3198333
Description
Mind Map by meyer cohn, updated more than 1 year ago
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Created by meyer cohn
about 9 years ago
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Revenue from
contracts with
customers
- Step 1: Identifying the
contract
- Shall account for a contract with customer
when ALL of following criteria are met: 1.
parties approved the contract and committed;
2. can ID each party's rights; 3. ID payment
terms; 4. contract has commercial substance;
5. probable that entity will collect the
consideration.
- If contract does not meet criteria, entity
recognise consideration received as revenue
only when either: 1. entity has no remaining
obligation to transfer goods & consideration is
non-refundable; or 2. contract is terminated &
consideration non-refundable
- Combination of contracts
- When 2/more contracts near and with same time
& customer/related party as a single contract if
criteria are met: 1. single commercial; 2.
consideration of 1 contract depends on
performance of other; 3. goods are a single
performance obligation.
- When 2/more contracts near and with same time
& customer/related party as a single contract if
criteria are met: 1. single commercial; 2.
consideration of 1 contract depends on
performance of other; 3. goods are a single
performance obligation.
- Contract modifications
- Shall account for a contract with customer
when ALL of following criteria are met: 1.
parties approved the contract and committed;
2. can ID each party's rights; 3. ID payment
terms; 4. contract has commercial substance;
5. probable that entity will collect the
consideration.
- Step 2: Identifying
performance obligations (PO)
- At inception entity assess G/S promised in
contract, & ID as a PO each promise to
transfer to customer either: 1. G/S is distinct;
OR 2. Series of distinct G/S have same pattern
of transfer to customer.
- Promises in contract
- PO not limited to G/S, IF promise is
implied, or business practice or policy will
= Promise in contract.
- PO not limited to G/S, IF promise is
implied, or business practice or policy will
= Promise in contract.
- G/S promised are distinct IF: 1.
customer benefits; & 2. Promise is
separately ID frm other promises
- At inception entity assess G/S promised in
contract, & ID as a PO each promise to
transfer to customer either: 1. G/S is distinct;
OR 2. Series of distinct G/S have same pattern
of transfer to customer.
- Step 3: Determining
transaction price (TP)
- Consider terms & business practices to
determine TP
- TP is amount the entity expects to be
entitled to, excl. amounts collected on
behalf of 3rd parties
- Variable consideration
- Estimating by use of "expected value"
method (probability-weighted method)
- OR, estimating by use
of "most likely
amount"
- Estimating by use of "expected value"
method (probability-weighted method)
- a Significant
financing component
- Adjust promised amount
for effects of time value of
money
- Relevant facts: the difference between
promised amount & cash selling price;
effect of time between transfer of G/S &
PMT and market interest rate.
- Adjust promised amount
for effects of time value of
money
- Non-cash
consideration
- Consideration payable to
customer (eg.
vouchers/coupons)
- Consider terms & business practices to
determine TP
- Step 4: Allocating the TP to
performance obligation (PO)
- Objective to allocate an amount
that depicts amount entity expects
to be entitled in exchange
- Allocation based on
stand-alone selling prices
- Determine S-A SP at contract inception
for distinct G/S for each PO & allocate
TP in proportion to S-A SP
- Methods for estimating S-A SP:
1. Adjusted market assessment;
2. Expected cost + margin; 3.
Residual.
- Methods for estimating S-A SP:
1. Adjusted market assessment;
2. Expected cost + margin; 3.
Residual.
- Determine S-A SP at contract inception
for distinct G/S for each PO & allocate
TP in proportion to S-A SP
- Applies only to contracts
with more than 1 PO
- Objective to allocate an amount
that depicts amount entity expects
to be entitled in exchange
- Step 5: Recognise revenue
- When entity satisfies a PO by
transferring a promised G/S to
Customer. Asset is transferred
when Customer obtains
CONTROL over asset.
- PO satisfied over time
- if one of criteria met: 1. Customer
simultaneously receives & consumes;
2. Performance enhances customer's
asset; 3. Performance do not create
asset with alternative use &
enforceable right to PMT at
completion.
- if one of criteria met: 1. Customer
simultaneously receives & consumes;
2. Performance enhances customer's
asset; 3. Performance do not create
asset with alternative use &
enforceable right to PMT at
completion.
- PO at point in time
- Transfer of control/
present right to PMT =
point in time
- Transfer of control/
present right to PMT =
point in time
- When entity satisfies a PO by
transferring a promised G/S to
Customer. Asset is transferred
when Customer obtains
CONTROL over asset.
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