Revenue – IFRS

Question 1

What is the definition of revenue according to IFRS 15?

Answer 1

Income arising in the course of an entity’s ordinary activities

Revenue excludes incidental transactions and amounts collected on behalf of third parties.

Question 2

What types of income are excluded from revenue?

Answer 2

• Income from incidental transactions
• Amounts collected on behalf of third parties
• Amounts collected in an agency relationship

For example, a travel agent reports commission as revenue, not the ticket price.

Question 3

True or False: All revenue is income, but not all income is revenue.

Answer 3

True

Question 4

What is the first step in the five-step process to recognize revenue?

Answer 4

Identify the contract

Question 5

What constitutes a contract under IFRS 15?

Answer 5

An agreement that creates enforceable rights and obligations

Contracts can be written, oral, or implied by business practices.

Question 6

List the criteria for a valid contract under IFRS 15.

Answer 6

• Approved by both parties
• Identifies goods and services
• Payment terms identified
• Has commercial substance
• Probable consideration will be collected
• Customer has ability and willingness to pay

Question 7

What must a seller assess regarding contracts under IFRS 15?

Answer 7

• If two or more contracts must be combined
• If there are contract modifications

This includes changes in scope and/or price.

Question 8

What is a contract modification?

Answer 8

A change in the scope and/or price of a contract approved by the parties

Question 9

What determines whether a contract modification is treated as a separate contract?

Answer 9

• Addition of distinct goods or services
• Price increase by seller’s stand-alone selling price of additional goods or services

Question 10

What is the second step in the five-step process to recognize revenue?

Answer 10

Identify the performance obligations

Question 11

What is a performance obligation?

Answer 11

A promise to transfer distinct goods or services to a customer

Question 12

What indicates that goods or services are distinct?

Answer 12

• Customer can benefit from the good/service on its own
• Separable from other promises in the contract

Question 13

What is the third step in the five-step process to recognize revenue?

Answer 13

Determine the transaction price

Question 14

What does the transaction price exclude?

Answer 14

Amounts collected on behalf of third parties, such as sales tax

Question 15

What is variable consideration?

Answer 15

Part of the transaction price that may vary due to factors like discounts, rebates, or returns

Question 16

What are the two methods to account for variable consideration?

Answer 16

• Expected value
• Most likely amount

Question 17

What must a seller assess concerning significant financing components?

Answer 17

Whether the timing difference provides a significant benefit to either party

Question 18

When is interest revenue from financing components reported?

Answer 18

Separately from contract revenue in the statement of comprehensive income

Question 19

What is the fourth step in the five-step process to recognize revenue?

Answer 19

Allocate the transaction price

Question 20

How is the transaction price allocated to each performance obligation?

Answer 20

Based on stand-alone selling price at contract inception

Question 21

What are the methods to determine stand-alone selling price?

Answer 21

• Adjusted market assessment
• Expected cost plus margin
• Residual approach

Question 22

What is the fifth step in the five-step process to recognize revenue?

Answer 22

Recognize revenue

Question 23

When is revenue recognized at a single point in time?

Answer 23

When a performance obligation is satisfied at a specific moment

Question 24

What are indicators of the transfer of control of an asset?

Answer 24

• Present right to payment
• Legal title transferred
• Physical possession transferred
• Significant risks and rewards of ownership transferred
• Customer acceptance

Question 25

Under what conditions is revenue recognized over time?

Answer 25

* Customer simultaneously receives and consumes benefits * Seller's performance creates/enhances an asset controlled by customer * Performance does not create an asset with alternative use

Question 26

What methods can be used to measure progress toward completion?

Answer 26

* Output methods * Input methods

Question 27

What are output methods for recognizing revenue?

Answer 27

Based on direct measurements of value to the customer

Question 28

What are input methods for recognizing revenue?

Answer 28

Based on estimates of percentage of completion using resources consumed or hours expended

Question 29

True or False: Revenue can only be recognized when a performance obligation is fully satisfied.

Answer 29

False

Question 30

What measures can be used as input measures in a project?

Answer 30

Resources consumed, labour hours expended, costs incurred, time elapsed, machine hours used ## Footnote These measures help track the efficiency and effectiveness of the project.

Question 31

What factors determine whether to use the input or output method?

Answer 31

The nature of the good or service that is to be transferred ## Footnote This consideration helps in choosing the appropriate accounting method.

Question 32

Under what circumstances is satisfaction considered to occur over time?

Answer 32

When one of the following is true: * Customer simultaneously receives and consumes the benefits * Seller’s performance creates or enhances a customer-controlled asset * Seller’s performance does not create an asset with an alternative use to the seller, and the seller has an enforceable right to payment for performance completed to date ## Footnote This is important for revenue recognition in accounting.

Question 33

When is satisfaction considered to occur at a point in time?

Answer 33

When the customer obtains control ## Footnote Control typically implies the ability to direct the use of and obtain the benefits from the asset.

Question 34

What are the indicators to consider for satisfaction at a point in time?

Answer 34

A present right to payment, legal title has transferred, physical possession has transferred, the customer has the significant risks and rewards of ownership, customer’s acceptance ## Footnote These indicators help determine the timing of revenue recognition.