Revenue - part 2

In this lesson

1. 0:00 Revenue recognition fundamentals
2. 0:02 Poppy plc example setup
3. 2:00 Five step approach applied
4. 3:39 Revenue split and recognition calculation
5. 4:13 Double entry and deferred income
6. 7:03 Oliver plc complex example
7. 10:23 Discount allocation and variable consideration
8. 11:19 Final double entry and cash flow impact

About this lesson

By mastering the five-step approach to splitting contract value, timing revenue recognition, and handling deferred income, you'll be able to accurately account for revenue in real-world scenarios and avoid common pitfalls on your Financial Reporting or Strategic Business Reporting exams. The lesson walks you through the five-step process: identifying the contract, determining performance obligations, establishing total contract price, allocating price to each obligation using market rates, and recognising revenue as obligations are satisfied. You'll see why a £40,000 upfront payment might only generate £18,000 in revenue in year one, and how to record the difference as deferred income—a liability representing the service owed, not cash to be repaid. The second example introduces variable consideration and discounts, showing how to treat uncertain adjustments (like equipment failure clauses) and how to allocate discounts proportionally across all performance obligations rather than selectively. Understanding these principles protects you against revenue manipulation and ensures your financial statements give a true and fair view. You'll see how deferred income moves through the statement of financial position as a liability, then gets released to revenue in subsequent periods as services are delivered. This approach is fundamental to passing exams and handling real transactions with confidence.

Duration: 13m