Intermediate Accounting

13th Canadian Edition, Volume 1

Kieso ● Weygandt ● Warfield ● Wiecek ● McConomy

Chapter 6

Revenue Recognition

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Copyright ©2022 John Wiley & Sons, Canada, Ltd.

Chapter 6: Revenue Recognition (LO 1 to LO 6)
After studying this chapter, you should be able to:
1. Understand the economics and legalities of selling
transactions from a business perspective.
2. Identify the five steps in the revenue recognition process.
3. Identify the contract with customers.
4. Identify the separate performance obligations in the
contract.
5. Determine the transaction price.
6. Allocate the transaction price to the separate
performance obligations.

Copyright ©2022 John Wiley & Sons, Canada, Ltd. 2

Chapter 6: Revenue Recognition (LO 7 to LO 11)
7. Understand how to recognize revenue when the company
satisfies its performance obligation.
8. Analyze and determine whether a company has earned
revenues under the earnings approach.
9. Identify other revenue recognition issues.
10. Identify how revenues should be presented, disclosed,
and analyzed.
11. Identify differences in accounting between IFRS and ASPE
and potential changes.

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Understanding the Nature of Sales
Transactions from a Business
Perspective
• Much of the complexity of accounting for revenues comes
from the way sales transactions are structured
• In most selling transactions, an entity gives up one asset in
exchange for another
• Recording the transaction—on the SFP and income
statement—involves deciding when to recognize it, how to
measure it, and how to present it
• To account for transactions properly, it is important to
understand the business an entity is engaged in

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Economics of Sales Transactions
• Certain economic attributes underlie most sales
transactions
o The physical nature
o The reciprocal nature
o Concessionary terms
• Understanding why these attributes matter for
accounting purposes could clear up some of the
complexities around accounting for revenue

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The Physical Nature of Sales
Transactions
• Sales transactions involve the transfer of goods, services, or
both (known as deliverables)
• Sales of goods and sales of services are different
Sales of Goods Sales of Service
Tangible assets Not tangible assets
Definite point when control Possession, legal title are
passes—indicated by transfer of irrelevant—depends on when the
legal title and possession service is rendered
Usually viewed as “one-time” Often spans more than one period

• Transactions that involve both goods and services add

complexity—how/when to recognize revenue; goods may be
transferred before the service is rendered
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Reciprocal Nature of Sales Transactions
• Most business transactions are reciprocal: some
consideration is provided in exchange for goods or services
o Monetary—cash or cash-like
o Non-monetary—another good or service
• When the transaction is at arm’s length (between unrelated
parties) and reciprocal, usually the

Value of what is given up = Value of what is received

• Sales agreements that specify the transaction parameters aid in

revenue recognition and measurement

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Other Elements of Reciprocal
Transactions
• There is an element of credit risk involved—especially if
the exchange involves extending credit
• Bartering or if only nonmonetary consideration is
exchanged—should it be recorded as a sale? How should
it be measured?
o The transaction must have commercial substance,
(meaning it is a legitimate sale) to be recognized
o Exchanging similar assets (e.g., swapping inventory) would
not be considered a sale
• There is the risk that the price of the asset will change,
which is called price risk
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Concessionary Terms of Sales
Transactions
• Concessionary terms are terms negotiated by a party to the
contract that are more favourable than normal
• The terms may create additional obligations, or may indicate
that control has not passed to the buyer
• In turn, this may give rise to additional recognition and
measurement risk
• Need to differentiate between what is normal and what is
abnormal in terms of business practices
• Some practices (like deep discounts) may be a normal part of
one company’s marketing strategy, but abnormal for other
entities

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Normal versus Concessionary Terms
Examples of Normal Selling Terms Examples of Concessionary Selling Terms
Selling price Selling price reflects a normal profit Selling price is deeply discounted.
margin for the company for that product.
Payment terms Sell for cash or on credit. If credit, Any terms that are more lenient than this; for
payment is usually expected within 30 example,
to 60 days. • Selling on credit where the buyer does
not have to pay for 90 days or more, or
• Instalment sales where these are not
normal industry practice.
Extension of credit Sell to customers that are creditworthy. Sell to customers that are riskier than the
existing customer base.
Shipping terms Ship when ordered and ready to ship. Ship at a later date; for example, the entity
may hold the inventory in its warehouse for
an extended period.
Other terms Once shipped and legal title passes, no Extended right of return/warranty period,
continuing involvement except for cash flow guarantee on future rental of
normal rights of return and/or standard building sold, profit guarantees on future
warranties. resale, or buyback provisions.

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Legalities of Sales Transactions—
Contract Law
• The act of entering into a sales agreement creates legal
rights and obligations for both the entity and the
customer
• An entity is bound by the terms of the contract and it can
be enforced
• Some contractual rights and obligations may meet the
definition of assets and liabilities
• A contract usually establishes the substantive terms of
the deal (including when title is considered passed)—
which helps with recognition and measurement issues

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Legalities of Sales Transactions—
Constructive Obligation
• Constructive obligations that arise without the existence of a
contract or having been explicitly noted in a contract
• May be created through past practice (raising expectations)
or by signalling something to potential customers
• They are enforceable under law

Any enforceable promise that results from a sale (whether

implicit or explicit) may create a performance obligation that
needs to be recognized in the statement of financial position.

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Revenue Recognition: An Overview
• There are two approaches to recognizing revenue:
o The asset-liability approach (or contracts-based
approach) as adopted by IFRS (IFRS 15)
§ Accounts for revenue based on the asset or liability
arising from contracts with customers or changes to
assets and liabilities
o The earnings approach as followed under ASPE
§ Recognizes and measures revenue based on whether
it has been earned
§ The performance obligation is satisfied when there is
a change in control from the seller to the customer

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Key Concepts of Revenue Recognition
FIVE-STEP PROCESS FOR REVENUE
RECOGNITION
KEY OBJECTIVE 1. Identify the contract with customers.
Recognize revenue to depict the 2. Identify the separate performance
transfer of goods or services to obligations in the contract.
customers in an amount that
3. Determine the transaction price.
reflects the consideration that
the company receives, or 4. Allocate the transaction price to the
expects to receive, in exchange separate performance obligations.
for these goods or services. 5. Recognize revenue when each
performance obligation is satisfied.
REVENUE RECOGNITION PRINCIPLE
Recognize revenue in the accounting period when the performance obligation is
satisfied.

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Identifying the Contract with
Customers – Step 1
• A contract is an agreement between two or more parties
that creates enforceable rights or obligations
• The combination of the rights and performance
obligations set out in a contract gives rise to a (net) asset
or (net) liability
• A company does not recognize contract assets or
liabilities, nor is a journal entry prepared, until one or
both parties perform their contracted obligations

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Contract Criteria for Revenue Guidance
Apply IFRS 15 to Contract if: Disregard IFRS 15 if:
• The contract has commercial substance. • The contract is wholly
• The parties in the contract have approved unperformed and
the contract and are committed to perform • Each party can
their respective obligations. unilaterally terminate
• The company can identify each party's the contract without
rights regarding the goods or services to be compensation.
transferred.
• The company can identify the payment
terms for the goods and services to be
transferred.
• It is probable that the company will collect
the consideration to which it will be
entitled.

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Accounting for a Basic Revenue
Transaction—Step 1
PiP 6.7 On March 1, 2023, Margo Company enters into a contract
to transfer a product to Soon Yoon on July 31, 2023. Soon Yoon is
required to pay the full contract price of $5,000 on August 31,
2023. The cost of goods transferred is $3,000. Margo delivers the
product to Soon Yoon on July 31, 2023.
On March 1: contract is identified; no journal entry
On July 31: sale is recorded to accounts receivable, COGS
Step 1: Identify the A contract is an agreement between two
contract with parties that creates enforceable rights or
customers obligations. In this case, Margo Company has
a contract to deliver a product to Soon Yoon.

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Identifying the Contract and Contract
Modifications

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Identifying Separate Performance
Obligations – Step 2
• Performance obligation is a promise to provide a
product or service to the customer
o Promise may be explicit, implicit or possibly based on
customary business practice
o The product or service must be distinct (the customer
can separately benefit from it)
• If a performance obligation in a multi-obligation
contract is distinct within the contract, then it should
be accounted for separately

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Multiple Goods and Services—Multiple
Performance Obligations
PiP 6.9 Genus Motors sells an automobile to Marquart Auto
Dealers at a price that includes six months of telematics services
such as navigation and remote diagnostics. These telematics
services are regularly sold on a stand-alone basis by Genus Motors
for a monthly fee. After the six-month period, the consumer can
renew these services on a fee basis with Genus Motors.
Step 2: Identify the There are two performance obligations in this
separate contract that are distinct and not
performance interdependent. The customer can benefit
obligations in the from the use of both the car and the service
contract on their own.

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Multiple Goods and Services—One
Performance Obligation
PiP 6.10 Soft Tech Inc. sells customer-relationship software to
Lopez Company. In addition to providing the software itself, Soft
Tech promises to perform consulting services, extensively
customizing the software to Lopez’s information technology
environment, for a total consideration of $600,000.

Step 2: Identify the In this case, the customized software and

separate consulting services have been integrated into
performance one combined item. Even though they are
obligations in the distinct, they are interdependent (one cannot
contract be sold without the other) so should be
accounted for as one performance obligation.

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Material Rights
• Sometimes a sale includes an option to acquire a future
good or service (e.g., loyalty points, coupons) for free or
at a reduced price
• Material Right: a right that the customer would not
otherwise have been entitled to
• Should be considered as two separate performance
obligations:
o the current sale and the future sale
• Revenue related to the option is deferred
• Unredeemed amounts are called breakage

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Multiple Goods and Services—
Customer Loyalty Programs
PiP 6.11 An airline offers 1,000 points on a prepaid flight for
$1,000. Redemption is estimated to be 90%. The stand-alone
value of the points is $50 (taking into account breakage) and the
value for the flight is $980.

Step 2: Identify the The airline is offering two services: the

separate current flight and the future flight. The
performance material right is the discount on the future
obligations in the flight. The flight and the points represent
contract separate performance obligations. The
$1,000 is allocated proportionately.

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Warranties
• Companies often provide two types of warranties:
Warranty Type Description Accounting Treatment
Assurance Provides assurance that the Represents a cost of
product meets agreed-upon selling the product
specifications in the contract Recognize a warranty
at the time the product is sold liability for after-sale
(quality guarantee) expenses
Service Provides an additional service Represents a separate
beyond the assurance-type performance
warranty obligation
Recognizes revenue in
the period the
warranty is in effect

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Multiple Goods and Services—
Warranties
PiP 6.12 A computer company manufactures and sells computers
that include a warranty to make good on any defect in its
computers for 120 days. In addition, they sell separately an
extended warranty, which provides protection from defects for
three years beyond the 120 days.

Step 2: Identify the The sale of the computer and related

separate assurance warranty are one performance
performance obligation because they are interdependent
obligations in the and interrelated. The extended warranty is a
contract second obligation because it is sold separately
and is not interdependent.

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Upfront Fees
• Upfront fees are payments received before a product is
delivered or a service is performed (e.g., a membership
fee that provides a significant discount on future annual
fees)
• Theoretically, this is a material right to future benefits
and would be considered a separate obligation
• Under IFRS 15, treated as one performance obligation—
because it is difficult to determine the stand-alone value
of the future benefit

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Multiple Goods and Services—
Initiation Fees as One Performance
Obligation
PiP 6.14 A customer signs a one-year contract with a health club.
There is an initiation fee of $200 plus a monthly membership fee
of $50. From experience, the club knows members usually renew
twice before cancelling their membership.
Step 2: Identify the The membership fee would be viewed as a
separate single performance obligation to be delivered
performance over a period of three years. The single
obligations in the obligation consists of providing the same
contract services each month for three years. (See next
slide)

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Series of Goods and Services that are
Substantially the Same
• Some long-term contracts provide a series of goods
or services that are substantially the same over the
life of the contract
• Example: a two-year contract to provide monthly
payroll processing services
• Under IFRS, this is treated as one performance
obligation if
o The services are substantially the same
o The customer receives the same benefit each period

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Determining the Transaction Price—
Step 3
• Transaction price is the amount of consideration that
a company expects to receive from a customer in
exchange for transferring goods or services
o Transaction price is usually stated within the contract
o In other contracts consider
• variable consideration
• time value of money
• non-cash consideration
• consideration paid or payable to customers
o Factors addressed in IFRS; little guidance from ASPE

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Variable Consideration
• Sometimes the transaction price is dependent on future events
• Companies estimate the amount of consideration to determine
the revenue to record—called variable consideration—using
two methods

Expected value Most likely amount

Probability-weighted amount in The single most likely amount in a
a range of possible amounts range of possible outcomes
Use with a large volume of May be appropriate if there are
contracts that are similar only two outcomes
Based on a limited number of
discrete outcomes/possibilities

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Transaction Price—Variable
Consideration (with Both Methods)
PiP 6.15 Contract to build a warehouse for $100,000, with a
performance bonus of $50,000 that decreases by 10% for every
week past the contracted completion date. Management
estimates: 60% chance it will be completed on time; 30% chance
it will be one week late; 10% chance it will be two weeks late.

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Variable Consideration: Right of Return
• Right of return obligates the seller to allow the
customer to return goods for a refund, a credit or an
exchange
• Seller must recognize
o Revenue from the sale of the product (considering
the possibility of future returns)
o A refund liability
o An asset (and adjustment to cost of sales) to
recognize recovery to inventory
• Accounting treatment differs between IFRS and ASPE

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Transaction Price—Right of Return
PiP 6.16 Venden Company sells 100 products for $100 each to
Amaya Inc. payable in 30 days. Venden allows Amaya to return
any unused product within 30 days and receive a full refund. The
cost of each product is $60. Based on past experience, Venden
estimates three products will be returned.
The amounts used are the same under IFRS and ASPE
• Revenue: $9,700 ($100 x 97)—products that will not be
returned
• Cost of sales: $5,820 ($60 x 97)—cost of the products that will
not be returned
• Refund liability: $300 ($100 x 3)—products expected to be
returned
• An asset: $180 ($60 x 3)—products that will be recovered and
returned to inventory
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Transaction Price—Right of Return
Journal Entries (IFRS)

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Transaction Price—Right of Return
Journal Entries (ASPE)

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Variable Consideration: Volume
Discounts
• Some customers may be given a volume discount when buying
large amounts
• Revenues should be reduced if it is probable the discount will
be provided

IFRS ASPE
When the Dr. Revenue Dr. Sales Returns and Allowances
discount is Cr. Contracts Liability Cr. Allowance for Sales Returns and
probable Allowances
When the Dr. Contracts Liability Dr. Allowance for Sales Returns and
discount is Cr. Accounts Receivable Allowances
provided Cr. Accounts Receivable

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Variable Consideration Criteria
• Companies allocate variable consideration only if
entitlement is reasonably assured that it will be
entitled to it
• Two criteria must be met:
o They have experience with similar contracts and are
able to estimate the cumulative amount of revenue
o Based on experience, it is highly probable that there
will not be a significant reversal of revenue previously
recognized
• Uncertain amounts are not included until the
uncertainty is resolved
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Time Value of Money
• Usually, the time value of money is considered only if
the contract involves a significant financing
component
• When a sales transaction involves a significant
financing component, the amount of revenue is
determined by discounting the payments
• The discount rate reflects the customer’s credit risk
• Report the effects as either interest expense or
interest revenue
• No explicit requirement under ASPE, but it is implied
by using the fair value model for valuation
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Non-cash Consideration
• When companies receive consideration in the form
of goods, services, or other non-cash consideration,
they will recognize revenue based on the fair value
of what is received
• If customers contribute goods or services to fulfil a
contract, it should be treated as a non-cash
consideration and included in the transaction price,
as long as control has passed to the company

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Consideration Paid or Payable
• Consideration paid or payable covers items like
vouchers, coupons or gift cards
• The impact is to reduce the consideration received
and the revenue to be recognized
• E.g., gift cards: At the time of the sale, the company
sets up a contract liability for the value
• To account for breakage, when the gift card is used,
revenue is increased by a factor based on past
redemption experience

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Allocating the Transaction Price to
Separate Performance Obligations –
Step 4
• Transaction prices are allocated to more than one
performance obligation in a contract based on their
relative fair values
o The best measure of fair value is what the company could
sell the good or service for on a stand-alone basis (stand-
alone selling price)
o If this information is not available, best estimates are used
o All information that is available (like market conditions
and type of customer) should be used; in particular,
observable information
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Estimating Stand-Alone Selling Price
• How to calculate stand-alone prices (in preferred order of use)
Allocation Approach Implementation
Adjusted market Estimate the price that customers purchasing
assessment approach the goods or services will pay. The company
might also look at competitor prices for similar
goods or services.
Expected cost plus a margin Forecast expected costs and add a reasonable
profit margin.
Residual approach Use where the selling price is highly variable or
uncertain. Estimate the stand-alone selling
price by starting with the total price for the
contract and deducting the observable selling
prices of other items being sold.

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Allocation of Transaction Price—
Bundled Sale (1)
• When the sum of the value of each good/service in a
bundle is greater than the transaction price …
o the total revenue (transaction price) should be
allocated to the separate performance obligations
based on their relative value
PiP 6.23

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Allocation of Transaction Price—
Bundled Sale (2)
• When the selling price of a bundle is less than the
individual stand-alone prices due to a specific
component …
o the discount should be allocated to the performance
obligation that is causing the discount, and not to the
entire bundle
PiP 6.24 Comparing the two separate bundles 1&2&3 2&3
(one with the performing obligation 1 and one Bundled Bundled
without) we can determine the $100 discount Bundled Purchased Price $ 650.00 $ 550.00
Stand-alone prices:
applies to performance obligations 2 & 3.
Performance Obligation 1 100.00
Allocation of $650 would be:
Performance Obligation 2 525.00 525.00
Performance obligation 1, $100 Performance Obligation 3 125.00 125.00
Performance obligations 2 & 3, $550 $ 750.00 $ 650.00

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Recognizing Revenue when (or As) Each
Performance Obligation is Satisfied—
Step 5
• A company satisfies its performance obligation when the
customer obtains control of the good or service
• Indicators of control:
o The company has a right to payment for the asset
o The company has transferred legal title to the asset
o The company has transferred physical possession of the
asset
o The customer has significant risks and rewards of
ownership
o The customer has accepted the asset
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When to Recognize Revenue
• Companies satisfy performance obligations either at
a point in time or over a period of time
• (IFRS) Companies recognize revenue over a period of
time if one or more of the following criteria are met:
o The customer receives and consumes the benefits as
the seller performs
o The customer controls the asset as it is being created
or enhanced
o The company does not have an alternative use for the
asset created or enhanced, and the amount is
collectible

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Recognizing Revenue—Progress
Towards Completion
• A company recognizes revenue from a performance
obligation over time by measuring the progress towards
completion
• Method should depict the transfer of control
• Objective is to measure the extent of progress of costs,
units or value added
o Input measures: efforts devoted to a contract
o Output measures: track results
• Most popular input measure is cost-to-cost basis
o Comparing costs incurred to date with the most recent
estimate of total contract costs
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Recognition—Satisfying a Performance
Obligation over Time
PiP 6.26 Two-year contract for cleaning services on a monthly basis
On January 1, Dandy signed a two-year contract for $30,000 with
$6,000 being paid January 31 and the rest monthly at $1,000 per
month (end of month).
• One performance Up-front payment required $ 6,000
obligation over time Monthly payments (24 x $1,000) 24,000
• Total contract price is Total cost of the contract $ 30,000
divided evenly over the Revenue per month ($30,000/24) $ 1,250
two years

Journal entry on January 31:

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Recognizing Licensing Revenue: At a
Point in Time or Over Time?
• When to recognize licensing revenue:

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Summary of the Five Step Revenue
Recognition Process—Steps 1, 2
Step in Process Description Implementation
1. Identify the A contract is an agreement that creates A company applies the revenue guidance to
contract with enforceable rights or obligations. contracts with customers and must determine if
customers. new performance obligations are created by a
contract modification.
2. Identify the A performance obligation is a promise A contract may be composed of multiple
separate in a contract to provide a product or performance obligations. The accounting for
performance service to a customer. A performance multiple performance obligations is based on
obligations in obligation exists if the customer can evaluation of whether the product or service is
the contract. benefit from the good or service on its distinct within the contract. If each of the
own or together with other readily goods or services is distinct, but is
available resources. interdependent and interrelated, these goods
and service are combined and reported as one
performance obligation.

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Summary of the Five Step Revenue
Recognition Process—Steps 3, 4, 5
Step in Process Description Implementation
3. Determine the The transaction price is the amount of ln determining the transaction price,
transaction price. consideration that a company expects companies must consider the following
to receive from a customer in factors: (1) variable consideration, (2) time
exchange for transferring goods and value of money, (3) non-cash consideration,
services. and (4) consideration paid or payable to the
customer.
4. Allocate the If more than one performance The best measure of value is what the good or
transaction price to obligation exists, allocate the service could be sold for on a stand-alone
the separate transaction price based on relative fair basis (the stand-alone selling price). Estimates
performance values. of stand-alone selling price can be based on (1)
obligations. adjusted market assessment (2) expected cost
plus a margin approach. or (3) a residual
approach.
5. Recognize revenue A company satisfies its performance Companies satisfy performance obligations
when each obligation when the customer obtains either at a point in time or over a period of
performance control of the good or service. time. Companies recognize revenue over a
obligation is period of time if (1) the customer controls the
satisfied. asset as it is created or (2) the company does
not have an alternative use for the asset.

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Earnings Approach to Revenue
Recognition
• Used under ASPE
• Revenues for sale of goods must meet all of the
following conditions
1. Risks and rewards of ownership are transferred to the
buyer or revenues are earned
2. Seller has no continuing involvement in, nor effective
control over, the goods sold
3. Costs and revenues can be reliably measured; and
4. Collectibility is probable

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Other Revenue Recognition Issues
• There are several situations where revenue
recognition issues arise
o repurchase agreements
o bill and hold
o principal-agent relationships
o consignments
• This discussion is based on IFRS 15 as ASPE has little
specific guidance in these areas

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Repurchase Agreements
Issue Description Implementation
Repurchase Seller has an Generally, if the company has an
agreements obligation or right obligation to repurchase the asset for an
to repurchase the amount greater than its selling price, then
asset at a later date the transaction is a financing transaction

• Raises the question, “Did the company actually sell

the asset?”; Was there a transfer of control?
• Likely control stays with the company if it intends to
repurchase
• Generally reported as a financing transaction
(borrowing) using a Contract Liability account

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Bill-and-Hold Arrangements
Issue Description Implementation
Bill and hold Results when the buyer is not Revenue is recognized depending
yet ready to take delivery but on when the customer obtains
takes title and accepts billing control of that product

• To establish transfer of control, and therefore recognize

revenue, all of these criteria have to be met
a. The reason to hold the inventory must be substantive.
b. The product must be identified separately and belong to
the customer.
c. The product must be ready to ship.
d. The company cannot use the product nor sell it to another
customer.
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Principal-Agent Relationships
• Performance obligations in a principal-agent
relationship
Principal Agent
To provide goods or perform To arrange for the principal to
services for a customer e.g., an provide goods or perform services
airline for a customer e.g., travel agency

• Amounts collected on behalf of the principal are not

revenue of the agent; revenue for the agent is the
amount of commission it receives
• The principal recognizes revenue when the goods
and services are sold to a third party
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Consignment Sales
• Manufacturers or wholesalers (consignors) deliver goods to
the dealer (consignee) but retain title until the goods are sold
• Accounting for consignment sales
o The consignee does not record the merchandise as an asset on
its books; inventory is carried on books of consignor
o Once the merchandise is sold, consignee has a liability for the
net amount due
o Consignee remits proceeds from sales to consignor after
deducting commission and chargeable expenses
o Consignor recognizes revenue when the remittance from the
consignee is received

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Contract Assets and Liabilities
• Contracts create two types of contractual rights and
obligations
o Unconditional rights to receive consideration—
performance obligation has been satisfied
• Reported as a receivable on the SFP
o Conditional rights to receive consideration—performance
obligation has not been satisfied or another obligation has
to be satisfied first
• Reported separately as contract assets on the SFP
• A contract liability is an obligation to transfer goods or
services to a customer for which the company has
received (or will receive) consideration from the customer
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Costs to Obtain and Fulfil a Contract

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Revenue Recognition Disclosure (IFRS)
Disclosure Type Requirements
Disaggregation of Disclose disaggregated revenue information in categories
revenue that depict how the nature, amount, timing, and
uncertainty of revenue and cash flows are affected by
economic factors. Reconcile disaggregated revenue to
revenue for reportable segments.
Reconciliation of Disclose opening and closing balances of contract assets
contract balances (such as unbilled receivables) and liabilities (such as
deferred revenue) and provide a qualitative description of
significant changes in these amounts. Disclose the amount
of revenue recognized in the current period relating to
performance obligations satisfied in a prior period (such as
from contracts with variable consideration). Disclose the
opening and closing balances of trade receivables if not
presented elsewhere.

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Revenue Recognition Disclosure (con’t)
Disclosure Type Requirements
Remaining Disclose the amount of the transaction price allocated to
performance performance obligations of any remaining performance
obligations obligations not subject to significant revenue reversal.
Provide a narrative discussion of potential additional
revenue in constrained arrangements.
Costs to obtain or Disclose the closing balances of capitalized costs to obtain
fulfill contracts and fulfill a contract and the amount of amortization in
the period. Disclose the method used to determine
amortization for each reporting period.
Other qualitative Disclose significant judgements and changes in
disclosures judgements that affect the amount and timing of revenue
from contracts with customers. Disclose how management
determines the minimum amount of revenue not subject
to the variable consideration constraint.

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A Comparison of IFRS and ASPE:
Recognition
IFRS 15 ASPE
Contract-based approach/Asset-Liability approach with Earnings approach
five steps (1) Identify contract; (2) Identify separate
performance obligations; (3) Determine transaction
price; (4) Allocate transaction price; (5) Recognize
revenue when performance obligation is satisfied
(when control passes)
Recognition when performance is
achieved (risks and rewards have
passed and services are rendered and
measurable) and collectible
Recognize revenue for each distinct performance Recognize over time for long-term
obligation at a point in time or over time contracts
If providing goods and services together, must consider
if performance obligations are interrelated (If they are,
treat as one performance obligation)

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A Comparison of IFRS and ASPE:
Recognition (con’t.)
IFRS 15 ASPE
Percentage-of-completion acceptable; may use zero- Use percentage of completion method or
profit method completed contract if no percentages
available
Assurance-type warranties are accrued as Warranty costs have historically been
costs/liabilities and service-type warranties are accrued as costs/ obligations when
treated as separate performance obligations (if sold revenues recognized. More recently, these
separately). may have been accounted for as bundled
sales (unearned revenues).

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A Comparison of IFRS and ASPE:
Measurement
IFRS 15 ASPE
Transaction price is the amount that the entity Recognize at transaction or consideration price,
expects to receive. which is generally assumed to be fair value
Greater emphasis is placed on using
measurement models to quantify risk/
uncertainty
Guidance is provided as to how to calculate Where payment is received over time, ASPE
discount rate where the sale is financed. If the notes that the amount should be discounted
term is less than one year, there is no need to using a prevailing market rate.
separate out the financing component.
Where variable consideration exists, revenue is
recognized only if it is highly probable that a
future reversal will not occur.

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A Comparison of IFRS and ASPE:
Measurement (con’t.)
IFRS 15 ASPE
The transaction price for transactions with The transaction price for transactions with multiple
multiple elements is allocated using relative elements is allocated using relative value or
value (although may estimate where not residual value method (choice).
available and may use residual method to
estimate). Specific guidance is given.
Where a right of return exists, a refund liability Where a right of return exists, sales returns and
is recognized. allowances are recognized as contra accounts to
revenues and accounts receivable.
IAS 41 deals with biological assets. It still stands Accounting for biological assets is dealt with in
because the proposed standard does not cover ASPE 3041.
these areas.

LO 11 Copyright ©2022 John Wiley & Sons, Canada, Ltd. 65

Looking Ahead
• In April 2017, the AcSB issued a Discussion Paper dealing
with the accounting issues, including revenue recognition,
in the agricultural industry in Canada. A new standard was
issued effective January 1, 2021.

LO 11 Copyright ©2022 John Wiley & Sons, Canada, Ltd. 66

Copyright
Copyright © 2022 John Wiley & Sons, Canada, Ltd.
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from the use of the information contained herein.

Copyright ©2022 John Wiley & Sons, Canada, Ltd. 67