IFRS 15 Revenue – Specific topics | Annualreporting.info

Contract modifications and variable consideration

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.

A contract modification arises when the parties approve a change in the scope and/or the price of a contract (eg a change order). In IFRS 15 this exercise is part of step 1 Identify the contract. The … 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

Series requirement

This is part of ‘Determining when promises are performance obligations?’

Series of distinct goods and/or services that are substantially the same and have the same pattern of transfer are combined or represent one performance indicator.  Determining when promises are performance obligations

IFRS 15 22(b) defines, as a second type of performance obligation, a promise to transfer to the customer a series of distinct goods or services that are substantially the same and that have the same pattern of transfer, if both of the following criteria from IFRS 15 23 are met: Series requirement

  • Each distinct good or service in the series that the entity promises to transfer represents a performance obligation that would be satisfied over time,
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Reseller and distributor arrangements

IFRS 15 changes practice for entities that sell their products through distributors or resellers.

IFRS 15 changes practice for entities that sell their products through distributors or resellers (collectively referred to in this section as resellers). It is common in the software industry for entities to provide resellers with greater rights than end-customers in order to maintain a mutually beneficial relationship and maximise future sales through the reseller. For example, an entity may provide a reseller with price protection and extended rights of return. Reseller and distributor arrangements

Under IFRS 15, entities will need to first evaluate when control of the product transfers to the end-customer. To do this, entities may need to assess whether their … Read more

Accounting policy choices impairment of financial assets

For trade receivables and contract assets that do not contain a significant financing component, it is a requirement to recognise a lifetime expected loss allowance (i.e. an entity must always apply the ‘simplified approach’). For other trade receivables, other contract assets, operating lease receivables and finance lease receivables it is an accounting policy choice that can be separately applied for each type of asset (but which applies to all assets of a particular type).

Link to ‘simplified approach‘ or ‘general approach

What is a significant financing component? Accounting policy choices impairment of financial assets


Rules Accounting policy choices impairment of financial assets

IFRS 15 60

A significant financing component exists if the

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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