what are the reporting and disclosure requirements for revenue recognition?
what are the reporting and disclosure requirements for revenue recognition=
Revenue Recognition – now replace with revenue from contract with customer . As per new standard , the objective of the disclosure requirement is for an organization need to disclose sufficient information to understand financial users stake holders about nature , amount and uncertainty of revenue and cash flow arising from the contract with customers.
Contains the accounting principles for all revenue arising from contract with customers – in this point IFRS 15 is converged with US GAAP .
Under revenue recognition , company need to disclose both Quantitative and Qualitative information in the financial statement .
In the financial specific disclosure requirement , like :
Contract with customers .
Disaggregation of reported revenue
Information balances of Contract Asset and Contract Liability
Most important part is performance obligation , which includes :
As per new standard , there are five steps outlined for Revenue recognition like :
As per new standard , Company needs to follow above process to recognised revenue . As per IFRS 15 , Contract mean - an agreement between two or more parties which create rights and obligation .Where as under performance obligation , good and service or bundle of goods and service nust be distinct in nature . Another important step to determined transaction prices
As per 1st stage contract with customer includes – the contract has been approved by the parties to the contract . most important to note that the contract has a commercial substance and it is probable that the consideration to which the entity in exchange of goods or service will be collected
Any modification in contract should be treated as separate contract with the customer .
Performance obligation can be satisfied over the period of time . As per standard , the customer can benefited from goods and services on its own or in connection with other readily available resources
Third stage is determined transaction price – This transaction price includes “ variable Consideration” . Variable consideration includes discounts , rebates , refunds , credits price concession , incentive , performance , bonuses penalties
Most important point to note that variable consideration in only included in the transaction price which is highly probable that its inclusion will not result in a significant reversal in revenue in near future
when the uncertainty has been subsequently resolved
Step 4 mainly relates to allocate the transaction price to the performance obligation in the contracts :
In case of contract with multiple performance obligation , an entuty allocate the transaction price among performance obligation on the basis of standalone selling price . In case standard sellig price not available then company can approach cost + margin approach , residual approach etc
Any overall discount compared to he aggregator of standalone selling price is allocated among standalone selling price basis
Step 5 – last part is recognised revenue – Company either recognised revenue at upfront basis or over the period basis . Revenue recognition over the time period when following condition will satisfy :
The entity performance creates or enhance as asset .
At final statge , the entity has a present right to payment for the asset ,
The customer has legal title to the asset
The entity has transferred physical possession of the asset
Significant risk and reward has been transferred
Finally customer has accepted the asset
As per new IFRS standard , contract cost – the incremental cost of obtaining a conytract must e recognised as an asset if the entity expects to recover those costs
Under financial statement – disclosure – contract Liability represents where a customer has paid an amount of consideration prior to the entity performing by transferring goods and service to the customer
what are the reporting and disclosure requirements for revenue recognition?
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