IFRS 15 Revenue from Contracts with Customers

In accounting, revenue is the income that a business has from its normal business activities, usually from the sale of goods and services to customers. Revenue is also referred to as sales or turnover. Some companies receive revenue from interest, royalties, or other fees.

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.

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Construction contract modifications

Ever heard of a constructing a major new building, large bridge, metro railway or other significant construction project without contract modifications? Especially in the large urban agglomerations in this world….. Well then look at this:Construction contract modifications Construction contract modifications

And technology initiatives to avoid it: Artificial intelligence (AI)

How to account for variations and claims under the construction contract?

IFRS 15 does not include explicit guidance on accounting for contract variations and claims. Instead, it includes general guidance on contract modifications and other changes in the transaction price, which applies to all industries. [IFRS 15 18–21] But it works….

Changes in the scope and/or price of a construction contract

IFRS … Read more

Construction – Variable pricing

How to measure construction contract revenue: variable consideration – variable pricing? Construction – Variable pricing

If the consideration promised in a contract includes a variable amount, then an entity estimates the amount of consideration to which it expects to be entitled. Consideration can vary because of discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties or other similar items. [IFRS 15 50–54, IFRS 15 IE 101 – 108  Example 20 and Example 21]

To estimate the total variable contract price, an entity uses one of the following methods to estimate the amount of consideration to which it expects to be entitled:

  • the expected value – the sum of probability-weighted amounts in a range of possible consideration
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Construction contracts – Measuring progress

This part relates to a complete explanation of IFRS 15 Revenue from contracts with customers in respect of Engineering & Construction contracts, see Revenue from Engineering & Construction contracts.


When a performance obligation is satisfied over time, the standard provides two types of methods for measuring progress under the contract: input methods or output methods. The standard requires an entity to select a single measurement method for the relevant performance obligations that best depicts the entity’s performance in transferring goods or services and it does not allow a change of method. That is, a performance obligation must be accounted for under the method the entity selects (i.e., either an input or output method) until it has … Read more

Construction contracts revenue – over time or at a point in time?

The rule: If the contract arrangements do not permit revenue to be recognised progressively, then revenue is recognised at a specific point in time on transfer of control, which for a construction contract will likely be close to completion.

The explanations: Should a contractor recognise revenue as construction work takes place or on practical completion?

While IFRS 15 was under development, a key concern of the construction industry was whether contractors would continue to recognise revenue as the contract progresses, similar to the stage of completion method under IAS 11. Construction over time or at a point in time?  Construction over time or at a point in time?

Under IFRS 15, revenue is recognised when, or as, performance obligationsRead more

Contract enforceability and termination clauses

An entity has to determine the duration of the contract (i.e., the stated contractual term or a shorter period) before applying certain aspects of the revenue model (e.g., identifying performance obligations, determining the transaction price). The contract duration under IFRS 15 is the period in which parties to the contract have present enforceable rights and obligations. An entity cannot assume that there are present enforceable rights and obligations for the entire term stated in the contract and it is likely that an entity will have to consider enforceable rights and obligations in individual contracts, as described in IFRS 15 11. Contract enforceability and termination clauses

The period in which enforceable rights and obligations exist may be affected … Read more

Contract costs

IFRS 15 specifies the accounting treatment for costs an entity incurs to obtain and fulfil a contract to provide goods or services to customers as discussed below. An entity only applies these requirements to costs incurred that relate to a contract with a customer that is within the scope of IFRS 15.

When an entity recognises capitalised contract costs under IFRS 15, any such assets must be presented separately from contract assets and contract liabilities in the statement of financial position or disclosed separately in the notes to the financial statements (assuming they are material).Contract costs Contract costs

Furthermore, entities must consider the requirements in IAS 1 on classification of current assets when determining whether their contract cost assets are presented as … Read more

Warranties

Warranties are commonly included in arrangements to sell goods or services. They may be explicitly included in the contractual arrangement with a customer or may be required by law or regulation. In addition, an entity may have established an implicit policy of providing warranty services to maintain a desired level of satisfaction among its customers. Whether explicit or implicit, warranty obligations extend an entity’s obligations beyond the transfer of control of the good or service to the customer, requiring it to stand ready to perform under the warranty over the life of the warranty obligation. Warranties in arrangements to sell goods or services Warranties in arrangements to sell goods or services

The price of a warranty may be … Read more

Royalty income intellectual property

IFRS 15 provides application guidance on the recognition of revenue for sales-based or usage-based royalties on licences of intellectual property, which differs from the requirements that apply to other revenue from licences.

IFRS 15 B63 requires that royalties received in exchange for licences of intellectual property are recognised at the later of when:Royalty income intellectual property

(a) The subsequent sale or usage occurs.

and

(b) The performance obligation to which some or all of the sales-based or usage-based royalty has been allocated is satisfied (or partially satisfied).

That is, an entity recognises the royalties as revenue for such arrangements when (or as) the customer’s subsequent sales or usage occurs, unless that pattern of recognition accelerates revenue recognition ahead of the entity’s … Read more