75385885

Satisfaction of construction performance obligations

This narrative considers key implications IFRS 15 Revenue from Contracts with Customers for real estate entities. It provides an overview of the revenue recognition model in IFRS 15 with a focus on entities that:

  • Own, operate and sell real estateRecognise revenue in progress or at completion
  • Provide property management services
  • Construct and sell residential property

IFRS 15 introduced a five step process for recognising revenue, as follows:

  1. Identify the contract with the customer
  2. Identify the performance obligations in the contract
  3. Determine the transaction price for the contract
  4. Allocate the transaction price to each specific performance obligation
  5. Recognise the revenue when the entity satisfies each performance obligation

An entity recognises revenue only when it satisfies a performance obligation by transferring control of a promised good or service Read more

Allocate the transaction price to the performance obligations

This narrative considers key implications IFRS 15 Revenue from Contracts with Customers for real estate entities. It provides an overview of the revenue recognition model in IFRS 15 with a focus on entities that: Allocate the transaction price to the performance obligation

  • Own, operate and sell real estate
  • Provide property management services
  • Construct and sell residential property

IFRS 15 introduced a five step process for recognising revenue, as follows:

  1. Identify the contract with the customer
  2. Identify the performance obligations in the contract
  3. Determine the transaction price for the contract
  4. Allocate the transaction price to each specific performance obligation
  5. Recognise the revenue when the entity satisfies each performance obligation

Once the performance obligations have been identified and the transaction price has … Read more

Determine the transaction price – property construction

This narrative considers key implications IFRS 15 Revenue from Contracts with Customers for real estate entities. It provides an overview of the revenue recognition model in IFRS 15 with a focus on entities that:

  • Own, operate and sell real estate
  • Provide property management services
  • Construct and sell residential property

IFRS 15 introduced a five step process for recognising revenue, as follows:

  1. Identify the contract with the customer
  2. Identify the performance obligations in the contract
  3. Determine the transaction price for the contract
  4. Allocate the transaction price to each specific performance obligation
  5. Recognise the revenue when the entity satisfies each performance obligation

The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring … Read more

Performance obligations in a property management contract

This narrative considers key implications IFRS 15 Revenue from Contracts with Customers for real estate entities. It provides an overview of the revenue recognition model in IFRS 15 with a focus on entities that:Performance obligations in a property management contract

  • Own, operate and sell real estate
  • Provide property management services
  • Construct and sell residential property

IFRS 15 introduced a five step process for recognising revenue, as follows:

  1. Identify the contract with the customer
  2. Identify the performance obligations in the contract
  3. Determine the transaction price for the contract
  4. Allocate the transaction price to each specific performance obligation
  5. Recognise the revenue when the entity satisfies each performance obligation

Once an entity has identified the contract with a customer, it evaluates the contractual terms and its customary business … Read more

Analysis of cash flows

See operating, financing and investing activities for a technical explanation of the components of a cash flow statement.

The cash flow statement is an addition to the balances sheets in the statement of financial position and the income statement or may be call it a ‘bridge’ statement in between those two main statements. The balance sheet is a position as at a certain date for current and non-current assets, less current and non-current liabilities, resulting a residual component of equity. The income statement shows the amounts earned in a year using the matching principle (sales match cost of sales, depreciation and amortisation match productive life) and accrual concept of accounting (expense and income allocation to the period they … Read more

Current and Non-current liabilities

The classification of financial liabilities into current and non-current is governed by the condition of those liabilities at balance sheet date. Current and Non-current liabilities

Where rescheduling or refinancing is at the lender’s discretion, and it occurs after the balance sheet date, it does not alter the liability’s condition at balance sheet date. Accordingly, it is regarded as a non-adjusting post balance sheet event and it is not taken into account in determining the current/non-current classification of the debt. On the other hand where refinancing or rescheduling is at the entity’s discretion and the entity can elect to roll over an obligation for at least one year after the balance sheet date, the obligation is classified as non-current, even if … Read more

Construction of a residential home

Home-builder B enters into a contract to build a new home for a customer on land owned by Home-builder B. Ownership of the home and land are transferred to the customer when construction is completed. The home-builder is responsible for the overall management of the project and identifies various goods and services to be provided, including design work, procurement of materials, site preparation and foundation pouring, framing and plastering, mechanical and electrical work, installation of fixtures (e.g., windows, doors, cabinetry) and finishing work.

What is going on?

Home-builder B first evaluates whether the customer can benefit from each of the various goods and services, either on their own or together with other readily available resources. Home-builder B determines that these … Read more

Real estate revenue

This narrative considers key implications IFRS 15 Revenue from Contracts with Customers for real estate entities. It provides an overview of the revenue recognition model in IFRS 15 with a focus on entities that:

  • Own, operate and sell real estateStep 1 Identify the contract with the customer
  • Provide property management services
  • Construct and sell residential property

IFRS 15 introduced a five step process for recognising revenue, as follows:

  1. Identify the contract with the customer
  2. Identify the performance obligations in the contract
  3. Determine the transaction price for the contract
  4. Allocate the transaction price to each specific performance obligation
  5. Recognise the revenue when the entity satisfies each performance obligation


In most real estate arrangements, a signed, written contract specifies the asset to be transferred or services to be … Read more

Implied price concession or Impairment loss

There is a significant difference in accounting for a price concession and an impairment loss. And we are not even close, it is even worse….

What about an implied price concession?

Construction companies have a certain capacity of daily production/construction – OK, there is some flexibility by hiring temporary construction workers, but there is an end to that – ‘They are never there when you need them’. As a result construction companies with a small sales funnel or an irregular distribution over time in working on the live construction contracts may be willing to offer an implied price concession to win a construction contract to avoid a larger loss in not filling their (minimum) capacity. Implied price concession or ImpairmentRead more

Construction contracts disclosures

IFRS 15 includes additional qualitative and quantitative requirements on construction contracts disclosures which were not included within IAS 11.

Many of these disclosure requirements are narrative in nature. IFRS 15 refers to qualitative and quantitative disclosures, and the more significant disclosures introduced include the following.

Read more