Exam (elaborations)
FAC3764 Questions and answers 2024
Questions and answers of old papers, summary of IFRS 15
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EXAM PACK - 2024OLD Questions and Answers
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CAF 5 – IFRS 15
Revenue from Contracts
IFRS 15 with Customers 09
Page | 1
CORE PRINCIPLE AND THE FIVE STEP MODEL
The core principle of IFRS 15 is that an entity recognises revenue:
(a) to depict the transfer of promised goods or services to customers
(b) at an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services.
An entity recognises revenue in accordance with above core principle by applying the
following steps:
1 Identify the contract(s) with a customer
2 Identify the performance obligations (PO) in the contract
3 Determine the transaction price (TP)
4 Allocate the TP to the PO in the contract
5 Recognise revenue when (or as) the entity satisfies a PO
DEFINITIONS
Revenue Income arising in the course of an entity’s ordinary activities.
Customer A party that has contracted with an entity to obtain goods or services that are
an output of the entity’s ordinary activities in exchange for consideration.
STEP 1: IDENTIFY THE CONTRACT(S) WITH A CUSTOMER
Contract An agreement between two or more parties that creates enforceable rights
and obligations.
An entity shall account for a contract with a customer under IFRS 15 only
when all of the following criteria are met:
(a) the parties to the contract have approved the (binding) contract;
(b) the entity can identify each party’s rights regarding the goods or
services to be transferred;
Criteria (c) the entity can identify the payment terms for the goods or services to
be transferred;
(d) the contract has commercial substance; and
(e) it is probable that the entity will collect the consideration considering
only the customer’s ability and intention to pay that amount of
consideration when it is due.
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CAF 5 – IFRS 15
When a contract with a customer does not meet the above criteria and an
entity receives consideration from the customer, the entity shall recognise
the consideration received as revenue only when either of the following
events has occurred:
(a) the entity has no remaining obligations to transfer goods or
Page | 2 services to the customer and all, or substantially all, of the
Consideration
consideration promised by the customer has been received by the
received in
entity and is non-refundable; or
advance
(b) the contract has been terminated and the consideration received
from the customer is non-refundable.
An entity shall recognise the consideration received from a customer as a
liability until one of the above-mentioned events occurs or until the
recognition criteria are subsequently met.
An entity shall combine two or more contracts entered into at or near the
same time with the same customer (or related parties of the customer) and
account for the contracts as a single contract if one or more of the
following criteria are met:
Combination (a) the contracts are negotiated as a package with a single
of contracts commercial objective;
(b) the amount of consideration to be paid in one contract depends on
the price or performance of the other contract; or
(c) the goods or services promised in the contracts (or some goods or
services promised in each of the contracts) are a single PO.
STEP 2: IDENTIFY PERFORMANCE OBLIGATIONS (PO)
A promise in a contract with a customer to transfer to the customer either:
Performance
(a) good or service (or a bundle of goods or services) that is distinct; or
Obligation
(b) a series of distinct goods or services that are substantially the same
(PO)
and that have the same pattern of transfer to the customer.
A good or service that is promised to a customer is distinct if both of the
following criteria are met:
(a) the customer can benefit from the good or service either on its own
or together with other resources that are readily available to the
customer; and
Distinct (b) the entity’s promise to transfer the good or service to the customer is
separately identifiable from other promises in the contract.
If a good or service is regularly sold separately, this would indicate that
customers generally can benefit from the good/service on its own or in
conjunction with other available resources.
If a promised good or service is not distinct, an entity shall combine that
good or service with other promised goods or services until it identifies a
Not distinct bundle of goods or services that is distinct. In some cases, that would
result in the entity accounting for all the goods or services promised in a
contract as a single PO.
Latest update: March 2020
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CAF 5 – IFRS 15
Examples of promised goods and services include:
Goods produced by an entity for sale
Resale of goods purchased by an entity
Resale of rights to goods or services purchased by an entity
Performing a contractually agreed-upon task for a customer
Standing ready to provide goods or services Page | 3
Providing a service of arranging for another party to transfer goods or services to the
customer
Granting rights to goods or services to be provided in the future that a customer can
resell
Constructing, manufacturing or developing an asset on behalf of a customer
Granting licences
Granting options to purchase additional goods/services
STEP 3: DETERMINING THE TRANSACTION PRICE (TP)
The amount of consideration to which an entity expects to be entitled in
Transaction exchange for transferring promised goods or services to a customer,
Price (TP) excluding amounts collected on behalf of third parties (for example, some
sales taxes).
An entity shall consider the terms of the contract and its customary
Requirement
business practices to determine the TP.
The nature, timing and amount of consideration promised by a customer
affect the estimate of the TP. When determining the TP, an entity shall
consider the effects of all of the following:
(a) variable consideration;
Factors to be
(b) constraining estimates of variable consideration;
considered
(c) the existence of a significant financing component in the contract;
(d) non-cash consideration (measured at fair value); and
(e) consideration payable to a customer (reduction in TP due to coupon
or vouchers).
STEP 4: ALLOCATING THE TRANSACTION PRICE (TP)
The objective when allocating the TP is for an entity to allocate the TP to each PO (or
distinct good or service) in an amount that depicts the amount of consideration to which the
entity expects to be entitled in exchange for transferring the promised goods or services to
the customer.
Stand-alone The price at which an entity would sell a promised good or service
selling price separately to a customer.
Suitable methods for estimating the stand-alone selling price of a good or
service include, but are not limited to, the following:
Allocation (a) Adjusted market assessment approach
based on (b) Expected cost plus a margin approach
stand-alone (c) Residual approach
selling prices
A combination of methods may need to be used to estimate the stand-
alone selling prices of the goods or services promised in the contract
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