Notes of a Third year student studying Bachelors of Accounting at the University of the Free State. With this notes that i have compiled, i was able to proudly say that i received a distinction in Financial Accounting by using this notes. If you are struggling with Financial Accounting use this not...
IFRS 15 ~ Contract – agreement between two or
more parties that creates enforceable
rights & obligations. Par 10
Step 1: Identify the contract
No contract exists if each party has the
unilateral enforceable right to
Criteria to be met to determine if contract exists Par 9
terminate a wholly unperformed
Approved The parties approved the contact and is committed to contract Par 12
perform
If criteria are met DO NOT reassess unless
Rights indication of a significant change in facts and
The entity can identify each party's rights regarding the
goods or services to be transferred circumstances Par 13
Payment The entity can identify the payment terms of those goods
AND
terms or services to be transferred
If influence Did not meet criteria, but still revenue Par 15
Commercial cash flow
The contract has commercial substance The entity has no remaining The contract has been
substance in future
obligation to transfer goods or terminated and the
services and all consideration consideration received is non -
Probable It is probable that the entity will collect the Customers’ has been received and is non - refundable
consideration. intention & refundable
ability to pay
OR
If par 15 does not apply entity shall recognize consideration
received from customer as a liability Par 16
Entity may combine contracts if one or more of the following criteria are met:
Single commercial objective
Consideration dependent on each other
Single performance objective
Only applicable if contracts entered into at or near the same time and same
customer
, Step 2: Identify the performance obligation
DO NOT INCLUDE activities that an entity must undertake
to fulfill a contract, unless those activities transfer a good
or service to the customer Par 25 @ contract inception, performance obligation shall be identified as one of following: Par 22
Discuss each promise A series of distinct goods/services that are substantially the same and that have the same
a distinct good or service
individually when (a bundle of goods and services) pattern of transfer to the customer
determining distinct (i.e. vehicle with a service plan) (i.e. magazine subscription).
•
The customer can benefit from the Buy without Goods/services should be substantially the Goods/services should have the same pattern of
AND
good/service on its own (generates same (are separately identifiable, i.e. one transfer to the customer (i.e. magazine
Normally sell
economic benefits; used or sold separate) magazine of a 12month subscription) subscription). Par 23
or together with other resources that are
readily available (a good sold separately or Criteria
resource the customer has already
obtained) to the customer
Not dependent on Each distinct good/service in the series should meet The same method would be used to measure the
Entity’s promise to transfer the other the criteria to be a performance obligation satisfied entity’s progress towards complete satisfaction
good/service is separately identifiable of the performance obligation to transfer each
over time (control transferred over time)
good/service in the series
Par 27 - 29
• Progress must be measurable towards
Not separately identifiable: the complete satisfaction of the
performance obligation Par 40
• Entity provides significant service of integrating the goods/ services with other goods
or services in contact.
• Good/ service significantly modifies or customizes another good/ service
• Highly interdependent/highly interrelated
, Step 3: Determine the transaction price Transaction price:
Amount of consideration to which an entity expects to be entitled in
exchange for transferring promised goods/ services to customers
Discuss every Exclude – amounts collected on behalf of 3rd party
consideration Include – fixed amounts, variable amounts
individually
Variable considerations &
Significant finance component
constraining estimates Fixed amount
60 ~ 65
Par 50 ~ 59
Any amount that is variable under
a contract Due to: discounts; Only applicable when there is a time difference between when the
rebates, refunds etc. Par 50 + 51 considerations are received & when goods/ services are transferred
to customer.
Entity shall estimate the amount to which it will be entitled
after delivering the promised goods/services.
Longer than 12 months
Estimate using: Adjust the amount of consideration for the effects of the time value of
Reassess every
Expected Value Most likely amount money if:
year
• Probability weighted • Single most likely amount Par 59 Customer / entity receives significant finance component
method in a range
• Multiply the possibilities Use discount rate that would be reflected in the separate
with the outcomes financial transaction between the entity & the customer.
Par 53
No adjustments if:
Refund liability (Sales with a right to return) Par 55 - 57
Period between performance + payment is one year or less
Recognise: Variable based on factors outside control of customer or entity
1. Revenue for the transferred products is the amount of consideration to which the entity Timing is @ discretion of customer
expects to be entitled (to the extent that it is highly probable that a significant reversal in the Timing difference arises due to reasons other than providing financing
amount of cumulative revenue recognised will not occur when any uncertainty associated with the
consideration is subsequently resolved)
2. A refund liability and
3. An asset for its right to recover products from customers on settling the refund liability
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