Output method – Measuring progress to completion

IFRS 15 Revenue from Contracts with Customers (contents page is here) introduced a single and comprehensive framework which sets out how much revenue is to be recognised, and when. The core principle is that a vendor should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the vendor expects to be entitled in exchange for those goods or services. See a summary of IFRS 15 here. Output method – Measuring progress to completion

This section is part of step 5 Recognise revenue as or when each performance obligation is satisfied and the sub-step Measuring progress toward complete satisfaction of a performance obligation. Output … Read more

Input method – Measuring progress to completion

IFRS 15 Revenue from Contracts with Customers (contents page is here) introduced a single and comprehensive framework which sets out how much revenue is to be recognised, and when. The core principle is that a vendor should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the vendor expects to be entitled in exchange for those goods or services. See a summary of IFRS 15 here. Input method – Measuring progress to completion

This section is part of step 5 Recognise revenue as or when each performance obligation is satisfied and the sub-step Measuring progress toward complete satisfaction of a performance obligation. Input … Read more

Revenue – Income – Contract – Customer?

IFRS 15 is called ‘Revenue from contracts with customers’. What is revenue?, What is a contract?, and what is a customer? Here are some of the explanations……

What is revenue? Revenue – Income – ContractCustomer?

Revenue has stepped reasoning with regards to the definition of revenue. Revenue is defined as ‘Income arising in the course of an entity’s ordinary activities’. It is something but not the end, income on its own is defined as ‘Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in an increase in equity, other than those relating to contributions from equity participants’.

Income has … Read more

Recognition of revenue as principal or agent

Royalty payments Recognition of revenue as principal or agent

Entity A has agreed to pay a royalty to Entity B for the use of intellectual property rights that Entity A requires to make sales to its customers. The royalty is specified as a percentage of gross proceeds from Entity A’s sales to its customers less contractually defined costs. Entity A is the principal in the sales transactions with its customers (i.e. it must provide the goods and services itself and does not act as an agent for Entity B).

The question is: In Entity A’s financial statements, should the royalty payments be netted against revenue or recognised as a cost of fulfilling the contract?

Because Entity A … Read more

Portfolio of contracts (or performance obligations)

Although IFRS 15 specifies the accounting for an individual contract with a customer, the Standard allows as a practical expedient that it can be applied to a portfolio of contracts (or performance obligations) with similar characteristics provided that it is reasonably expected that the effects on the financial statements of applying a portfolio approach will not differ materially from applying IFRS 15 to the individual contracts (or performance obligations) within that portfolio. When accounting for a portfolio, estimates and assumptions that reflect the size and composition of the portfolio should be used. [IFRS 15 4]

Many entities manage a very large number of customer contracts and offer a wide array of product combination options (e.g. entities … Read more

Revenue over time or at a point in time

There are two ways of recognising revenue, revenue recognition over time and revenue recognition at a point in time. Revenue recognition over time is often referred to as the ‘Percentage of completion‘ method under the (superseded) IAS 11 Construction contracts.

The primary IFRS sections are IFRS 15 35 – 37 Over time and IFRS 15 38 At a point in time.Construction contracts revenue - over time or at a point in time?

An entity determines at the inception of the contract whether it satisfies each performance obligation over time or at a point in time. If an entity does not satisfy a performance obligation over time, the performance obligation is satisfied at a point in time. [IFRS 15 32]

IFRS 15 requires entities to determine whether a performance obligation Read more