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IFRS > Flashcards IFRS 15 > Flashcards

Flashcards IFRS 15

1
Q

What contract costs other than those covered by IAS 2, 16 + 38 are capitalised ?

A

1)

cost to obtain a contract

  • incremental cost related to a identfiable specific obtained contract
  • practical expedient : if amortisation period =< 1 year, cost can be expensed
    2) cost to fulfill a contract
  • directly related to an identifyable specific contract

+ the costs generate or enhance resources of the entity that will be used in satisfying (or in continuing to satisfy) performance obligations in the future; and

+ the costs are expected to be recovered.

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2
Q

How are capitalised costs other than those covered by IAS 2, 16 + 38 expensed ?

A

Shall be amortised on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates

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3
Q

How are changes to amortisations of capitalised contract cost other than per IAS 2,16,38 accounted ?

A

Change in accounting estimates per IAS 8

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4
Q

How is an impairment loss for contract cost asset other than those covered by IAS2,16,38 determined ?

A

1) determine impairment per IAS 2, 16, 38
2) determine impairment on other contract cost to the extent that the carrying amount of an asset recognised exceeds:
(a) the remaining amount of consideration that the entity expects to receive

WITHOUT constraining estimates of variable income

less

(b) the costs that relate directly to providing those goods or services and that have not been recognised as expenses. To be adjusted the effects of customer’s credit risk

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5
Q

How are costs other than those covered by IAS 2, 16 + 38 are presented in the stmt of fin pos ?

A

Separately as CONTRACT ASSETS or CONTRACT LIABILITIES.

Unconditional rights to consideration should be included in Trade receivables

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6
Q

How are amounts receivable/received before g/s are transferred to customer accounted ?

A

Against a contract liability

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7
Q

What contract cost must be expensed ?

A

1) General & administrative cost (unless explicitly chargeable to customer under contract)
2) Cost related to fully/partially satisfied performance obligations (past performance)
3) Cost where the entity canNOT determine if related to performed/unperformed obligations
4) Cost of wasted material/labor not included in contract price

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8
Q

What is the objective of the IFRS 15 disclosures ?

A

understand

1) nature,
2) amount,
3) timing,
4) uncertainty of cash flows from contracts w/customers

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9
Q

What are the 5 steps in the revenue recognition process ?

A

1 - identify contract

2 - identify performance obligations

3 - determine contract price

4 - allocate price to performance obligations

5 - determine revenue recognition

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10
Q

What are the scope exclusions ?

A
  • lease contracts - IAS 17 / IFRS 16
  • insurance contracts IFRS17
  • financial instruments IFRS 9
  • joint arrangements IFRS 11/IAS 28
  • Separate FS IAS27
  • Warranties not sold separately IAS 37
  • Non-monetary exchanges to facilitate sales to customers
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11
Q

How to identify a contract ?

A

1-parties have approved and are committedexcluded: contracts w/rights to unilaterally terminate w/o compensation for all parties

2-parties rights to good/services can be identified

3-payment terms can be identified

4-contract has commercial substance

5-probable that entity will collect consideration (collaterals are IGNORED in determining this criteria)

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12
Q

When do contracts need to be combined ?

A

1-The contracts are negotiated as a package with a single commercial objective; OR

2-The amount of consideration paid in one contract depends on the price or performance of the other contract; OR

3-The goods or services in the contracts (or some of them in each contract) are a single performance obligation

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13
Q

What are the driving consideration that determine treatment of contract modification ?

A

1-Separate contract :

  • distinct addition g/s
  • selling prices = stand-alone prices

2-Retro-active adjustment :

  • no distinct or addl g/s

3-Termination + new contract :

  • distinct addl g/s
  • selling prices NOT = stand-alone selling prices
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14
Q

What is the portfolio expedient ?

A

Contracts (or performance obligations)

(i) with similar characteristics
(ii) if the entity reasonably expects that the effects on the financial statements of

applying this Standard to the portfolio would not differ materially from

applying this Standard to the individual contracts (or performance obligations)

within that portfolio.

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15
Q

How are contract modifications dealt with ?

A

1) Retrospective contract modification : Catch-up adjustment
- g/s added are not distinct
2) Termination + New contract if :
- added g/s are distinct
- added g/s amounts do NOT reflect the stand-alone selling prices for the added g/s in the circumstances
3) Separate contract :
- added g/s are distinct
- added g/s amounts DO reflect the stand-alone selling prices for the added g/s in the circumstances

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16
Q

How are changes in variable consideration accounting for ?

A

Accounted for are a retrospective adjustment

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17
Q

What are the differences in accounting for an agent vs a principle ?

A

1) Agent recognises only the commission (difference of g/s and charge from principle) as revenue

18
Q

How are consignment arrangments accounted for ?

A

Consignment customer does NOT control the asset

Thus => No revenue recognized until sold further

19
Q

What are indicators of consignment arrangements ?

A

1) good controlled by entity until sold to dealer customer or time limit
2) right to require return or trsfrt to third party
3) no unconditional right to pmt from dealer

20
Q

How Seller’s repurchasing rights or obligation of a sold good accounted for ?

A

Applies to both forward contract and call option

If discounted repurchase price

1) is lower than the original selling price : = Lease agreement
2) equal or higher : = financing arrangement

irrespective of whether intention to exercise a call option or not

asset only derecognised + sales recognised at end of option period when unexercised

3) Purchaser does NOT obtain control in this case

Asset NOT derecognised - liability is recorded

21
Q

How is Purchaser’s right to sell back an asset accounted for ?

A

Put option of the purchaser :
1) Repurchase Price < discounted original selling price :
Customer has a significant economic incentive to exercise ?
(repurchase price > expected market value)
Yes => Lease under IFRS 16
if sale/leaseback agreement : no derecogniton of asset
No => regular sale w/right to return
2) Repurchase Price >= discounted original selling price :
Repurchase Price>expected execed market value?
Yes=>Recorded as financing arrangment
no derecognition of asset / no sales or revenue
No => regular sale w/right to return
Financing arrangement : asset is not derecognised/no revenue recognised

22
Q

How is a right to return accounted for ?

A

1) Expected return of sales is NOT recorded in revenue
2) Cash received is recorded as a Refund liablity
3) Transferred good (inventory) is recorded as Right of product recovery reduced by cost of recovery and/or reduction in value

23
Q

How is a right for replacement of a good with same product treated ?

A

Not considered as a return under IFRS 15 but treated as warranties normally (i.e. IAS 37)

24
Q

Bill and hold arrangement - criteria ?

A

Entity retains physical control of asset sold to customer

1) - reason for bill&hold must be substantive (customer request)
2) - product must be separately identified/labled as customer ownd goods
3) - product must be reads for physical tsfrt
4) - entity is forbidden to use/substitute/redirect labled product

25
Q

what are principle vs agent considerations ?

A

1) Performance obligations is to provide g/s itself in the contract = Principle

Attributes :

  • controls g/s before transfer to customer
  • primary responsible for full filling contract
  • Discretion to set prices- invoicing/collecting customer pmts
  • subject to credit risk
  • inventory risk before transfer to customer
  • ability to direct use of g/s before the sale
  • consideration received is NOT a commission
    2) performance obligation = arrange for another party to provide g/s = Agent
26
Q

How to identify distinct performance obligations ?

A

1-capable of being distinct :

a) customer can benefit from it
(i) on its own or
(ii) together with readily available resources
b) customer can benefit from a good or service, i.e.

used, consumed, sold for an amount that is

greater than scrap value or otherwise held in a

way that generates economic benefits.

2-separately identifiable

  • >NOT modify/customize significantly another good / service
  • >NOT used as a production input for a combined output
  • >NOT dependant/interrelated with other g/s
27
Q

What are material rights ?

A

1-customer options/entitlements to additional rights

2-for free or below stand-alone selling price

3-represents distinct performance obligation

28
Q

What elements are included in transaction price ?

A

1-anticipated fixed/variable consideration assuming that there are NO cancellation, modifications or renewals

2-variable consideration : only if estimate can be reliably establishedconstraining estimate, i.e. highly probable that a significant reversal in the amount of cumulative (fixed + variable) revenue recognised for the performance obligation will not occur when the uncertainty associated with the variable consideration is subsequently resolved

3-non cash considerations at FV or if not possible, stand-alone selling price of g/s sold

4-non-distinct amounts payable to customer > reduces transaction price

5-discounts (could be variable consideration)

6-significant financing component (discounted amounts)

Practical expedient : can be ignored if 12 months or less

29
Q

How is a significant finance component determined ?

A

A) Considering significancy of :

1) difference consideration and cash selling price
2) the effect of the time between transfer of g/s and payment

at prevailing market interest rates

B) NO significant finance component exist if:

1) customer paid in advance at his descretion
2) substantial variable consideration conditional on future events substantially not within control of either party (eg sales based royalty)
3) payments for other reason than financing eg protection to adequately complete some/all of obligations

Practical expedient : if time between transfer + expected payment is 12 months or less

30
Q

Definition and Considerations of a constraining estimate ?

A

Definition :

Include in the transaction price some or all of an amount of

variable consideration estimated

only to the extent that it is

highly probable that

a significant reversal in the amount of

cumulative (fixed + variable) revenue recognised

will not occur when the uncertainty associated

with the variable consideration is subsequently resolved.

Considerations :

1-high suceptibility to factors outside entity’s control

2-expected length of time for uncertainty to resolve

3-entity’s experience with similar type of contracts

4-past practice of price conseccions/changing payment terms

5-number of possible consideration amounts in the contract

31
Q

How are warranty obligations considered ?

A

Not part of price but provision under IAS 37

32
Q

How is transaction prices allocated to performance obligation ?

A

1-Based on stand-alone selling price

2-discounts - to one or more obligations if :

(i) each/bundle of distinct PO sold regularly on stand-alone basis
(ii) bundle(s) regularly sold at lower price than each stand-alone PO/bundles (discount)
(iii) the discount in the included sub bundles is substantially the same discount as in the contract

3-variable amounts - attributed according to the terms of the contract to one or several performance obligations

(i) terms relate specifically to specific performance obligation(s)
(ii) consistent with allocation objective (recognition depicts the consideration expected to be entitled to for transferring g/s)

33
Q

How is stand-alone selling price determined ?

A

1-observable selling prices

2-estimated - maximising observable inputs :

  • adjusted market assessment approach
  • expected cost plus market margin approach
  • residual value (if only one item in a bundle is missing)
34
Q

How are subsequent changes in prices due to variable consideration or else dealt with ?

A

Retroactive allocation using initial assumptions and stand-alone selling prices

35
Q

Criteria to determine whether performance obligations are satisfied Over Time or At a Point in Time ??

A

1) Over time

a-customer simultaneously receives + consumes benefits

b-good/service that is created/customised is under customer’s control

c-there is no alternative use (by contract or technically) and enforceable right for payment of work performed at any point in time

2) At a point of time when not earned over time

36
Q

Revenue recognised over time : When + how is progress (stage of completion) measured ?

A

1) Only when progress can be reliably measured
2) Methods :
(i) output methods : produced units, progress surveys
(ii) input methods : resources consumed, labor/machine hours, cost incurred, time elapsed

Single revenue recognition methods for similar items/circumstances applied consistently

37
Q

Performance obligations satisfied at a point in time : What are indicators of transfert of control ?

A

Indicators of transfer of control are

1- customer has obtained legal title to the g/s

2- entity has present right to payment of g/s

3- customer has received posession of g/s

4- customer has accpeted g/s

5- customer has sign risks + rewards of ownership of the g/s

38
Q

Sales/usage based royalty revenue recognition ?

A

Recognised only as and when :

  • the subsequent sale or usage occurs; and
  • the performance obligation to which some or all of the sales-based or

usage-based royalty has been allocated has been satisfied (or partially

satisfied).

39
Q

How is revenue from licences recognised ?

A

At point in time

Over time if :

  • subsequent activities sign affect intangible asset (design/functionality)

+ customer’s economic benefit is substantially dependant on the subs activities

+ entity’s subs activities do NOT transfer g/s to customer (not distinct g/s)

40
Q

What is the revenue recognition objective ?

A

an entity shall recognise revenue to depict the transfer of promised goods or

services to customers in an amount that reflects the consideration to which the

entity expects to be entitled in exchange for those goods or services

41
Q

When is a performance obligation satisfied ?

A

A performance obl was satisfied when control passes to the customer.

Control of an asset refers to

(i) the ability to direct the use of, and
(ii) obtain substantially all of the remaining benefits from, the asset,
(iii) prevent other entities from directing the use of, and obtaining the benefits from, an asset.

IFRS (13 decks)

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