Appendix II
Analysis of Contract Asset & Liability Rollforward Example (Paragraph IE 17)
Analysis of Journal Entries Comprising Rollforward
Balance Sheet
Contract
Asset
Balance at 1/1/20X1
$
-
$
Contract
Liability
(2,000)
Amounts Recognised As Receivables (Amounts Sold on Account?)
Cash Sales
Satisfaction of Performance Obligation Related to Contract Liability
Previously Satisfied Performance Obligations
Collect Cash on Performance Obligation Yet to Be Satisfied
Business Combination
Satisfy P.O. A, But Dependent Upon Satisfaction of P.O. B before Cash Due
Satisfy Dependent P.O. B (Amount Now Payable By Customer)
Collect Cash Associated with P.O. A Originally Classified as Contract Asset
Reversal of Revenue Related to P.O. A When P.O. B is Not Satisfied
$
3,000
$
$
(3,500)
(1,900)
Trade
Receivable
Cash
$
-
$
14,000
$
Revenue
-
$
$
1,000
$
3,500
500
$
4,000
$
$
-
$
$
Income Statement
$
$
-
$
$
-
Foreign Currency
Time Value
$
$
-
$
$
-
$
$
-
Balance at 12/31/20X0
$
4,500
$
(4,400)
$
14,000
Cash collected in advance was assumed to go to cash and contract liabilities.
Number was given.
$
-
$
-
$
$
-
-
-
Cash Collected on Amounts Sold on Account
$
$
$
14,000 This number was provided. It represents amount recognized as accounts receivable.
The caption could be misleading as most satisfied performance obligations are going to be booked directly to accounts receivable.
Few will go through contract assets and contract liabilities. However, this distinction cannot be discerned.
1,000 Number was given.
3,000 This number was derived based upon opening balance, cash collected in advance, business combinations and ending balances provided.
500 It has to be assumed that this relates to contract assets. This is not stated.
$
-
$
4,500
$
18,500 Amounts noted in pink are not the ending balances of A/R and Cash reflected in the financial statements.
They are simply the impacts to these accounts associated with this example.
Rollforward As Per Implementation Guidance
Rollforward
Net
Contract Asset &
Contract Liability
Contract Asset at January 1, 20X0
Contract Liability at January 1, 20X0
Net Contract Asset/(Liability) at January 1, 20X0
$
$
$
(2,000)
(2,000)
Revenue From Contracts With Customers
Performance Obligations Satisfied During the Reporting Period
Amounts Allocated to Performance Obligations Satisfied in Previous Periods
Total Revenue
$
$
$
18,000
500
18,500
Amounts Recognized as Receivables
$
Payments in Advance
Cash Sales
Effects of Business Combination
Foreign Currency
Time Value
Net Contract Asset/(Liability) at December 31, 20X0
$
$
$
$
Contract Asset at January 1, 20X0
Contract Liability at January 1, 20X0
Net Contract Asset/(Liability) at December 31, 20X0
$
$
$
$
Reconciliation to income statement necessitates the receivable and cash sales numbers being included despite them not being related to contract asset & contract liability accounts.
(14,000) Amount is included in the rollforward only to reduce the satisfied performance obligations. This amount may reflect amounts transferred from contract assets to A/R.
However, it also includes all amounts sold on account which did not flow through contract assets and contract liabilities and going directly to accounts receivable.
(3,500)
(1,000) Cash sales would never flow through contract assets and contract liabilities. Amount is included simply because total revenue reconciles to the income statement.
2,100
100
4,500
(4,400)
100
Rollforward Needed By Investors
Rollforward
of
Contract Asset
Contract Asset at January 1, 20X0
Contract Liability at January 1, 20X0
Net Contract Asset/(Liability) or Accounts Receivable at January 1, 20X0
$
$
$
-
Rollforward
of
Contract Liability
$
$
$
(2,000)
(2,000)
Rollforward
Accounts
Receivable
$
Cash
Sales
Revenue
Items noted in green are provided ("given") in the example.
Revenue From Contracts With Customers
Performance Obligations Satisfied During the Reporting Period
Amounts Allocated to Performance Obligations Satisfied in Previous Periods
Total Revenue
$
$
$
500
500
$
$
$
3,000
3,000
$
$
$
14,000
14,000
Amounts Recognized as Receivables
Payments in Advance
Cash Sales
Cash Collected
Effects of Business Combination
Foreign Currency
$
$
$
$
$
$
4,000
-
$
$
$
$
$
$
(3,500)
(1,900)
-
$
$
$
$
$
$
-
Net Contract Asset/(Liability) or Accounts Receivable at December 31, 20X0
$
4,500
$
(4,400)
$
14,000
Contract Asset at January 1, 20X0
Contract Liability at January 1, 20X0
Net Contract Asset/(Liability) at December 31, 20X0
$
$
$
4,500
(4,400)
100
$
$
$
1,000
1,000
$
1,000
Items noted in blue are derived numbers based upon given numbers.
$
18,000
Items noted in purple represent elements of the rollforward we would expect to see, but are not detailed in this example.
Note: A complete reconciliation of accounts receivable including the items noted in purple would be needed.
The lack of complete understanding of the contract assets transferred for collection or reversed, the amounts
transferred between A/R and contract assets and liabilities and the inclusion of the cash sales limits the usefulness
of the reconciliation.