State the 5 steps to revenue recognition using a diagram that you develop. The diagram should include the steps and rule/definitions pertaining to each step. There should also be a place for explaining differences between IFRS 15 and ASC 606
In two sentences, state two differences between IFRS 16 and ASC 606 that you believe are significant differences that never the two shall converge. In one additional sentence explain why.
Complete the following two examples.
Assessment based on goods or services to be transferred. Company C contracts with Customer D to sell 1,000 units for a fixed price of 1 million. D has a poor payment history and often seeks price adjustments after receiving orders and so C assesses that it is probable that it will collect only 70% of the amounts due under the contract. Based on its assessment of the facts and circumstances, C expects to provide an implicit price concession and accept 70% of the fixed price from D. Is the collectability probable? Explain in 2 sentences or less
2. Significant financing component: Change in expected completion date.
Company K enters into a contract with Customer C to construct and deliver a piece of equipment. K determines that the contract contains a single performance obligation that is satisfied at a point in time when the equipment is delivered to C. Construction is expected to take two years. K and C agree consideration of 80, which is payable and paid on the date the contract is signed. At contract inception, K considers the terms of the sale and determines that the contract includes a significant financing component because: – there is a significant period between payment and delivery of the asset; – the asset is regularly sold at a higher price; and – there is no evidence to suggest the advance is for another reason. K determines the discount rate, based on its credit characteristics, to be 12%. Therefore, to reflect the financing that it is receiving from the advance payment, K recognises interest expense of 20 in the construction period and revenue of 100 (80 × 1.122) on the delivery date. After Year 1, K determines that the construction will take three rather than two years. Should K record a revised transaction price and date? Answer each question (price and date) with a one-sentence explanation for each.