Intermediate Accounting – Assets: The Art of Pricing What You Own
How companies recognize revenue and measure what they own: receivables, inventory, property, depreciation, intangibles, impairment, investment property and financial assets.
Try 3 questions
1. What is the first step of the five-step revenue model in IFRS 15?
- Determine the transaction price
- Identify the contract with the customer
- Recognize revenue when cash arrives
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Answer: Identify the contract with the customer
The steps run: identify the contract, identify performance obligations, set the price, allocate it, and recognize revenue as each obligation is met.
2. A mobile operator gives a free phone with a two-year plan. Under IFRS 15, how is the phone treated?
- A marketing expense that earns no revenue
- A separate obligation with part of the revenue
- A free gift that accounting simply ignores
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Answer: A separate obligation with part of the revenue
The customer gets a distinct good, so part of the total contract price is allocated to the phone and recognized when it is handed over.
3. How is the price of a bundle allocated among its separate performance obligations?
- Equally among all of the items included
- In proportion to standalone selling prices
- Entirely to the single most expensive item
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Answer: In proportion to standalone selling prices
Each obligation gets a share of the total price based on what it would sell for on its own.
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