Exam 20: Revenue From Contracts With Customers

IFRS 15 requires both qualitative and quantitative information in three broad areas. Which of the following is not one of these areas?

Determining when to recognize revenue is generally straight-forward.

Mill Entity has provided flour to Baker Entity's business regularly for the past seven years without a formal contract. How does IFRS 15 view this situation from a contract point of view?

Generally, revenue is recognized when it is probable that an entity will receive the economic benefits associated with the revenue and the amount of revenue can be reliably measured.

The existence of which of the following would not cause the contract consideration to change?

When determining the transaction price, an entity must consider

The primary issue in accounting for revenue is determining when to recognize revenue.

Bali Entity (BE), an orchid grower, is located on the island of Bali, Indonesia. On July 10, 20X7, BE entered into a contract with Weddings-For-You (WFY). The contract indicates that for $5,000, BE would supply WFY with 500 rare ghost orchids in three months from the contract date. However, due to a virus infesting orchids, the contract is contingent upon an independent count of ghost orchids in BE's greenhouses. If the number of viable orchids plants falls below 1,000 - a 25 percent chance - the contract price would jump to $7,000 for 500 ghost orchids. If the number of viable orchid plants falls below 800 - a 18 percent chance - the contract price would jump to $10,000. The contract would be called off if the number of viable orchid plants fell below 500 - a 2 percent chance. a. What is the contract consideration under the expected value method? b. What is the contract consideration under the most likely value method?

For the purpose of applying IFRS 15, a contract does not exist if:

Consulting Entity is leasing office space from High-Rise Entity for $10,000 a month. Consulting Entity signs a new lease on April 1, 20X1, and makes a payment for the first full year (i.e., $120,000). How much revenue can High-Rise Entity recognize in 20X1 related to Consulting Entity's rent payment?

Which of the following is not a form of "income"

Revenue may not be recorded unless cash, or the promise of a future payment of cash, is included in the transaction.

Legally enforceable contracts can be written, oral, or implied by the entity's customary business practices. Which of the following does a contract need to meet in order to comply with IFRS 15?

Tractor Entity sells and delivers a large tractor for $1,000,000 to Agriculture Entity. Agriculture Entity will make $200,000 payments at the end of each year for the next five years to Tractor Entity. The interest rate built into the sale is 12%. What is the total revenue recognized in year 1? What is the interest revenue recognized in year 3? Year Interest Revenue Cash received Repayment Carrying Value Year 1, beginning \ 0 \ 0 \ 0 \ 720,955 Year 1 \ 86,515 \ 200,000 \ 113,485 \ 607,470 Year 2 \ 72,896 \ 200,000 \ 127,104 \ 480,366 Year 3 \ 57,644 \ 200,000 \ 142,356 \ 338,010 Year 4 \ 40,561 \ 200,000 \ 159,439 \ 178,571 Year 5 \ 21,429 \ 200,000 \ 178,571 \ 0 PMT \ 200,000 Interest Rate \ 0 Years \ 5

Define performance obligation.

On May 1, 20X7, Bridge Builder Entity (BBE) contracted with the Argentinean government for €150 million to build a suspension bridge over the Parana River. BBE's management estimates that it will take 60,000 man-hours to finish the bridge. At December 31, 20X7, BEE has expended 20,000 man-hours toward completion of the bridge. BEE estimates that 3/10ths of the kilometer-long bridge has been completed as of the reporting date. How much revenue should BEE recognize at December 31, 20X7 using the input method? How much using the output method?

What must be considered when a contract extends more than one year?

Define transaction price.

Revenue is the gross amount of economic benefit flowing to an entity from its ordinary business activities, including increases in equity from operating and financing activities.

Retail Entity is holding goods on consignment from Wholesale Entity. According to the contractual arrangement, Retail Entity will receive 20% of the value of any goods sold on consignment from Wholesale Entity. For 20X1, Retail Entity sold $150,000 of merchandise (original cost - $80,000) held on consignment for Wholesale. What is the correct way to account for this transaction?