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IFRS 15 - Revenue from Contracts with Customers

Terms in this set (34)

For a contract to exist under IFRS 15 ALL of the following criteria must be met:

* Contract has been approved by both parties. A contract exists if both parties have agreed to the terms verbally or ratified it in a written document.

* Each parties rights and obligations regarding the goods or services can be identified (IDENTIFY WHAT EACH PARTY MUST DO i.e. THEIR RIGHTS AND DUTIES).

* The payment terms can be identified regarding merx.

* The contract has commercial substance in that the transactions will affect the cashflows of the entity regarding risk, timing and amount (STATE THAT RECEIPT OF CONSIDERATION WILL INCREASE/DECREASE CASH FLOW).

* It is probable that the entity will collect the consideration to which it is entitled (ASSESS THE SCENARIO TO SEE WHAT MAKES IT CERTAIN THAT THE ENTITY WILL RECEIVE THE MONEY e.g. the other party has signed the document which makes it legally binding).

* Finally it must be proved, as stated above, that the party receiving the good/service is a customer, using the definition of a customer.

When a contract does not meet these criteria, the consideration received will be recognized as a CONTRACT LIABILITY until they have been met or if:

* The entity has discharged all obligations and there are no remaining P.Os left to perform and all or substantially all the consideration promised by the customer has been received and is non-refundable.

* The contract is terminated and the consideration received is non-refundable.

Two or more contracts may be combined if:

* The contracts are negotiated as a package for the same objective.

* The consideration to be paid in one contract is dependent on the details of the other contract.

* The goods or services promised in each contract is a single P.O.
* It must be stated HOW MANY promises there are and what the NATURE of the promises are.

* In order for a P.O to exist, the goods or services must be distinct OR be a series of distinct goods/services that are similar and have a similar pattern of transfer.

A series of distinct goods or services have the same pattern of transfer if:

* Each distinct good/service in the series is satisfied at P.O.T.

* The same method is used to measure progress toward completion (Input or Output Method).

A good is distinct if both of the following are met:

* The customer can benefit from it alone or in conjunction with readily available resources (DETERMINE WHETHER ANOTHER ENTITY COULD PROVIDE THE GOOD OR SERVICE THAT COMPLEMENTS THE OTHER GOOD OR SERVICE).

* The good/services are separately identifiable.

Goods and Services are separately identifiable if any of the following are met:

* The entity does not provide a significant service of integrating other goods and services into the good in order to result in the promised good or service.

* The good/service does not significantly modify or customize other goods/services.

* The good is not highly dependent or interrelated with other goods.

IN A THEORY QUESTION YOU MAY NEED TO PROVE ONLY ONE. USE THE SCREW AND TABLE EXAMPLE: In order to make a wooden table, screws, a metal frame and wood are needed. These can be regarded as three distinct P.Os. However the product which is contracted for is the table. It is clear that the screws, wood and frame modify one another significantly and are needed to be used in the process to result in a wooden table. Therefore they are not separately identifiable. As a result they will be regarded as a single performance obligation. which is the table.