NZ IAS 15 Revenue from Contracts with Customers Flashcards
Step 1: Identify the contract
A. Contract is approved by both parties
B. Contract will specify details to clarify each party’s rights and responsibilities
C. Payment terms are set out in the contract
D. There is commercial substance to the contract (the risk, timing)
E. Probable entity will collected consideration.
Five step process
- Identify the contract
- Seperate performance obligations
- Determine the transaction price
- Allocate transaction price
- Recognise revenue
Step 3: Determine the transaction Price
The transaction price that will be allocated to each performance obligation.
“The contract price is …. “
Step 4: Allocate transaction price
Stand alone selling prices:
1.
2.
Which totals the transaction price calculated in step 3.
Step 5: Recognise Revenue
Only occurs when a performance obligation is satisfied
At a point in time:
Overtime:
Calculate the revenue to be recognised
Total costs incurred to date
Less costs in respect of services not yet performed
Total costs/expenses
Total estimated costs
Measurement in progress
Total estimated revenue under the agreement
Revenue recognised to 31 March 2023
At a point in time
control over the asset transfers at the time of the sale; that is, the customer takes ownership immediately after purchase, often having to pay first.
Examples of revenue recognised at a point in time would be retail sales like at Harvey Norman
Over time
- The entity receives and consumes the benefits at the same time (e.g., ongoing service contracts).
- The customer controls the asset as it is being enhanced or created (e.g., construction on customer’s land).
- The asset created is specialized and the entity has an enforceable right to payment (e.g., customized software development).
Output method: Recognizes revenue based on value delivered to the custom
Input method: Recognizes revenue based on entity’s efforts or inputs (e.g., costs incurred, labor hours).
