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Five steps approach to revenue recognition: from IFRS 15: Contracts with Customers. začněte se učit
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1. Identify the contract. | 2. Identify the performance obligations within the contract. | 3. Determine the transaction price. | 4. Allocate the transaction price to the PO within the contract. | 5 Recognise revenue when a PO is satisfied.
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from: IFRS 15: Contracts with Customers. začněte se učit
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Agreement between two parties that creates rights and obligations.
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An entity can only account for revenue from a contract if it meets the following criteria: # začněte se učit
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Rights of each party can be identified. | Payment terms can be identified. | Commercial substance. | Likely that the selling entity will receive consideration. RP CL [Rzeczpospolita Champions League - revenue from contract recognition]
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Performance obligations definition. začněte se učit
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Promises to transfer distinct goods or services to a customer. distinct - wyraźny, odrębny, różny
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Entities must determine the nature of their performance obligation. They might be a principal providing the good or service or... začněte se učit
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an Agent - arranging for the good or service to be provided by another party.
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The transaction price is the consideration that the selling entity will be entitled to once it has...? začněte se učit
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once it has fulfilled the performance obligations in the contract.
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Transaction price: Variable consideration. Step 3. začněte se učit
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If the price may vary, then estimate the amount expected. the price may vary due to possible refunds, rebates, discounts, contingent consideration etc. However variable consideration is only included if it’s highly probable there won’t need to be a significant revenue reversal in the future (when the uncertainty has been subsequently resolved).
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Transaction price: Financing. Step 3. začněte se učit
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If there is a significant financing component, the consideration receivable must be discounted to present value.
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Transaction price: Non-cash consideration. It is measured at...? Step 3. začněte se učit
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Transaction price: Consideration payable to a customer - treatment. Step 3. začněte se učit
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This is deducted from the transaction price.
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The total transaction price should be allocated to each performance obligation in proportion... začněte se učit
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in proportion to standalone selling prices.
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Revenue is recognised when... Step 5. začněte se učit
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the entity satisfies a performance obligation.
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An entity only satisfies a performance obligation over time if one of the following criteria is met: 3 začněte se učit
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The customer simultaneously receives and consumes the benefits from the entity's performance as it performs. | The entity is creating or enhancing an asset controlled by the customer. | The entity cannot use the asset "for the alternative use" and the entity can demand payment for its performance to date.
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If a performance obligation is satisfied over time, then revenue is recognised based on the progress... začněte se učit
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If a performance obligation is NOT satisfied over time, then it satisfied at... This is normally when... začněte se učit
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at a point in time. This is normally when the customer obtains controls of the promised asset.
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An entity must capitalise following contract costs: 2 začněte se učit
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The cost of obtaining a contract. | The cost of fulfilling a contract that do now fall within the scope of another standards (such as IAS 2 Inventories). Example: Due diligence on a potential customer = Expense. | Examples: Direct labour and Materials. General and administrative costs
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An entity is the principal if... začněte se učit
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if it controls the good or service it is transferred to the buyer.
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