IFRS 15- Revenue From Contracts With Customers

Question 1

Definition of revenue

Answer 1

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

Question 2

Why is there a need for standard on revenue recognition

Answer 2

• in the past there was controversy of what constituted revenue and of when to recognise in accounts
• this impacted directly on bottom line profit and provided an opportunity to increase profit figures disclosed

Question 3

Revenue is recorded on what basis

Answer 3

• accruals

- whereby transactions are recorded when they occur not when cash is received or paid

Question 4

What is the core principle of IFRS 15

Answer 4

• the core principle of IFRS 15 is that revenue is recognised to depict the transfer of goods or services to a customer

Question 5

Transfer of goods and services is based upon…

Answer 5

• transfer of CONTROL over those goods and services

Question 6

What contains a promise and what is it defined as by IFRS 15

Answer 6

• a contract with a customer contains a promise to transfer goods or services
• defined as a PERFORMANCE OBLIGATION

Question 7

IFRS 15 uses a five-step process to identify the amount and timing of recognition …

Answer 7

• identify the contracts with the customer
• identify the separate performance obligations in the contract
• determine the transaction price
• allocate the transaction price to the separate performance obligations in the contract
• recognise revenue when (or as) the entity satisfies a performance obligation

Question 8

Performance obligation can be satisfied at…

Answer 8

• a point in time or over time

Question 9

When is control transferred to the customer

Answer 9

• where a performance obligation is satisfied at a point in time CONTROL is transferred to the customer

Question 10

Indicators of transfer of control

Answer 10

• the entity has a right to make payment
• the customer has legal title to the asset
• the customer has taken possession of the asset
• risks and rewards have been transferred
• the customer has accepted the asset

Question 11

When may difficulties arise

Answer 11

• when the performance obligation is satisfied over time as it will be necessary to establish the amount of performance completed during the accounting period
• contracts where performance obligations are satisfied over time are common in the construction industry

Question 12

Contracts where performance obligations are satisfied over time

Answer 12

• an entity must determine what amounts to include as revenue and costs in each accounting period
• any expected loss should be recognised as an expense immediately

Outcome can be estimated reliably:
- recognise contract revenue and contract costs by reference to amount of performance obligation satisfied

Outcome cannot be estimated reliably:
- recognise revenue only to extent of contact costs incurred that it is probable will be recovered. Recognise as expense in period incurred.