Int. Acc. FA LECT 2&3: other revenue recognition issues part 6…
Int. Acc. FA LECT 2&3: other revenue recognition issues part 6
PRINCIPAL AGENT RELATIONSHIPS-CONSIGNMENTS
(consignor or principal)
delivers goods to a dealer
(consignee or agent)
. Consignor still retains title of the goods.
Consignor makes profit on sale. Consignee makes commission on the sale
Common example of a principal-agent relationship
Very common model in the US second-hand goods market.
PRINCIPAL AGENT RELATIONSHIPS
Revenue for principal: sale of the service/good via the agent.
Revenue for the agent: commission (often a percentage of total revenue)
Agent facilitates the sales between a principal and a customer. Usually also collects payment on behalf of the principal.
Why not let the agent book the received payment as revenue, and charge the amount to be transferred to the seller as revenue?
product will meet agreed-upon specifications in contract at time of sale. Quality guarantee: warranty is included in the sales price. Record warranty liability.
additional service beyond 1). Not included in sales price -> separate performance obligation. Record (unearned) warranty revenue.
See iPhone example from lecture 1.
NON-REFUNDABLE UPFRONT FEES
Examples: fees paid for membership to a health club, activation fees for internet services.
Are payments for
future or current period
For example: fees paid for a one-year membership to a
$200 upfront fee + $50 monthly fees;; estimated contract length is three years:
Total transaction price: $2,000 (=200+36*50)
Recognize each month $55.56 as revenue
Usually for future periods -> delay recognition
LEARNING OBJECTIVE: describe presentation and disclosure regarding revenue
IFRS 15: Asset/Liability approach
: when seller fulfills performance obligation before payment.
Conditional right, e.g., multiple performance obligations that
haven’t all been satisfied -> separate
See illustration 18-29
Unconditional right ->
on the asset side
: when buyer pays before seller fulfills performance obligation.
Unearned sales/ service revenue
See illustration 18-30
: help financial statement users understand the nature, amount, timing and uncertainty of revenue and cash flows from customer contracts.
Remaining performance obligations
Costs to obtain or fulfill contracts
Reconciliation of contract balances
Other qualitative disclosures
Disaggregation of revenue