The Principles and Policies of Revenue Recognition

REVENUE RECOGNITION; PRINCIPLES AND POLICIES.
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AASB 15 PRINCIPLES
Core principle
(1) Recognize revenue that reflects the transfer of promised goods or services
(2) The amount is the consideration that an entity expects and is entitled to when there is transfer of goods or services.
Step 1: Identifying the contract
A company needs to recognize the contract with one or more customers.
Each entity accounts for a contact with a customer considering the scope of AASB 15
The parties involved approve the contract and are committed to perform their respective obligations.
Criteria
b) There is identification of each party’s rights on the goods or services to be transferred;
(c) The entity identify the payment terms if necessary
(d) The contracts must have commercial substance
(e) An entity is entitled to a consideration for the exchange for the goods or services to be transferred
Step 2: Identifying the performance obligations
(1)Promises in contracts
(2)Distinct goods or service
Step 3: Determining the transaction price
(1)Variable consideration
(2)Financing component in the contract
(3)Non-cash consideration
(4)The consideration payable to a customer
Step 4: Allocating the transaction price
(1)Allocation focusing on the stand-alone selling prices
(2)Allocation of a discount
(3)Allocation of variable consideration
Step 5: Recognizing the revenue
Promise to transfer goods or services to customers based on the consideration, e...