F2B - Chapter 6: Revenue from contracts with customers

Question 1

What is IFRS 15?

Answer 1

Revenue from contracts with customers

Question 2

What does IFRS 15 define revenue as?

Answer 2

Income arising in the course of an entity’s ordinary activities

Question 3

What does revenue not include?

Answer 3

Proceeds from sale of non-current assets
Sales tax and other similar taxes
Other amounts collected on behalf of others

Question 4

What is the five step process of recognising revenue in IFRS 15?

Answer 4

1. Identify the contract
2. Identify the 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 5

What can the five steps of recognising revenue be remembered as?

Answer 5

COPAR

Contract
Obligations
Price
Allocate price
Recognise revenue

Question 6

What is a contract?

Answer 6

agreement between two or more parties that create rights and obligations

Question 7

What criteria must a contract meet in order for the entity to account for revenue?

Answer 7

The parties to the contract have approved and are committed to fulfilling the contract
each party’s rights can be identified
the payment terms can be identified
the contract has commercial substance
it is probable that the entity will be paid

Question 8

What are performance obligations?

Answer 8

Promises to transfer distinct goods or services to a customer

Question 9

What is the nature of a performance obligation?

Answer 9

To provide the specified goods or services itself
OR
to arrange for another party to provide the goods or service

Question 10

What is the transaction price?

Answer 10

Amount of consideration an entity expects in exchange for satisfying a performance obligation

Question 11

What must be considered when determining the transaction price?

Answer 11

Variable considerations
Significant financing components
non-cash consideration
consideration payable to a customer

Question 12

When would a variable consideration be included?

Answer 12

It is highly probable that a significant reversal in the amount of cumulative revenue will not occur when the uncertainty is resolved

Question 13

The existence of a financing element to the sale can be identified by what?

Answer 13

A difference between the amount paid and the cash selling price
An extended time period between the transfer of the goods or service and the payment date

Question 14

What should the non-cash considerations be valued at?

Answer 14

Its fair value

Question 15

When is revenue recognised?

Answer 15

When the entity satisfies a performance obligation by transferring a promised good or service to a customer

Question 16

At a start of a contract what are the two types of performance obligations an entity must determine?

Answer 16

At a point in time
OR
Over time

Question 17

When is a performance obligation satisfied at a point in time?

Answer 17

When a customer obtains control of a promised asset

Question 18

What does the control an asset refer to?

Answer 18

The ability to direct the use of and obtain substantially all of the remaining benefits from the asset

Question 19

What are the indicators of the transfer of control?

Answer 19

Entity has a present right to payment for the asset
The customer has legal title to the asset
The entity has transferred physical possession of the asset
The customer has the significant risks and reward of ownership of the asset
The customer has accepted the asset

Question 20

What is the criteria for recognising an asset over time?

Answer 20

The customer simultaneously receive and consumes the benefits provided by the entity’s performance as the entity performs
The entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced.
The entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date

Question 21

What are the methods of measuring progress in revenue recorded over time?

Answer 21

Output methods (such as surveys of performance)
Input methods (such as costs or time elapsed incurred to date as a proportion of total expected costs/time)

Question 22

Once you have calculated the expected outcome and it is a profit what should revenue and costs be recognised as?

Answer 22

According to the progress of the contract

Question 23

Once you have calculated the expected outcome and it is a loss what should revenue and costs be recognised as?

Answer 23

The whole loss should be recognised immediately creating a provision for an onerous contract as per IAS 37

Question 24

If the expected outcome or progress is unknown how do we recognise revenue and costs?

Answer 24

Revenue recognised only to the level of recoverable costs incurred. This treatment results in no profit being recorded on a contract with unknown outcomes.

Question 25

What are the two methods of measuring progress of a contract?

Answer 25

Input method - commonly based on costs incurred
Output method - based on performance completed, such as work certified to date