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Revenue Recognition Steps Under PFRS 15

The document summarizes key concepts related to revenue recognition under PFRS 15. It provides the correct order of steps for revenue recognition: identify performance obligations, determine transaction price, allocate price to obligations, recognize revenue as obligations are satisfied. For a contract to fall under PFRS 15, the parties must acknowledge their rights and obligations. Distinct goods, services, or series can each be considered a separate performance obligation. A good or service is distinct if the customer benefits from it or it is separately identifiable in the contract. Revenue is recognized over time for obligations satisfied over time, measured at the allocated transaction price amount.

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19 views1 page

Revenue Recognition Steps Under PFRS 15

The document summarizes key concepts related to revenue recognition under PFRS 15. It provides the correct order of steps for revenue recognition: identify performance obligations, determine transaction price, allocate price to obligations, recognize revenue as obligations are satisfied. For a contract to fall under PFRS 15, the parties must acknowledge their rights and obligations. Distinct goods, services, or series can each be considered a separate performance obligation. A good or service is distinct if the customer benefits from it or it is separately identifiable in the contract. Revenue is recognized over time for obligations satisfied over time, measured at the allocated transaction price amount.

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jelou ubag
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CFAS Chapter 31 Problem 2

1. Arrange the following steps of revenue recognition by PFRS 15.


I. Identify the performance obligation in the contract.
II. Recognize revenue when (or as) the entity satisfies a performance obligation.
III. Determine the transaction price
IV. Allocate the transaction price to the performance obligations in the contract
IV, I, III, V, II
2. Which of the following must be met before a contract with a customer is accounted for
under PFRS 15? Both contracting parties must acknowledge, whether explicitly or
implicitly, the rights and obligations created under the contract.
3. Which of the following may be treated as a performance obligation to be accounted for
separately?
I. A promise to transfer for distinct good or service
II. A promise to transfer a distinct bundle of goods or services
III. A promise to transfer a series of distinct goods or services that are substantially the
same and have the same pattern of a transfer to the customer.
IV. A promise that is implied by the entity’s customary business practices which, the
contract inception, creates a valid expectation on the part of the customer that the
entity will satisfy the promise
All of these (choices presented: a-I only; b-I and II; c-I, II, and III)

4. A good or service is distinct if:


I. 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.
II. The promise to transfer the good or service is separately identifiable from other
promises in the contract.
I and II
5. Revenue is recognized when (or as) the entity satisfies a performance obligation. According
to PFRS 15, revenue is measured at the amount of the transaction price allocated to the
performance obligation satisfied.
6. According to PFRS 15, the transaction price is allocated to each performance obligation
identified in a contract based on the relative stand-alone prices of the distinct goods or
services promised to be transferred.
7. According to PFRS 15, revenues from a performance obligation that is satisfied over time are
recognized over time as the entity progresses towards the complete satisfaction of the
obligation.
8. ABC Co. enters into a contract with XYZ, Inc. to deliver 2 apples, 3 mangoes, and 5 potatoes
for a total consideration of 100. In accounting for the contract, which of the following is
probably not true? No revenue is recognized until all of the 2 apples, 3 mangoes, and 5
potatoes are delivered even though the 2 apples were delivered first before the mangoes
and potatoes.

Common questions

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According to PFRS 15, revenue from a performance obligation that is satisfied over time is recognized over time as the entity progresses towards the complete satisfaction of the obligation .

Under PFRS 15, a contract with a customer is eligible for revenue recognition if both contracting parties acknowledge, whether explicitly or implicitly, the rights and obligations created under the contract .

The key steps for revenue recognition under PFRS 15 are: 1) Identify the performance obligation in the contract, 2) Recognize revenue when (or as) the entity satisfies a performance obligation, 3) Determine the transaction price, 4) Allocate the transaction price to the performance obligations in the contract. The correct sequence is IV, I, III, V, II .

Under PFRS 15, the transaction price is allocated to each performance obligation identified in a contract based on the relative stand-alone prices of the distinct goods or services promised to be transferred .

PFRS 15 requires that when goods or services are bundled, each component must be evaluated for distinctness. If distinct, revenue for each component is recognized separately based on its stand-alone selling price, impacting both the timing and pattern of revenue recognition within bundled arrangements .

According to PFRS 15, a good or service is considered distinct if: 1) 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 2) The promise to transfer the good or service is separately identifiable from other promises in the contract .

A company must demonstrate that each promised good or service in the contract is distinct, meaning the customer can benefit from it on its own or with other readily available resources, and that it is separable from other promises in the contract .

Under PFRS 15, a performance obligation that can be accounted for separately includes: 1) A promise to transfer a distinct good or service, 2) A promise to transfer a distinct bundle of goods or services, 3) A promise to transfer a series of distinct goods or services that are substantially the same and have the same pattern of transfer. Additionally, a promise implied by business practices that creates a valid expectation can also be considered .

PFRS 15 acknowledges implicit promises as performance obligations that can arise from customary business practices. If a contract creates a valid expectation on the customer's part that an entity will satisfy a promise—even if not explicitly stated—it must be considered when recognizing revenue .

It might be incorrect to not recognize revenue upon partial delivery of goods because, under PFRS 15, revenue is recognized when (or as) performance obligations are satisfied. If the goods that are delivered first are deemed distinct and independently beneficial to the customer, revenue associated with those goods should be recognized at the time of delivery, subject to the contract's terms and conditions .

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