Basic Question (IFRS 15)

Friends hi,

some basic questions puted herein with respect to the IFRS 15, test your knowledge !!

with contract modification checklist.

Five Step Revenue Recognition Model:

1                    Identification of contract

Basic Question:

a.      How we identified the contract?

b.     When we say that contract is satisfied?

c.      When we say contract is approved by the parties?

d.     What is variable consideration and how is it accounted for?

e.     Contract is having fixed price, is it to be covered under variable consideration, if yes in which cases?

2                    Performance Obligation (PO)

Basic Question:

a.      Identification of separate performance obligation?

b.     When we say that performance is a separate PO?

c.      How we derived the distinct good or service?

d.     When we say that PO is satisfied at point in time or over the period?

e.     How do we have the treatment of PO satisfaction at point in time or over the period?

f.       When we say that PO is satisfied?

3                    Transaction Price (TP)

Basic Question:

a.      How we identified the transaction price?

b.     How we can say that transaction price include the variable and contingent consideration?

c.      What are the treatment of contingent consideration?

d.     What are the treatment of advance payment received from customer?

e.     How we treat the upfront fee received (refundable and non-refundable case)?

f.       How do we determine the significant financing?

g.      When we say that transaction price is final?

4                    Allocation of Transaction Price to PO

Basic Question:

a.      How do we calculate the stand alone transaction price?

b.     How do we allocate the transaction price among the distinct performance obligation (One PO or more than one PO)

c.      How do we allocate the variable & contingent consideration?

d.     When we say that allocation is done correctly?

5                    Recognition of Revenue

Revenue recognise when we satisfied the above 4 step simultaneously.

Contract Modification?

Has there been a Contract Modification?

A contract modification exists when the parties to a contract approve a change that either:

• Changes existing enforceable rights and obligations of the parties, or
• Creates new enforceable rights and obligations of the parties.

You have to consider all relevant facts and circumstances (eg external evidence as well as the terms of the contract) to determine enforceability. A contract modification may exist even though the parties:

• Have a dispute about the scope and/or price (or both) of the modification or
• They have approved a change in the scope of the contract but have not yet determined the corresponding change in price.

How do I account for it?

IFRS 15 sets out three different approaches to accounting for a contract modification. To determine which approach is required you have to ask:

• Are the additional goods or services distinct from those in the original contract? and
• Does the modification reflect the standalone selling price of the additional goods or services?

Different combinations of answers to the question can result in the change being treated as either:

1. A separate contract in addition to the original contract,
2. The termination of the original contract and the creation of a new contract (which will include the unsatisfied performance obligations from the original terminated contract) or
3. As part of the original contract.