STEP 5 Recognise revenue when each performance obligation is satisfied

Revenue is recognised when (or as) goods or services are transferred to a customer. A vendor satisfies each of its performance obligations (that is, it fulfils its promises to the customer) by transferring control of the promised good or service underlying that performance obligation to the customer.

In the past requirements for revenue recognition (IAS 18 Revenue) were based around an assessment of whether the risks and rewards of ownership of a good or service had been transferred to a … Continue reading

Lease of a ship

The case:

Customer enters into a contract with Supplier for the use of a specified ship for a five-year period. The ship is explicitly specified in the contract and Supplier does not have substitution rights.

Customer decides what cargo will be transported, and whether, when and to which ports the ship will sail, throughout the five-year period of use, subject to restrictions specified in the contract. Those restrictions prevent Customer from sailing the ship into waters at a high risk

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Contract with a ship owner

The case:

Customer enters into a contract with a ship owner (Supplier) for the transportation of cargo from Rotterdam to Sydney on a specified ship. The ship is explicitly specified in the contract and Supplier does not have substitution rights. The cargo will occupy substantially all of the capacity of the ship. The contract specifies the cargo to be transported on the ship and the dates of pickup and delivery.

Supplier operates and maintains the ship and is responsible for

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Lease of retail space

The case:

Customer enters into a contract with a property owner (Supplier) to use Retail Unit A for a five-year period. Retail Unit A is part of a larger retail space with many retail units.

Customer is granted the right to use Retail Unit A. Supplier can require Customer to relocate to another retail unit. In that case, Supplier is required to provide Customer with a retail unit of similar quality and specifications to Retail Unit A and to pay

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Not a lease – Portion of assets – Fibre-optic cable

The case:

Customer enters into a 15-year contract with Supplier for the right to use a specified amount of capacity within a cable connecting Hong Kong to Tokyo. The specified amount is equivalent to Customer having the use of the full capacity of three fibre strands within the cable (the cable contains 15 fibres with similar capacities). Supplier makes decisions about the transmission of data (ie Supplier lights the fibres, makes decisions about which fibres are used to transmit Customer’s

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Not a lease – Rail cars

Compare this case with Lease – Rail cars, the difference will give you a lesson!!!!

The case:

The contract between Customer and Supplier requires Supplier to transport a specified quantity of goods by using a specified type of rail car in accordance with a stated timetable for a period of five years. The timetable and quantity of goods specified are equivalent to Customer having the use of 10 rail cars for five years. Supplier provides the rail cars, driver

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Lease – Rail cars

The case:

A contract between Customer and a freight carrier (Supplier) provides Customer with the use of 10 rail cars of a particular type for five years. The contract specifies the rail cars; the cars are owned by Supplier. Customer determines when, where and which goods are to be transported using the cars. When the cars are not in use, they are kept at Customer’s premises. Customer can use the cars for another purpose (for example, storage) if it so

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Leases – Contract for shirts

The case:

Customer enters into a contract with a manufacturer (Supplier) to purchase a particular type, quality and quantity of shirts for a three-year period. The type, quality and quantity of shirts are specified in the contract.

Supplier has only one factory that can meet the needs of Customer. Supplier is unable to supply the shirts from another factory or source the shirts from a third party supplier. The capacity of the factory exceeds the output for which Customer has

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Does the contract contain a lease 2

Does the customer have the right to obtain substantially all of the economic
benefits from use of the asset throughout the period of use?

Consider the explanations in the right to obtain economic benefits from use, before answering the question yes or no. You will be going to the next question or come to a conclusion.

Yes   /   No

This is part of the  walk through decision model that may assit in determining if a contract contains
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