Revenue Recognition
Revenue Recognition
For each performance obligation satisfied In determining the appropriate method for
over time, an entity shall recognize revenue measuring progress, an entity shall consider
over time by measuring the progress the nature of the good or service that the
towards complete satisfaction of that entity promised to transfer to the customer.
performance obligation. An entity shall
apply a single method of measuring As circumstances change over time, an
progress for each performance obligation entity shall update its measure of progress
satisfied over time and the entity shall to reflect any changes in the outcome of the
apply that method consistently to similar performance obligation. Such changes to an
performance obligations and in similar entity's measure of progress shall be
circumstances. At the end of each reporting accounted for as a change in accounting
period, an entity shall remeasure its estimate in accordance with PAS 8
progress towards complete satisfaction of a Accounting Policies, Changes in Accounting
performance obligation satisfied over time. Estimates and Errors.
OTHER REVENUE RECOGNITION ISSUES 2 Customer does not have the option to
purchase a warranty separately
SALE WITH A RIGHT OF RETURN
Gwezza a Assurance-type warranty - an entity shall
Gwezza Lou account for the warranty in accordance with
Revenue Recognition (PFRS 15) PAS 37 Provisions, Contingent Liabilities and
Contingent Assets
Auditing P... Auditing T. Financial FAR and AF
Others bService-type warranty - the promised
service is a performance obligation and an
Home Advanced Financial Accounting and entity shall allocate the transaction price to
Reporting/AFAR Pre-recorded the product and the service
Content/Concepts Summaries/Revenue
Recognition (PFRS 15) An entity shall also consider the following:
9 1. Principal
/ Advanced Financial Accounting and When (or as) an entity that is a principal
Reporting / AFAR Pre-recorded satisfies a performance obligation, the
Content/Concepts Summaries / Revenue entity recognizes revenue in the gross
Recognition (PFRS 15) amount of consideration to which it expects
to be entitled in
a Warranty is required by law - the
promised warranty is not a performance exchange for the specified good or service
obligation because such requirements transferred. Indicators that an entity
typically exist to protect customers from the controls the specified good or service
risk of before it is transferred to the customer
purchasing defective products, Length of 2 the entity has inventory risk before the
the warranty coverage period - the longer specified good or service has been
the coverage period, the more likely it is transferred to a customer or after transfer
that the promised warranty is a of control to the customer
performance obligation because it is more
likely to provide a service in addition to the 3 the entity has discretion in establishing
assurance that the product complies with the price for the specified good or service.
agreed-upon specifications.
2. Agent
telecommunication contracts, setup fees in
An entity is an agent if the entity's some services contracts and initial fees in
performance obligation is to arrange for the some
provision of the specified good or service by
another party. supply contracts.
When (or as) an entity that is an agent The upfront fee is an advance payment for
satisfies a performance obligation, the future goods or services and, therefore,
entity recognizes revenue in the amount of would be recognized as revenue when those
any fee or commission to which it expects to future goods or services are provided If the
be entitled in exchange for arranging for the non-refundable upfront fee relates to a
specified goods or services to be provided good or service, the entity shall evaluate
by the other party. whether to account for the good or service
as a separate performance obligation
An entity's fee or commission might be the
net amount of consideration that the entity LICENSING
retains after paying the other party the
consideration received in exchange for the A license establishes a customer's rights to
goods or services to be provided by that the intellectual property of an entity.
party. Licenses of intellectual property may
include, but are not limited to, licenses of
NON-REFUNDABLE UPFRONT FEES (AND any of the following:
SOME RELATED COSTS)
Gwezza a software and technology,
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A Reviewer bmotion pictures, music and other forms of
media and entertainment;
Advanced... Auditing P... Auditing T...
Financial... FAR and AP Others franchises; and
Home Advanced Financial Accounting and If the promise to grant a license is not
Reporting/AFAR Pre-recorded distinct from other promised goods or
Content/Concepts Summaries / Revenue services in the contract, an entity shall
Recognition (PFRS 15) account for the promise to grant a license
and those other promised goods or services
NON-REFUNDABLE UPFRONT FEES (AND together as a single performance obligation.
SOME RELATED COSTS) Examples of licenses that are not distinct
from other goods or services promised in
Examples include joining fees in health club the contract include the following:
membership contracts, activation fees in
a license that forms a component of a in the contract and, therefore, the promise
tangible good and that is integral to the to grant the license is a separate
functionality of the good; and a performance obligation, an entity shall
determine whether the license transfers to
ba license that the customer can benefit a customer either at a point in time or over
from only in conjunction with a related time. In making this determination, an
service (such as an online service provided entity shall consider whether the nature of
by the entity that enables, by granting a the entity's promise in granting the license
license, the customer to access content). to a customer is to provide the customer
with either:
Promise to Grant a License is Distinct
1. Right to Access (RTA)
If the promise to grant the license is distinct
from the other promised goods or services • The nature of an entity's promise in
in the contract and, therefore, the promise granting a license is a promise to provide a
to grant the license is a separate right to access the entity's intellectual
performance property if all of the following criteria are
met a the contract requires, or the
ENG customer reasonably expects, that the
Gwezza entity will undertake activities that
Gwezza Lou significantly affect the intellectual property
Revenue Recognition (PFRS 15) to which the customer has
Advanced rights;
b the performance obligation to which some 2 an entity's right to repurchase the asset (a
or all of the sales-based or usage-based call option), and
royalty has been allocated has been
satisfied (or partially satisfied) 3 an entity's obligation to repurchase the
asset at the customer's request (a put
INO option).
Revenue Recognition (PFRS 15) If an entity recognizes revenue for the sale
of a product on a bill-and-hold basis, the
Advanced entity shall consider whether it has
remaining performance obligations (for
Auditing P example, for custodial services) to which the
entity shall allocate a portion of the
. Auditing T... Financial transaction price.
Home / Advanced Financial Accounting and 2 Continuing franchise fee - this represent
Reporting / AFAR Pre-recorded Content / continues payment to the franchisor for
Concepts Summaries/ Revenue Recognition providing specific future services, such as
(PFRS 15) advertising, and for continued use of
intangible rights by the franchisee;
Franchise recognized as revenue when continuing
services are rendered.
Franchise involves the grant from the
business owner (franchisor) to the applicant Franchise Cost
(franchisee), the legal rights to obtain the
trade name, market the service or goods 1 Initial direct cost - necessary cost to
and operate the business with an equivalent transfer the franchise and the know-how
of a one-time fee. Franchise is under license embodied in it. 2 Indirect cost-cost that
agreement under PFRS 15. cannot be traced to a particular franchise
contract; expensed in the period incurred
Franchise Fee Gwezza
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1. Initial franchise fee-contractual CPA Reviewer
consideration for the franchise and initial
services to be rendered by the franchisor. Revenue Recognition (PFRS 15)
The initial services rendered by the
franchisor prior to the opening of the Advanced ... Auditing P... Auditing T...
franchisee's operations usually include the Financial
following:
FAR and AP Others
a Assistance in site selection for the
construction of the building. 9
Home / Advanced Financial Accounting and Franchise Cost
Reporting / AFAR Pre-recorded
Content/Concepts Summaries / Revenue 1 Initial direct cost - necessary cost to
Recognition (PFRS 15) transfer the franchise and the know-how
embodied in it.
Franchise Fee
2 Indirect cost-cost that cannot be traced to
1 Initial franchise fee contractual a particular franchise contract; expensed in
consideration for the franchise and initial the period incurred
services to be rendered by the franchisor.
The initial services rendered by the Franchise under PFRS 15 is under Licensing
franchisor prior to the opening of the and accounted depending whether it is
franchisee's operations usually include the classified as right to use or right to access
following: