What are the five steps in revenue recognition?
- Identify the contract
- Identify the separate performance obligations
- Determine the transaction price
- Allocate the transaction price to the performance obligations
- Recognise revenue as or when a performance obligation is satisfied
What is the criteria to account for revenue from a contract?
- parties have approved the contract
- payment terms can be identified
- contract has commercial substance
- probably that the selling entity will receive consideration
What are performance obligations?
Promises to transfer distinct foods or services to a customer
What issues will we need to consider for the transaction price?
- variable consideration
- consideration payable to customer
- non-cash consideration
What needs to be done if a contract contains variable consideration?
Must estimate the amount it expects to receive
What happens if financing is involved?
If more than one year then the consideration needs to discounted to present value using the rate at which the customer borrows money
How is non-cash consideration be measured?
At fair value
How should consideration payable to a customer be accounted for?
As a separate purchase transaction
When is revenue recognised?
When an entity satisfies a performance obligation by transferring a promised food or service to a customer
What is the criteria for satisfying a performance obligation over time?
- Customer simultaneously receives and consumes the benefits from entity’s performance
- Creating or enhancing an asset controlled by the customer
- Cannot use the asset for an alternative use
What must an entity capitalise in a contract costs?
- costs of obtaining a contract
- costs of fulfilling a contract that do not fall within the scope of another standard