercial substance, and it must be probable that the entity will collect the consideration.

Question 11

When should multiple contracts be combined under IFRS 15?

Answer 11

Multiple contracts should be combined if they are negotiated as a package with a single commercial objective or if they depend on each other in terms of price or performance.

Question 12

What makes a good or service distinct in IFRS 15?

Answer 12

A good or service is distinct if it is sold separately or could be sold separately, and it has a distinct function and profit margin.

Question 13

How should the transaction price be determined in IFRS 15?

Answer 13

The transaction price is the amount of consideration an entity expects to receive for transferring goods/services, excluding amounts collected on behalf of third parties (e.g., VAT).

Question 14

What methods are used to estimate variable consideration in IFRS 15?

Answer 14

The Expected Value method (using probabilities for all possible amounts) and the Most Likely Amount method (selecting the most likely amount).

Question 15

What is a significant financing component in a contract under IFRS 15?

Answer 15

A significant financing component exists if the payment date is later than the transfer of goods/services and the effects of time value of money are significant. Part of the consideration is treated as finance income.

Question 16

How is the transaction price allocated to performance obligations in IFRS 15?

Answer 16

The transaction price is allocated to performance obligations based on their stand-alone selling prices, with adjustments for variable consideration and discounts.

Question 17

How is revenue recognized when a performance obligation is satisfied?

Answer 17

Revenue is recognized when control of the good/service is transferred to the customer, either at a point in time or over time.

Question 18

What criteria determine if a performance obligation is satisfied over time?

Answer 18

1. Customer simultaneously receives and consumes the benefits.
2. The entity’s performance enhances an asset the customer controls.
3. The entity has no alternative use for the asset and has a right to payment for work completed.

Question 19

What are Output Methods for measuring revenue over time?

Answer 19

Output methods recognize revenue based on the value of goods/services transferred to the customer, such as performance completed, results achieved, or units delivered.

Question 20

What are Input Methods for measuring revenue over time?

Answer 20

Input methods recognize revenue based on the entity’s inputs, such as labor hours, resources consumed, or costs incurred.

Question 21

What is the difference between service-type and assurance-type warranties?

Answer 21

Service-type warranties provide additional services beyond the assurance that the product is as specified, and are treated as separate performance obligations. Assurance-type warranties are obligations to ensure the product meets specifications and are accounted for as warranty obligations.

Question 22

How are service-type warranties accounted for under IFRS 15?

Answer 22

Service-type warranties are treated as a separate performance obligation, with revenue recognized over the warranty service period based on its estimated stand-alone selling price.

Question 23

How are assurance-type warranties accounted for under IFRS 15?

Answer 23

Assurance-type warranties are not treated as a separate performance obligation, but as a warranty obligation, with costs estimated and accrued under IAS 37.