Revenue Recognition (ASPE 3400, IFRS 15) PDF

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Revenue Recognition (IFRS 15) 1. Identify the contract a. Approval and commitment of all parties b. Each party’s rights and obligations can be identified (contract has to have info about exchange) c. Payment terms can be identified (how and how much) d. Commercial substance (has or will have impact on CF) e. Collectability (customer’s intention and ability to pay) 2. Identify performance obligations a. Good or service is distinct if: i. Benefit on its own? (functional without the other goods identified in the PO) ii. Promise separately identifiable? (transferred individually? Purchase separately?) Not separately identifiable if significant service to integrate, modifies the others, affects the others) (highly interdependent?) 3. Transaction price a. Significant financing component? b. Variable consideration? Volume discounts, rebates, refunds, non-cash amounts? 4. Allocate the transaction price to performance obligations a. Based on relative stand-alone selling price of performance obligation (sold under similar circumstances to customer before?) b. Estimate (3 methods) i. Adjusted market assessment (competitor price + adj) ii. Expected cost plus a margin iii. Residual approach (total price – sum of known prices) 5. Recognize revenue as each performance obligations satisfied a. Single point in time or over time i. Control of asset is a major determination on whether PO met 1. Ability to direct the use 2. Obtain substantially all benefits 3. Prevent others from use/benefits Additional indicators: Acceptance by customer, physical possession, sig risks and rewards, right to receive payment, legal title

Recognize revenue over time if one is met: (IFRS 15, para 35) a. the customer simultaneously receives and consumes the benefits provided by the entity's performance as the entity performs b.

the entity's performance creates or enhances an asset (for example, work in progress) that the customer controls as the asset is created or enhanced

c. the entity's performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date

Revenue Recognition - ASPE 3400 Issue: recognize immediately, deferred or not at all ASPE criteria: 1. performance 2. measurement 3. collectability Performance achieved: a. the seller of the goods has transferred to the buyer the significant risks and rewards of ownership, in that all significant acts have been completed and the seller retains no continuing managerial involvement in, or effective control of, the goods transferred to a degree usually associated with ownership; and b. reasonable assurance exists regarding the measurement of the consideration that will be derived from the sale of goods, and the extent to which goods may be returned. a. We can put a number on the transaction c. Collectability reasonably assured Recommend: if the above conditions met, can recognize revenue. Now when? Two common scenarios: 1. Right to return: defer the revenue till “right” has passed the right is exercised and service has been rendered, delivery has occurred 2. Upfront fees non-refundable fees: record the fee as deferred revenue a. If related to a contract or project over time, and amortize revenue over period of the contract...