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accounting coursework (IFRS 15 (Advantages (removes inconsistencies of…
accounting coursework
IFRS 15
Advantages
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the 5 step model
used to analyse transactions and to determine how the revenues are to be
recognised, related both to the period of time when they were derived, and to their value.
revenue to be recognised when the transfer of goods or the provision of services occur by an amount corresponding to the consideration they expect to receive - improving accounting reporting of revenues and comparability
will enable the optimisation of information related to revenues - provides a series of guidelines which were not included explicitly (e.g. revenues from services, revenues from additional services, contractual changes) also contribute to improving info on multi-element arrangements (could this include servicing etc??)
measurement of revenues based on consideration - shits from a neutral or subjective criterion (IAS 18) to a prescriptive that simplifies the subjectivity of measurement
Simplifying the preparation of financial statements by reducing the amount of guidance to which entities must refer
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chosen company
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impact on company
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During transition
Change elements of the contract will have an impact on allocation and revenue recognition compared to current records - revenue treatment of IFRS 15 differs to IAS 18 whereby revenue if recognised when most risks and rewards of ownership of the goods are transferred to the customer - whereas IFRS focuses on the completion of a performance obligation (when control is transferred)
some companies e.g RR may seek to redesign their contracts to avoid what might be seen as undesirable account consequences which will require the input of legal advisers
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IAS 18
Advantages
could you say that as revenue is recognised at fair value, it follows the prudent concept of accounting?
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Disadvantages
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many companies uncertain at which point in time they should recognise revenue because there is a lack of clear and comprehensive guidance in IAS 18
does not give comprehensive guidance for measuring the amount of revenue which should be recognised in cases of variable consideration in contracts
does not consider the time value of money when determining the amount of revenue that should be recognised e.g. on long term contracts
disclosures currently required in respect of revenue recognition are weak and lack cohesion when compared to to other areas of the financial statements
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