AFAR 03: REVENUE RECOGNITION
STEP 5: Recognize revenue when or as performance obliga:ons
are sa9sfied ® to know the sa:sfac:on of the
performance, look for who is in
“control”
✤Revenue can be
1. Physical possession
recognized:
2. Accepted by buyer
3. Risk and reward
at a point
over
4. Obliga:on for payment
in :me
:me
5. Legal Title
• IFRS 15: REVENUE FROM CONTRACT WITH CUSTOMERS
êFIVE STEPS MODEL:
STEP 1: Iden:fy the Contract
¯
- Commercial Substance
- Payment Terms are iden:fied
- Accepted by the customer
- Rights of both par:es are iden:fied
- Collec:on of the payment is probable
êRIGHTS OF THE BUYER
STEP 2: Determine the Performance Obliga:ons
STEP 3: Determine the Transac:on Price
used when there are
more than 2
outcome possibili:es
Time Value of Money
Variable Considera:ons
Expected
Value
Most Likely
Amount
used when there are
only exactly 2
outcome possibili:es
STEP 4: Allocate Transac:on Price to the Performance Obliga:ons
✤Stand-Alone Selling Price ® basis for alloca:on
¯
Op:ons for Alloca:on: (hierarchy)
1. Directly Observable Selling Price
2.1. Adjusted Market Approach
2.2. Es:mated Cost + Profit Approach
3. Residual Method
êWARRANTIES
Right to Use ® recognize revenue
at a point in 9me
Right to Access ® recognize revenue
over 9me
Assurance Warran:es ® combined with
the item
Extended Warran:es ® separate
performance
obliga:on
• LONG-TERM CONSTRUCTION CONTRACTS
TRANSACTION PRICE
TOTAL ESTIMATED COST TO COMPLETE:
Cost Incurred to Date
Es:mated Cost to Complete
ESTIMATED GROSS PROFIT
% OF COMPLETION
REALIZED GROSS PROFIT TO DATE
REALIZED GROSS PROFIT PRIOR YEARS
REALIZED GROSS PROFIT CURRENT YEAR
xx
xx
xx
xx
xx
%
xx
(xx)
xx
êCOMPUTATION OF % OF COMPLETION ® if problem is silent,
COST TO COST METHOD is used
CITD = % OF COMPLETION
TECC
êCOMPUTATION OF CONSTRUCTION REVENUE:
[(TRANSACTION ₱ x % OF COMPLETION) – PY CONSTRUCTION REVENUE]
êCONSTRUCTION IN PROGRESS, NET (CONTRACT ASSET/CONTRACT
LIABILITY) TEMPLATE FOR COMPUTATION:
êCONSTRUCTION IN PROGRESS, GROSS (FORMULAS ONLY FOR WHEN
USING COST-TO-COST METHOD:
• FRANCHISE
INITIAL FRANCHISE FEE
CONTINUING FRANCHISE FEE
TOTAL FRANCHISE REVENUE
INTEREST REVENUE
TOTAL REVENUE
• CONSIGNMENT SALES
êCONSIGNOR:
SALES REVENUE
COST OF GOODS SOLD
GROSS PROFIT
COMMISSION EXPENSE
OTHER PERIOD COSTS
NET PROFIT
xx
xx
xx
xx
xx
xx
(xx)
xx
(xx)
(xx)
xx
êCONSIGNEE:
SALES
COMMISSION
EXPENSES TO BE REIMBURSED
REMITTANCE
xx
(xx)
(xx)
xx