Week 10: Revenue recognition

Question 1

What is revenue?

Answer 1

Income arising from the course of an entity’s ordinary activities.

Question 2

what are the complexities in accounting for revenue?

Answer 2

• The full amount invoiced will not be received in full.
• Gains arise from unusual and will not be received in full.
• Transactions are spread over several accounting periods.
• Impact on other standards such as leasing.

Question 3

What factors affect the level of uncertanity of revenue received?

Answer 3

• Market volatility
• If the entity has limited experience with similar contracts- hard to predict if they’ll pay back.
• The entity is likely to offer concessions or discounts.

Question 4

What are the 5 step approach of revenue recognition according to IFRS 15?

Answer 4

1) Identify the contract with the customer
2) Identify the performance obligations
3) Determine the transaction price
4) Allocate the transaction price to performance obligations
5) Recognise revenue when (or as) the entity satisfies a performance

Question 5

Explain step 1 (Identify the contract with the customer)

Answer 5

For a contract to be in place, there has to be an agreement between 2 or more parties that create enforceable rights and obligations- does not have to be in writing.
The contract can be modified (e.g. change in scope, price). If distinct goods/ services are added at stand-alone price, a separate contract needs to be made.