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Recognition of New Contract

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Dianne Torres
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8 views

Recognition of New Contract

Uploaded by

Dianne Torres
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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WITH IFRS 15: REVENUE FROM CONTRACTS CUSTOMERS

- Effectivity date is on January 1,2018.

IFRS 15 supersedes the following:

 IAS 11: Construction Contracts


 IAS 18: Revenue – malaki yung changes ng franchise at installment sales pagdating sa new IFRS.
Installment sales are no longer available in the new IFRS.
 IFRIC 13: Customer Loyalty Programmes – one of the activity of the company to search or
increase the sales.
 IFRIC 15: Agreements for the Construction of Real Estate
 IFRIC 18: Transfer of Assets from Customers
 SIC 31: Revenue – Barter Transactions involving Advertising Services

Steps on Recognizing Revenue

 Step 1: Identify the Contract


- Contract is an agreement between two or more parties that created ENFORCEABLE rights and
obligations.

CRITERIA TO BE MET IN ORDER FOR A CONTRACT TO EXIST FOR PURPOSES OF REVENUE


RECOGNITION (PAR 9)

1. The contract has commercial substance.


- If walang commercial substance, walang contract
2. The entity can identify the payment terms.
3. The parties to the contract have approved the contract.
- Approved is consent and masasabi lang na may consent if may meeting of minds.
- There are instances wherein nauuna ang negotiation sa meeting of mind, so if hindi in-
approve-an ng mga parties ang isang contract kahit may consent, the contract will still not
exist.
4. The entity can identify each party's rights regarding goods or services to be rendered.
- The right of the seller is to receive the transaction price, while the right of buyer is to receive
goods or services.
5. It is probable that the entity will collect the consideration to which it will be entitled.
- Revenue cannot be recognized without a contract.

For the purpose of applying IFRS 1, a contract does not exist if both of the following are true. – par. 12:

1. Contract is unperformed.
2. Both seller and the buyer can terminate the contract without penalty.

Notes:

1. The performance of either party will give rise to a contract asset or liability. - par 105
2. If a customer pays, or an entity has a right to an amount of consideration before the entity transfers a
good or shall recognize contract liability – par. 106
08/01/2028 no e ntry

09/30/2028 Ca s h 80,000
Contra ct Lia b/Deferred Revenue 80,000
 Nagkakameron ng contract liability if nagbayad na si buyer, and wala pang nire-render na
10/31/2028 Contract Liab/Deferred Revenue 80,000
services Sa les
si seller. 80,000
3. If an entity performs before the customer pays consideration of before payment is due, the entity
shall Cogs
recognize
Inventory
contract asset, excluding
65,000
any amount presented as receivable. - par. 107
 Contract asset
*if using perpetual should
inventory m ethod be recognized65,000
if the seller has performed his obligation, then si buyer is
wala pang ibinabayad.
4. Entity may use alternative descriptions other than contract asset or liability - par. 109

08/01/2028 no e ntry

09/30/2028 Contra ct As s et/AR 80,000


Sa les 80,000
Contract Asset vs. Receivable
Cogs 65,000
Contact Asset Inventory 65,000
*if using perpetual inventory m ethod
- is the entity’s right to consideration in exchange for goods or services transferred to a customer.
10/31/2028 Ca s h 80,000
- Conditional Contra ct As s et/AR 80,000
- Possible na conditional pa rin yung transaction kahit nag-deliver ka na ng goods, so, if ever na ganon,
hindi ka pa rin makakapag-recognize ng receivable.
01/01/2028 no e ntry

Feb-14 Contra ct As s et 50,000


Sa les 50,000
- Ex: Juan is required to deliver 100 cellphones, and the buyer will only pay him once he delivered the
last piece of the phone. Juan will only have the consideration to receive
Jul-31 the payment
Accounts receiva bleafter he delivers
100,000
Sa les 50,000
all the phones. 50,000
Contra ct As s et

Receivable 08-Sep Ca s h 100,000


AR 100,000
- is the entity's right to consideration that is unconditional.
- Magre-recognize ka lang ng receivable once na maging unconditional na.

On January 1, 2028, PICPA entered into a contract with iCARE Accountancy the sale of two mirrorless
camera for 50,000 each. The contract requires one camera to be delivered on February 14, 2028 and states
that the payment for the delivery of the first camera is conditional on the delivery of the second camera.
The second camera is delivered on July 31, 2028 and the payment for the two cameras was received on
September 8, 2028.

• Required: Provide necessary journal entries on:

 January 1, 2028
 February 14, 2028
 July 31, 2028
 September 8, 2028

Contract Modifications

- A change in the scope or price (or both) of a contact that is approved by the parties to the contract. –
par.18
- Change order, variation or amendment
- Ex: the orig contract is to deliver 5,000 phones, and after the first delivery of 2,000 phones, nagpa-
add ng another 3,000 phones si customer.

Two Scenarios in Contract Modifications:

1. Creates new contract

Recognition of new contract: Conditions - par. 20


1. The scope of the contract increases because of the addition of promised goods or services THAT
ARE DISTINCT.

Distinct - A good or service that is promised to the customer is distinct) is both of the following
criteria are met:

a. The customer can benefit from the good or service.


b. The entity's promise to transfer the good or service to the customer is separately identifiable
from other promises in the contract.
- Distinct products means pwede mo sila ibenta separately. Ex: pwede mong maibenta ang CPU nang
hindi mo isasama sa pagbenta ang mouse.
- The performance obligation is distinct if and only if it is not dependent or related to the other
performance obligation from the contract.
2. The price of the contract increases by an amount of consideration that reflects the entity's
standalone selling prices of the additional promised goods or services and any appropriate
adjustments to that price.

Example:

iCARE Corporation has a contract to sell 50,000 boxes of PS-5 to a custome Ranid Soriano million for

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