a. Comparison of Key Terms under IFRS 15

i. Contract liabilities versus contract assets:

• Contract liabilities refer to an entity’s obligation to transfer goods or services to a customer for which consideration has already been received from the customer. Example: A prepayment received from a customer for goods that are to be delivered in the future.
• Contract assets arise when an entity has transferred goods or services to a customer but is yet to receive payment. An example would be when work is completed under a contract, but the payment becomes due only after further certification.

ii. Stand-alone selling price versus transaction price:

• Stand-alone selling price is the price at which an entity would sell a promised good or service separately to a customer. For instance, if a company sells a product individually for N100, that is the stand-alone selling price.
• Transaction price is the total amount of consideration the entity expects to receive under the contract. It could be a fixed price or vary based on terms of the agreement. For example, a contract might state that a customer will pay N500 for five products.

b. Criteria for Assessing a Contract under IFRS 15

The following are the six criteria that must be met for a contract to fall within the scope of IFRS 15:

1. The parties to the contract have approved the contract.
2. Each party’s rights and obligations regarding the goods or services to be transferred can be identified.
3. Payment terms for the goods or services can be identified.
4. The contract has commercial substance, meaning it can change the entity’s future cash flows.
5. It is probable that the entity will collect the consideration to which it is entitled.
6. The contract creates enforceable rights and obligations for the parties involved.

c. Explanation of Contract Modification and Accounting Methods

Contract modification refers to changes in the scope or price (or both) of a contract that are agreed upon by the parties involved after the initial agreement. It could arise from changes in customer needs or updates to the original terms of the contract.
Two ways of accounting for contract modifications are:

1. As a separate contract: If the modification adds distinct goods or services at their stand-alone selling prices, it is treated as a new contract.
2. As part of the existing contract: If the modification does not add distinct goods or services, the change is treated as part of the existing contract, and a cumulative catch-up adjustment is made to reflect the change.