Rev Rec ASPE 3400

Question 1

What are the revenue recognition criteria for the
sale of goods?

Answer 1

• When performance is achieved provided that collection is reasonably assured at that time
  ‒ Performance is achieved when:
  1. Seller has transferred all risks and rewards of ownership i.e., that
  ‒ all significant acts have been completed
  ‒ no continuing involvement in or control over the goods
  2. Reasonable assurance regarding measurement of consideration and extent
  of returns
• In general (for goods or services) performance would be met when:
  ‒ Persuasive evidence of an arrangement exists
  ‒ Delivery has occurred or services have been rendered
  ‒ The seller’s price to the buyer is fixed and determinable

Question 2

How is revenue recognized on provision of
services?

Answer 2

• Use percentage of completion (revenue is
  recognized as the service or contract activity is
  performed) except:
  ‒ When performance exists of a single act or
  extent of progress cannot be measured (use
  completed contract)
  ‒ Consideration is not measurable
• If exceptions apply, use completed contract

Question 3

When is revenue recognized on long-term
contracts?

Answer 3

Revenue on long-term contracts should be
recognized using either:
* percentage of completion method
* completed contract method
Use the method that best relates the
revenue to the work accomplished.

Question 4

What are some examples of types of sales transactions where the performance
criteria may not have been satisfied?

Answer 4

• Consignment sales
• Customer acceptance provisions
• Upfront fees
• Bill and hold arrangements
• Unpredictable/unusual rights of return

Question 5

What are some of the ways in which progress can be
measured when applying the percentage of completion method?

Answer 5

• Surveys of work performed
• Services performed to date as a percentage of total services to be performed
• Costs incurred as a percentage of the total estimated cost
• Milestones reached
• Passage of time (when services are performed by an indeterminate number of acts over a specified period of time)
• In any given circumstance the method that best reflects the work performed should be used

Question 6

When should the revenue recognition criteria be applied separately to components of a single transaction (bundled goods or services)?

Answer 6

• When a single transaction has multiple components
  (e.g., machine sold with a service contract) the
  revenue recognition criteria are applied to the
  components separately if it better reflects the
  substance of the transaction

Question 7

How should the revenue be allocated between
separate components of a single transaction?

Answer 7

• Should reasonably reflect selling prices
  that would be received in a standalone transaction
• Consider using relative fair values (usually the best
  approximation of prices that would be achieved in a
  standalone transaction) or the residual method (if
  the fair value of one of the components is not
  determinable)

Question 8

What are the factors to be considered in determining
whether revenue should be recorded gross or net (also applies to IFRS 15)?

Answer 8

• Factors that indicate the entity is the principal (supports recording gross revenue):
  ‒ Entity has primary responsibility for providing the good or service being purchased
  ‒ Entity has inventory risk
  ‒ Entity has latitude in establishing prices
  ‒ Entity bears credit risk
• Factors that indicate the entity is the agent (supports recording net revenue):
  ‒ Amount that entity earns is predetermined (commission) being either a fixed fee per transaction or a fixed percentage of the sale amount