Revenue

Question 1

Revenue is income arising in course of an entity’s operating activities. What 3 incomes do not fall into this?

Answer 1

-dividend income
-interest income
-gains on disposal of PPE
ALL covered by other standards

Question 2

Revenue is income arising in course of an entity’s operating activities. How does this occur?

Answer 2

-sale of goods
-rendering of services
-receipt of royalties

Question 3

What are the 5 steps for revenue recognition?

Answer 3

-Identify the contract
-Identify the separate performance obligations
-Determine the transaction price
-Allocate the transaction price to the performance obligations
-Recognise revenue as or when a performance obligation is satisfied

Question 4

What 4 criteria must a contract meet to recognise revenue?

Answer 4

-parties have approved the contract and each party’s rights can be identified
-payment terms can be identified
-contract has commercial substance
-probable that the selling entity will receive consideration

Question 5

If an entity is providing goods or services itself, it is classed as the?

Answer 5

Principal

Question 6

If an entity is arranging for providing goods or services by another party, it is classed as the?

Answer 6

Agent, can only recognise revenue based on commission?

Question 7

What is the transaction price?

Answer 7

consideration that the selling entity will be entitled to once it has fulfilled the performance obligations in the contract

Question 8

What are the 4 types of transaction price?

Answer 8

-variable consideration (bonus/penalty)
-financing
-consideration payable to customer
-non-cash consideration

Question 9

What is the criteria for variable consideration to be included in the transaction price?

Answer 9

-highly probably that a
-significant reversal in the amount of revenue recognised will not occur

Question 10

What do you need to do if there is a financing component in the transaction price that is due to be paid a year or more later?

Answer 10

discount to present value using the rate at which the customer borrows money

Question 11

How is non cash consideration measured?

Answer 11

fair value

Question 12

If consideration if paid to customer in exchange for a distinct good/service then how is it accounted for?

Answer 12

separate purchase transaction

Question 13

Assuming that the consideration paid to a customer is not in exchange for a distinct good/service, how is it accounted for?

Answer 13

reduction in transaction price

Question 14

If a standalone selling price is not observable, what 2 methods are used for estimation?

Answer 14

residual approach or cost-plus approach

Question 15

If a performance obligation is satisfied over time, how is it recognised?

Answer 15

based on progress towards completion

Question 16

What does IFRS 15 state as satisfying an obligation over time? one of three

Answer 16

-customer simultaneously receives and consumes the benefit
-entity creates and enhances an asset controlled by the customer
-entity cannot use the asset for an alternative use and the entity can demand payment for its performance to date

Question 17

If a performance obligation is satisfied at a point in time (when customer obtains control over the asset), what are 4 indicators that control has passed to the customer?

Answer 17

-customer has the physical possession of the asset
-customer has the risks and rewards of ownership
-customer has the legal title
-seller has a right to payment

Question 18

If a seller has an obligation or right to repurchase an asset, what could this be?

Answer 18

forward or call option

Question 19

If a seller has an obligation to repurchase an asset at the customers request, what could this be?

Answer 19

put option