Corporate Reporting - Revenue Recognition and Lease | Desklib

This article discusses revenue recognition and lease accounting standards as per AASB 15 and AASB 16 respectively. It evaluates the case study of Chester Games Corporation (CGC) and its compliance with the standards.

Running head: CORPORATE REPORTING
Corporate Reporting
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1CORPORATE REPORTING
Table of Contents
Revenue recognition:.......................................................................................................................2
Lease:...............................................................................................................................................2
References:......................................................................................................................................4

2CORPORATE REPORTING
Revenue recognition:
As per AASB 15, the first principle is that an organisation needs to recognise revenue for
representing the transfer of products or services to the customers in a considerable amount to the
concerned organisation. Moreover, all the relevant terms of the contracts and relevant facts are to
be considered at the time of applying this standard. Finally, the organisation could apply the
standard for individual assets or portfolio of assets by using assumptions and projections that
depict the composition and size of the portfolio (Aasb.gov.au 2018).
After evaluating the provided case study of Chester Games Corporation (CGC), it has
been identified that the organisation measures and recognises revenue at the fair considerable
value to the degree that it is probable and the organisation would enjoy the economic benefits by
gauging revenue reliably. It recognises revenue generated from consumables immediately over
the average player life. However, the organisation has not gathered adequate data that could
segregate between revenue generated from consumable goods and durable goods. The revenues
are recognised based on cash receipts. This complies with “Paragraph 61 of AASB 15”.
According to this paragraph, revenue is recognised at an amount, which signifies the price that
any customer would have incurred for the promised products or services, if cash is paid for the
same when transferred to the customer, which is cash selling price (Holland 2016). The only
exception is that CGC deferred a nominal revenue amount related to sale of virtual durable goods
in its newer game in the financial year 2017.

3CORPORATE REPORTING
Lease:
Lease is considered to be a significant activity for various entities, as it is a procedure of
obtaining access to assets, finance along with minimising the exposure to the asset ownership
risks. When any contract is made, it is necessary for an organisation to analyse whether any lease
is inherent in the contract, as laid out in “Paragraph 9 of AASB 16” (Aasb.gov.au 2018). A lease
is identified only when the following criteria are fulfilled:
 Right to control the use of identified asset for any period in lieu of consideration
 The customers have full ownership to direct the use of the identified asset along with
seeking economic benefits from the same
According to the provided information, CGC has entered into an agreement with an
information technology organisation for using a specified server for two years. This could not be
identified as a lease contract due to the following three reasons:
 The asset employed in the contract is not mentioned; instead, only a particular server is
mentioned and the information technology company is obliged to provide network
services only.
 CGC does not have any control over the use of that particular asset
 Along with this, CGC does not obtain substantially all the economic benefits related to
the equipment. This is because the information technology company has the right to
reconfigure or replace the servers for providing the quality of network services mentioned
in the contract (Joubert, Garvie and Parle 2017).

4CORPORATE REPORTING
References:
Aasb.gov.au., 2018. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB15_12-14.pdf [Accessed 5 Oct. 2018].
Aasb.gov.au., 2018. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB16_02-16.pdf [Accessed 5 Oct. 2018].
Holland, D., 2016. Simplifying income recognition for not-for-profit entities. Governance
Directions, 68(11), p.666.
Joubert, M., Garvie, L. and Parle, G., 2017. Implications of the New Accounting Standard for
Leases AASB 16 (IFRS 16) with the Inclusion of Operating Leases in the Balance Sheet. Journal
of New Business Ideas & Trends, 15(2), pp.12-19.