IFRS 15 Revenue – High tech | Annualreporting.info

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

Sale of hardware and installation services

Two very similar sales transactions/contracts but one with only one single performance obligation and the other with separate performance obligations.

Case 1 – separate performance obligations Performance obligation hardware and installation sale

Vendor enters into a contract to provide hardware and installation services to Customer. Vendor always sells the hardware with the installation service, but the installation is not complex such that Customer could perform the installation on its own or use other third parties.


Does the transaction consist of one or more performance obligations?

More than one – Vendor should account for the hardware and installation services as separate performance obligations.


How do we come to this conclusion?

Vendor does not sell the hardware and installation services … Read more

Transfer of control for distinct software licences

IFRS 15 provides additional application guidance to help entities determine when control transfers for distinct licences of intellectual property (transfer of control for distinct software licences), based on the nature of the promise to the customer. This application guidance is applicable for both perpetual and term software licences.

IFRS 15 states that entities provide their customers with either:

transfer of control for distinct software licences

If the licence does not meet all three criteria, the licence is a right to use by default and the entity would recognise revenue at the point in time when the licence is delivered.

The key determinant of whether a licence is a right to access is whether the entity is required to undertake … Read more

Licensing

Licensing establishes a customer’s rights to the intellectual property of an entity. Licenses of intellectual property may include, but are not limited to, licenses of any of the following:

  1. Software (other than software subject to a hosting arrangement) and technology
  2. Motion pictures, music, and other forms of media and entertainment
  3. Franchises Licensing intellectual property
  4. Patents, trademarks, and copyrights. Licensing intellectual property

In addition to a promise to grant a license (or licenses) to a customer, an entity may also promise to transfer other goods or services to the customer. Those promises may be explicitly stated in the contract or implied by an entity’s customary business practices, published policies, or specific statements. As with other types of contracts, Read more

Transfer of control for distinct licences

IFRS 15 indicates that an entity must determine, at contract inception, whether it will transfer control of a promised good or service over time. If an entity does not satisfy a performance obligation over time, the performance obligation is satisfied at a point in time. A performance obligation is satisfied over time if it meets one of the following criteria: Transfer of control for distinct licences

  • The customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs – by providing hosting services, for example. Transfer of control for distinct licences
  • The entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced. An example would be a
Read more

Transfer of control for distinct software licences

The standard provides additional application guidance to help entities determine when control transfers for distinct licences of intellectual property, based on the nature of the promise to the customer. This application guidance is applicable for both perpetual and term software licences.

 

IFRS 15 states that entities provide their customers with either:

 

If the licence does not meet all three criteria, the licence is a right to use by default and the entity would recognise revenue at the point in time when the licence is delivered.

The key determinant of whether a licence is a right to access is whether the entity is required to undertake activities that affect the licenced intellectual property (or the customer has a … Read more