Step 3 Final CLEAN.pptx - Step 3 Determine the transaction...

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Step 3: Determine the transaction price
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© 2017 Grant Thornton LLP | All rights reserved | U.S. member firm of Grant Thornton International Ltd 2 Identify the contract(s) with a customer Identify the performance obligations Determine the transaction price Allocate the transaction price to the performance obligations Recognize revenue when or as an entity satisfies performance obligations The new revenue recognition standard Five-Step Model
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© 2017 Grant Thornton LLP | All rights reserved | U.S. member firm of Grant Thornton International Ltd 3 Step 3 – Determine the transaction price Determining the transaction price To determine whether amounts are "collected on behalf of third parties," does the entity need to analyze taxes on a jurisdiction by jurisdiction basis to determine which amounts should be reported gross vs. net? No. An entity may elect as an accounting policy to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price. The definition of "transaction price" excludes amounts collected on behalf of third parties.
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© 2017 Grant Thornton LLP | All rights reserved | U.S. member firm of Grant Thornton International Ltd 4 Transactio n price Time value of money Variable consideratio n Noncash consideratio n Consideratio n payable to customer Transaction price : The amount of consideration an entity expects to be entitled to in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties. Step 3 – Determine the transaction price Determining the transaction price
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© Grant Thornton LLP. All rights reserved. 5 Bonuses Rebates Price concessions Refunds Penalties Credits Returns Variable Consideration is any consideration that is not fixed, meaning it causes the transaction price to vary What are some examples of variable consideration?
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© 2017 Grant Thornton LLP | All rights reserved | U.S. member firm of Grant Thornton International Ltd 6 Q. If a contract includes an unknown quantity but the contractual rate per unit of output is fixed, is the consideration variable? A. Yes Step 3 – Determine the transaction price What is variable consideration?
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© 2017 Grant Thornton LLP | All rights reserved | U.S. member firm of Grant Thornton International Ltd 7 Step 3 – Determine the transaction price Variable consideration and constraint Make your best estimate of the amount of variable consideration to which the entity expects to be entitled Methods: Expected value (sum of probability weighted amounts) Most likely amount (single most likely outcome) Include the consideration if it is probable that there will not be a significant revenue reversal Factors that could increase the likelihood and magnitude of the revenue reversal include: Highly susceptible to factors outside entity's influence Limited predictive experience Large number of possible amounts
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© 2017 Grant Thornton LLP | All rights reserved | U.S. member firm of Grant Thornton International Ltd 8
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