Flashcards in Revenue (Chapter 6) Deck (21)
What is the definition of revenue?
Increases in economic benefits during the accounting period in the form of inflows, enhancements of assets or decreases in liabilities that result in increases in equity.
In which two sections of financial statements are revenue and gains reported?
1. Profit & Loss (Revenue)
2. Other comprehensive income (Gains)
Revenue is reported in Profit and Loss in which three categories?
1. Revenue from normal trading
2. Interest & Dividend Income
3. Changes in the FV of Financial Instruments
What revenue items are reported in Other Comprehensive Income?
1. Gains on revaluation of PPE
2. Changes in FV of equity investments.
What does the standard IFRS 15 cover?
Revenue from contracts with customers.
When is revenue recognised?
When there is a transfer of control to the customer from the entity supplying the goods/services.
What is the 5 Step Model for Revenue Recognition?
1. Identify Contract
2. Identify Performance Obligations
3. Determine transaction price
4. Allocate transaction price to performance obligations
5. Recognise revenue when performance obligation is satisfied.
How do we measure revenue if the outcome cannot be reliably measured?
Revenue is recognised on the basis of recoverable costs - i.e. how much do we know for sure that the customer is going to pay us?
How do we account for costs of a contract that are incurred regardless of the contract being obtained?
These costs are incurred as an expense.
When can the costs of obtaining a contract be recognised as an asset?
When the entity expects to recover the costs as a result of fulfilling the contract.
What are the three criteria needed for contract costs to be recognised as an asset?
1. costs relate to identifiable contract
2. costs generate/enhance resources that will be used to satisfy the performance obligations in the future.
3. costs are expected to be recovered.
How should agent revenue be accounted for?
Agent may only take fee/commission of the revenue. The rest of the revenue is then treated as a liability to the principal.
What is a forward contract in a repurchase agreement?
Entity has an obligation to repurchase asset.
What is a call option for a repurchase agreement?
Call option is the right to repurchase the asset
What is a put option for a repurchase contract?
Entity must repurchase the asset if requested to do so by the customer.
How do we account for forward contracts and call options?
Forwards and Calls are recorded as a loan (financing arrangement) as we still control the asset. (substance over form).
How do we account for a put option?
If repurchase price < original selling price - unlikely to buy back as customer loses money. This is an outright sale with right of return.
If repurchase price > original selling price - treat contract as financing arrangement.
What is a consignment arrangement?
Whereby the customer does not control the product at delivery date.
How do we account for a consignment arrangement?
Inventory remains in books of the entity and revenue is not recognised until control passes.
True or False: if the customer can return unsold goods for a refund they do not control the asset.