p.1
Revenue Recognition Principles under IFRS 15
What does IFRS 15 Paragraph 31 state about revenue recognition?
Revenue is recognized when an entity satisfies the performance obligation by transferring a promised good or service to a customer.
p.1
Revenue Recognition Principles under IFRS 15
When does CosmeticsCo recognize revenue according to IFRS 15?
When control of the products is transferred to CostCo.
p.1
Right of Return and Revenue Recognition
Does CostCo have a right of return to CosmeticsCo?
No, CostCo has no right of return.
p.2
Right of Return and Revenue Recognition
What does IFRS 15 state about a right of return?
A right of return is not a separate performance obligation but affects the estimated transaction price for transferred goods.
p.3
Right of Return and Revenue Recognition
How is the returns asset presented in Situation A?
It is presented and assessed for impairment separately from the refund liability.
p.2
Right of Return and Revenue Recognition
What is the contractual situation in Situation B regarding returns?
The retailer has no contractual right, but WatchCo has a customary business practice where returns have been made and accepted.
p.6
Bill-and-Hold Arrangements
What is the nature of the contract between Consoles AG and Durbin?
To supply 100,000 video game consoles branded with Durbin’s logo.
p.6
Bill-and-Hold Arrangements
What must be assessed in a bill-and-hold arrangement?
Whether control has transferred to the customer, despite the customer not having physical possession of the goods.
p.2
Right of Return and Revenue Recognition
What three components must WatchCo account for when recognizing sales with a right of return?
Revenue for transferred products, a refund liability, and an asset for the right to recover products.
p.2
Right of Return and Revenue Recognition
How does WatchCo recognize revenue when selling watches to a retailer?
Revenue is recognized only for those goods that are not expected to be returned, based on the estimated transaction price.
p.2
Right of Return and Revenue Recognition
What is the estimated return rate for WatchCo's watches?
6% of watches sold are expected to be returned.
p.6
Bill-and-Hold Arrangements
What is a bill-and-hold arrangement?
When a customer is billed for goods ready for delivery, but the goods are not shipped until a later date.
p.3
Right of Return and Revenue Recognition
What is recognized simultaneously with revenue in Situation A?
An asset for the watches expected to be returned, reducing the cost of sales.
p.3
Right of Return and Revenue Recognition
How does WatchCo treat the right of return in Situation B?
It is accounted for in the same manner as in Situation A.
p.1
Transfer of Control in Sales Transactions
What is meant by 'control' of an asset according to IFRS 15?
The ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset.
p.2
Right of Return and Revenue Recognition
What methods can WatchCo use to estimate expected returns?
The expected value method or the most likely amount method.
p.5
Volume Discounts and Variable Consideration
According to IFRS 15, how should TellieCo estimate the variable consideration?
Using either 'the expected value' or 'the most likely amount'.
p.7
Performance Obligations in Contracts
What happens if Screens acts as an agent for shipping services?
Revenue should be recognized net of the payment to the third-party carrier, resulting in commission income.
p.5
Volume Discounts and Variable Consideration
What condition must be met for TellieCo to recognize revenue related to the volume discount?
It must be highly probable that a significant reversal will not occur.
p.1
Indicators of Control Transfer
What indicators suggest that control is transferred to CostCo?
Physical possession, legal title, and a present obligation to pay.
p.1
Indicators of Control Transfer
What are some indicators of the transfer of control listed in IFRS 15 Paragraph 38?
Present right to payment, legal title, physical possession, significant risks and rewards of ownership, and acceptance of the asset.
p.2
Right of Return and Revenue Recognition
What must be highly probable for WatchCo to include amounts subject to return in the transaction price?
It must be highly probable that there will not be a significant reversal of cumulative revenue if the estimate of expected returns changes.
p.5
Volume Discounts and Variable Consideration
What must TellieCo recognize at 30 June regarding the volume discount?
A liability for the amount expected to be paid for the volume discount.
p.7
Performance Obligations in Contracts
What does IFRS 15.22 state regarding performance obligations?
At contract inception, an entity shall assess the goods or services promised and identify each promise to transfer to the customer as a performance obligation.
p.2
Right of Return and Revenue Recognition
What is the contractual situation in Situation A regarding returns?
The retailer has a contractual right to return the watches for a full refund for a contractually defined period.
p.4
Consignment Arrangements and Revenue Timing
What does Paragraph B77 of IFRS 15 state about revenue recognition?
Revenue is not recognized upon delivery if the product is held on consignment.
p.3
Right of Return and Revenue Recognition
When is revenue recognized for the watches in Situation A?
When the watches are delivered and a liability is deducted from revenue for expected returns.
p.6
Bill-and-Hold Arrangements
Why should Consoles AG recognize revenue for all 100,000 units at year-end?
All criteria for control transfer to Durbin have been met.
p.7
Performance Obligations in Contracts
How many performance obligations does Screens have in the arrangement with the retailer?
Two performance obligations: (1) sale of the televisions and (2) shipping services.
p.6
Bill-and-Hold Arrangements
What does it mean for products to be identified separately in a bill-and-hold arrangement?
Products must be clearly marked as belonging to the customer.
p.6
Bill-and-Hold Arrangements
What was the reason for the bill-and-hold arrangement in this case?
Lack of shelf space at the retailer's location.
p.4
Consignment Arrangements and Revenue Timing
When does GardenfurnishingsCo recognize revenue according to IFRS 15?
Once the garden centre sells the product to the end-customer.
p.4
Consignment Arrangements and Revenue Timing
What obligation does the garden centre have regarding payment?
The garden centre does not have an obligation to pay until a sale occurs.
p.6
Bill-and-Hold Arrangements
What are the criteria for recognizing revenue in a bill-and-hold arrangement according to IFRS 15?
The reason for the arrangement must be substantive, products must be identified as belonging to the customer, products must be ready for transfer, and products cannot be used or directed to another customer.
p.7
Revenue Recognition Principles under IFRS 15
When should Screens recognize revenue for the sale of televisions?
When control transfers to the retailer, which is when the goods are provided to the carrier.
p.7
Performance Obligations in Contracts
What criteria must be met for a good or service to be considered distinct under IFRS 15?
1) The customer can benefit from the good/service on its own or with readily available resources. 2) The promise to transfer the good/service is separately identifiable from other promises in the contract.
p.7
Revenue Recognition Principles under IFRS 15
When should Screens recognize revenue for shipping services?
When performance occurs, usually over the shipping period.
p.4
Consignment Arrangements and Revenue Timing
What are indicators of a consignment arrangement according to Paragraph B78 of IFRS 15?
Control of the product remains with the entity until a specified event occurs, the entity can require return or transfer of products, and the dealer does not have an unconditional obligation to pay.
p.4
Consignment Arrangements and Revenue Timing
What happens to the amount retained by the garden centre if GardenfurnishingsCo is the principal?
It would be recognized as commission expense.
p.4
Consignment Arrangements and Revenue Timing
What should GardenfurnishingsCo assess regarding its role in the transaction with the end-customer?
Whether it is the principal to the transaction.
p.4
Consignment Arrangements and Revenue Timing
What can happen to unsold products in a consignment arrangement?
They can be returned to GardenfurnishingsCo or transferred to another retailer.
