Unit 1- Ch 18 Revenue IFRs
Lesson 1: Revenue Introduction (IFRS)
Technical competency 1.2.2 Evaluates treatment for routine transactions
Learning outcomes
o Define revenue under IFRS
o Identify the 5 steps in the rev recognition model under IFRS
Revenue (IFRS) defined
1. IFRS 15 define revenue as “income arising in the course of an entity’s ordinary
activities”
5 Step Process of Revenue Recognition
1. Identify the contract
Criteria
Approved by both parties
Identifies goods and services
Payment terms identified
Has commercial substance
Probable that consideration will be collected
Assess
If must combine two or more contracts
If includes contract modifications
2. Identify the performance obligations
A promise to transfer one of:
Distinct goods or services
A series of distinct goods or services that are substantially the same and
that have the same patterns of transfer to the customer
Distinct Goods
Customer can benefit from the good or services on its own and
Promise to transfer the good or service is separable from other promises
in the contract
3. Determine the transaction price
Consider:
Variable consideration — expected amount or most likely amount; only
recognized if subsequent change unlikely to result in reversal of revenue
Right of return — only recognize revenue if estimate of returns can be
made and they are highly probable
Significant financing components — discount future payments if more
than one year after revenue recognition
Non-cash consideration — measure at fair value of the non-cash
consideration received
Consideration payable to a customer — voucher, coupon, or credit
4. Allocate the Transaction Price
Allocate proportionately to each performance obligation of each distinct good or
service based on stand-alone selling price at contract
inception.
Determine stand-alone selling price using:
o Adjusted market assessment
o Expected cost plus margin
o Residual approach
Allocate the discount proportionately. — Allocate the variable
consideration as attributable.
Allocate changes in transaction price on same basis as at contract
inception
5. Recognize Revenue
Single point in time
A present right to payment
Legal title has transferred
Physical possession has transferred
The customer has the significant risks and rewards of ownerships
Customer acceptance
Over a period of time
Measured using output or input method
Customer simultaneously receives or consumes the benefits
Seller’s performance creates or engages a customer-controlled asset
Seller’s performance does not create an asset with an alternative use of
the seller, and the seller has an enforceable right of payment for
performance completed to date.
