IFRS 15 - Revenue From Contracts With Customers

Question 1

what is the definition of a customer?

Answer 1

a party that has contracted with the entity to obtain g/s that are the output of the entity’s ordinary activities in exchange for a consideration

Question 2

what would make a contract in the scope of IFRS 15?

Answer 2

• contract is approved
• rights to something
• payment terms
• commercial substance
• collectability is probable

Question 3

what do we base probability of collection on?

Answer 3

based on customer’s ability and intention only

Question 4

when will a contract not exist?

Answer 4

if each party has the unilateral enforceable right to cancel a wholly unperformed contract without compensation

Question 5

when do we recognize revenue?

Answer 5

when our performance obligation is satisfied and we transfer the good/service

Question 6

what do we do if the customer pays before the IFRS requirements are met?

Answer 6

we recognize a liability, unless the payment is non-refundable

Question 7

what can the entity supply in the contract?

Answer 7

• distinct goods and services
• a series of g/s that has the same pattern of transfer

Question 8

how do we recognize revenue?

Answer 8

to depict the transfer of promised g/s to a customer that reflects the consideration the company expects to be entitled to in exchange for the g/s

Question 9

what is the performance obligation of the entity?

Answer 9

to transfer g/s

Question 10

what is the performance obligation of the customer?

Answer 10

to pay the consideration

Question 11

what is the definition of distinct?

Answer 11

• can benefitted from on its own
• g/s separately identifiable from other contract promises

Question 12

when would goods not be separately identifiable?

Answer 12

significantly integrated

Question 13

at what amount do we recognize revenue?

Answer 13

at the transaction price

Question 14

what can the transaction price include?

Answer 14

• variable consideration
• the existence of a significant financing component

Question 15

examples of variable consideration?

Answer 15

• discounts
• rebates
• penalties

Question 16

how does a financing component come about?

Answer 16

when the timing of the payment gives one of the parties a benefit

Question 17

what will the financing component be if the entity performs early?

Answer 17

trade receivable measured at PV and will be increased by interest income until future payment date

Question 18

what will the financing component be if the customer performs early

Answer 18

contract liability measured at PV and will be increased by interest expense until future performance date

Question 19

when is something not a significant financing component?

Answer 19

if less than 12 months

Question 20

what if there are multiple performance obligations?

Answer 20

we measure them based on their stand-alone selling prices

Question 21

what time methods can we use when recognizing revenue?

Answer 21

• at a point in time
• over time

Question 22

when can be recognize revenue over time?

Answer 22

(meet any ONE):
- customer simultaneously receives and consumes all benefits as entity performs
- entity performance creates/enhances an asset controlled by the customer as the asset is created
- entity performance does not create an asset with alternative use to the entity AND entity has enforceable right to pmt for performance completed to date

Question 23

when can be recognize revenue at a point in time?

Answer 23

if previous requirements not met

Question 24

what do we need to use to recognize revenue over time?

Answer 24

a measure of progress

Question 25

what is a measure of progress?

Answer 25

• depicts progress in transfer of control
• must be applied consistently to similar POs

Question 26

how do we treat updates of the measures?

Answer 26

as a change in accounting estimate as per IAS 8

Question 27

what two measures of progress can we use?

Answer 27

• output method
• input method

Question 28

what is the output method?

Answer 28

measures performance as the proportion of g/s transferred to customer based on total g/s required to be transferred

Question 29

what is the input method?

Answer 29

progress is measured based on entity’s efforts to satisfy the obligations (costs incurred, labour hours). the extent of costs must effect extent of entity’s performance in transferring the g/s.

Question 30

what if costs are not proportionate to progress?

Answer 30

costs will = revenue for that year