IFRS 15 Presentation in main statements

IFRS 15 Presentation in main statements – While an entity must provide sufficient information to meet the objective, the disclosures described in the standards are not intended to be a checklist of minimum requirements. That is, entities do not need to include disclosures that are not relevant or are not material to them. In addition, an entity does not need to disclose information in accordance with the revenue standards if it discloses that information in accordance with another standard.

Entities are required to consider the level of detail necessary to satisfy the disclosure objective and the degree of emphasis to place on each of the various requirements. The level of aggregation or disaggregation of disclosures requires judgement. Furthermore, entities are required to ensure that useful information is not obscured (by either the inclusion of a large amount of insignificant detail or the aggregation of items that have substantially different characteristics).

Revenue from contracts with customers

Entities are required to present in the statement of comprehensive income, or disclose within the notes, the amount of revenue recognised from contracts with customers separately from other sources of revenue. [IFRS 15 113(a)]

IFRS 15 only applies to a subset of total revenue (i.e., revenue from contracts with customers). [IFRS 15 BC2B] IFRS 15 defines revenue as “Income arising in the course of an entity’s ordinary activities”, but the standard excludes some revenue contracts from its scope (e.g., leases). [IFRS 15 Appendix A and IFRS 15 5] According to the 2010 Conceptual Framework for Financial Reporting, revenue arises in the course of the ordinary activities of an entity and is referred to by a variety of different names including sales, fees, interest, dividends, royalties and rent”2. IFRS 15 does not explicitly require an entity to use the term ‘revenue from contracts with customers’.

Therefore, entities might use a different terminology in their financial statements to describe revenue arising from transactions that are within the scope of IFRS 15. However, entities should ensure the terms used are not misleading and allow users to distinguish revenue from contracts with customers from other sources of revenue.

Also see narrative on the requirement to disclose disaggregated revenue.

In this example revenue from contracts with customers that are within the scope of IFRS 15 are presented in the consolidated statement of profit or loss and other comprehensive income in the 2018 annual financial statements separately from other income, as follows:

Example presentation

Consolidated Statements of Profit or Loss and Other Comprehensive Income

For the year ended 31 December 2018

Note

2018

EUR ‘000

2017

EUR ‘000

Revenue

Fee revenue

Net movement in work in progress

162,166

-2,916

194,024

-12,551

Revenue from contract with customers

3.1

159,250

181,473

Other income

1,026

1,541

Total revenue and other income

160,276

183,014

Another presentation of a combined revenue number on the face of the consolidated statement of profit or loss which includes revenue recognised from contracts with customers in accordance with IFRS 15 and other revenue (e.g., rental income, dividends) in the same line item is shown next for a real estate development company. It then presented customer contract revenues separately from other sources of revenue, in note 2, to provide a significant amount of transparency as to the different sources of income.

Starting in the main statement:

Example presentation

Consolidated Statements of Profit or Loss

For the year ended 31 December 2018

Note

2018

EUR ‘000

2017

EUR ‘000

Revenue

Cost of sales

2

3

140,531

-103,563

147,826

-107,235

……

Continued in the notes to the financial statements:

Note 2 Revenue

2018

EUR ‘000

2017

EUR ‘000

CUSTOMER CONTRACT REVENUE

Land, house & land and units

133,216

142,733

Project management fees

19

133,216

142,752

Trading income – retail sales (Banana Biggy)

6,104

3,532

OTHER REVENUE

Dividends IFRS 15 Presentation in main statements

28

21

Gain on Banana Biggy acquisition IFRS 15 Presentation in main statements

623

Unrealised gain on investments IFRS 15 Presentation in main statements

27

149

Rental income IFRS 15 Presentation in main statements

167

298

Re-measurement of investment prior to business purchase

92

Other revenue IFRS 15 Presentation in main statements

989

359

7,315

5,074

Total revenue

140,531

147,826

Yet another way of presenting the revenue stream is as follows in the notes to the financial statements:

Example presentation

NOTES ON PROFIT/(LOSS) FROM CONTINUING OPERATIONS

Note 2.1 Operating income

The detail of the Group’s operating income for the year ended 31 December 2018 is as follows:

(Millions of EUR)

2018

2017

Revenue

5,737

5,152

Other operating income

2

1

Total operating income

5,738

5,154

The Group’s revenue for the year ended 31 December 2018 relating to contracts with customers amounted to EUR 5,534 million (see Note 4.4).

Something else -   IFRS 15 Vehicle sales by OEMs (Original Equipment Manufacturers) - BEST QUICK READ

Revenue within the scope of IFRS 15 may not be the main source of revenue for some entities (e.g., banks and other financial entities). UBS Group AG separately presented a line item for “Fee and commission income”, which is within the scope of IFRS 15 and disclosed its disaggregation in note 4. Also see narrative on the requirement to disclose disaggregated revenue. LIINK NOTES

IFRS 15 Presentation in main statements

IFRS 15 Presentation in main statements

Unless required, or permitted, by another standard, IAS 1 does not permit offsetting of income and expenses within profit or loss or the statement of comprehensive income. [IAS 1 32]

When applying the requirements for determining the transaction price in IFRS 15, revenue recognised by an entity may include offsets, for example, for any trade discounts given and volume rebates paid by the entity to its customer. In the ordinary course of business, an entity may undertake other transactions that do not generate revenue, but are incidental to the main revenue-generating activities. When this presentation reflects the substance of the transaction or other event, IAS 1 requires an entity to present “the results of such transactions […] by netting any income with related expenses arising on the same transaction”.[IAS 1 34] An example given in IAS 1 is presenting gains and losses on the disposal of non-current assets by deducting from the amount of consideration on disposal, the carrying amount of the asset and related selling expenses. [IAS 1 34(a)]

Contract balances

The standard requires an entity to present the following items separately in the statement of financial position: [IFRS 15 105-107]

  • Contract asset: An entity’s right to consideration in exchange for goods or services that the entity has transferred to a customer
  • Contract liability: An entity’s obligation to transfer goods or services to a customer for which the entity has received consideration (or an amount of consideration is due) from the customer
  • Receivable: An entity’s right to consideration that is unconditional (only the passage of time is required before payment of that consideration is due).

In its 2018 annual financial statements, Bombardier Inc. presented these amounts separately using the terminology from the standard for contract assets and liabilities.

IFRS 15 Presentation in main statements

The standard allows an entity to use alternative descriptions in the statement of financial position. However, an entity must disclose sufficient information so that users of the financial statements can clearly distinguish between unconditional rights to receive consideration (receivables) and conditional rights to receive consideration (contract assets). [IFRS 15 109] In the example shown below Ferrovial S.A. illustrated the use of such an approach, using alternative terminology, but explaining, in its accounting policy note, how those terms align with the terms used within the revenue standard. The entity also indicated in which line item it has included these balances within the statement of financial position (i.e., “Trade receivables for sales and services”). For example LIINNK 4.2, Ferrovial, S.A. disaggregated the line item presented in the statement of financial position and disclosed contract assets (i.e., ”amounts to be billed for work performed”) separately from its receivables.

IFRS 15 Presentation in main statements

IFRS 15 Presentation in main statements

Entities are required to disclose impairment losses from contracts with customers separately from other impairment losses, either in the statement of comprehensive income or in the notes. [IFRS 15 107, IFRS 15 113(b)]

Current versus non-current presentation

Unless an entity presents its statement of financial position on a liquidity basis, it needs to present assets or liabilities arising from contracts within the scope of IFRS 15 as current or non-current in the statement of financial position. IFRS 15 does not provide guidance on making this determination. Rather, entities need to consider the requirements in IAS 1.

The distinction between current and non-current items depends on the length of the entity’s operating cycle. IAS 1 states that the operating cycle of an entity is the time between the acquisition of assets for processing and their realisation in cash or cash equivalents. However, when the entity’s normal operating cycle is not clearly identifiable, it is assumed to be 12 months. [IAS 1 68, IAS 1 70] IAS 1 does not provide guidance on how to determine whether an entity’s operating cycle is ‘clearly identifiable’. For some entities, the time involved in producing goods or providing services may vary significantly between contracts with one customer to another. In such cases, it may be difficult to determine what the normal operating cycle is. Therefore, management will need to consider all facts and circumstances and use judgement to determine whether it is appropriate to consider that the operating cycle is clearly identifiable, or whether to use the twelve-month default.

Something else -   Non-monetary transactions IFRS 15 Complete and Exemplary Read

In its 2018 annual financial statements, FIFA split contract liabilities between current and non-current in its consolidated balance sheet and used the terms from the standard:

IFRS 15 Presentation in main statements

Other presentation considerations

Contract assets and liabilities should be determined at the contract level and not at the performance obligation level. As such, an entity would not separately recognise an asset or liability for each performance obligation within a contract, but would aggregate them into a single contract asset or liability3. Contract asset or contract liability positions are determined for each contract on a net basis. This is because the rights and obligations in a contract with a customer are interdependent – the right to receive consideration from a customer depends on the entity’s performance and, similarly, the entity performs only as long as the customer continues to pay. [IFRS 15 BC 317] In practical example 4.2b, Airbus SE mentioned in its accounting policies for contract balances that “net contract assets and contract liabilities are determined for each contract separately”. If an entity is required by IFRS 15 to combine contracts with the same customer (or a related party of the customer), the contract assets or liabilities would be combined (i.e., presented net). When two or more contracts are required to be combined under the standard, the rights and obligations in the individual contracts are interdependent4. This may be operationally difficult for entities if their systems are designed to capture data at the performance obligation level in order to comply with the recognition and measurement aspects of the standard.

Since IFRS 15 does not provide requirements for offsetting, entities will need to apply the requirements of other standards (e.g., IAS 1, IAS 32 Financial Instruments: Presentation) to determine whether it is appropriate to offset contract assets and liabilities against other balance sheet items (e.g., accounts receivable)5.

Assets recognised from the costs to obtain or fulfil a contract

If an entity recognises incremental costs of obtaining the contract and/or costs to fulfil a contract as assets in accordance with the requirements in IFRS 15, the standard requires that such assets are presented separately from contract assets and contract liabilities in the statement of financial position or disclosed separately in the notes to the financial statements. [IFRS 15 116(a)]

The standard is silent on the classification of contract cost assets and the related amortisation. Therefore, entities will need to develop an appropriate accounting policy. In doing so, we believe that costs to obtain a contract and costs to fulfil a contract need to be considered separately for the purpose of presentation in financial statements.

Considering the nature of costs to obtain a contract and the lack of guidance in IFRS, we believe an entity may choose to present these costs as either:

• A separate class of asset (similar in nature to work in progress, or ‘inventory’) in the statement of financial position and its amortisation within cost of goods sold, changes in contract costs or similar

Or IFRS 15 Presentation in main statements IFRS 15 Presentation in main statements

• A separate class of intangible assets in the statement of financial position and its amortisation in the same line item as amortisation of intangible assets within the scope of IAS 38 Intangible Assets

In addition, the entity needs to consider the requirements in IAS 7 Statement of Cash Flows, in particular IAS 7 16(a), when determining the classification of cash flows arising from costs to obtain a contract, i.e., either as cash flows from operating activities or financing activities.

In contrast, the nature of costs to fulfil a contract is such that they directly affect the entity’s performance under the contract. Therefore, costs to fulfil a contract should be presented as a separate class of asset in the statement of financial position and its amortisation within cost of goods sold, changes in contract costs or similar.

Whether costs to fulfil a contract meet the criteria for capitalisation in IFRS 15 95 or are expensed as incurred, we believe that presentation of such costs in the statement of profit and loss and other comprehensive income and the presentation of related cash flows in the statement of cash flows needs to be consistent.

Capitalised contract costs are subject to an impairment assessment at the end of each reporting period. Impairment losses are recognised in profit or loss, but the standard is silent on where to present such amounts within the primary financial statements. In general it makes sense for the presentation of any impairment losses to be consistent with the presentation of the amortisation expense.

Capita plc presented capitalised costs to fulfil a contract as a separate class of asset in its consolidated balance sheet. The portion relating to contracts for which performance obligations are expected to be satisfied within 12 months from the end of the reporting period is classified as current. As disclosed in note 2, “Summary of significant accounting policies” (see practical example 4.5), Capita plc presented the amortisation of capitalised costs to fulfil, as well as any impairment losses, within cost of sales.

IFRS 15 Presentation in main statements

IFRS 15 Presentation in main statements

Refer to section 4.5 of this publication for disclosure requirements for such assets, and the link for further discussion on contract costs.

Assets and liabilities arising from rights of return

An entity may recognise refund liabilities and an asset for the right to recover products on settling that liability. The standard requires an entity to present the refund liability separately from the corresponding asset (i.e., on a gross basis, rather than a net basis). [IFRS 15 B25] While the standard does not explicitly state this, in general one presumes that the return asset would generally be presented separately from inventory.

Something else -   IFRS 15 Identifying the contract contract extensions

Salvatore Ferragamo presented refund liabilities and right of return assets as separate line items in its consolidated statement of financial position. The related accounting policies were disclosed in note 2 of the consolidated financial statements.

IFRS 15 Presentation in main statements

IFRS 15 Presentation in main statements

2. Basis of presentation IFRS 15 Presentation in main statements

…… IFRS 15 Presentation in main statements

Accounting standards IFRS 15 Presentation in main statements

……. IFRS 15 Presentation in main statements

General notes IFRS 15 Presentation in main statements

……. IFRS 15 Presentation in main statements

Right of return assets

A right of return asset represents the Group’s right to recover goods expected to be returned from customers. The asset is measured at the previous carrying amount of inventories less any costs for its recovery, including any impairment of the returned products. The Group regularly updates the estimated amount of returns from customers as well as any additional impairment of the returned products.

Refund Liabilities

The refund liability represents the obligations to refund some or all of the consideration received (or to be received) from the customer and is measured based on the amount the Group expects to be refunded to the customer. The Group updates its estimates of refund liabilities (and the corresponding change in the transaction price) at the end of each reporting period.

Significant financing components

When a significant financing component exists in a contract, there are two components: a revenue component (for the notional cash sales price); and a significant financing component (for the effect of the deferred or advance payment terms). [IFRS 15 BC244] The amount allocated to the significant financing component is presented separately from revenue recognised from contracts with customers. The financing component is presented as interest expense (when the customer pays in advance) or interest income (when the customer pays in arrears).[IFRS 15 65] The IASB noted in the Basis for Conclusions that an entity presents interest income as revenue only when it represents income from an entity’s ordinary activities. [IFRS 15 BC247]

In its 2018 annual financial statements, Bombardier Inc. presented the financing component arising from customers’ advance payments separately from revenue and included it as part of financing expense.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

……. IFRS 15 Presentation in main statements

Revenue recognition IFRS 15 Presentation in main statements

…….. IFRS 15 Presentation in main statements

The Corporation accounts for a significant financing component on orders where timing of cash receipts and revenue recognition differ substantially. Most of the Corporation’s contracts do not have a significant financing component. However, there are certain orders in the Business Aircraft segment where advances were received well before expected delivery and therefore a financing component has been accounted for separately. The result is that interest expense is accrued during the advance period and the transaction price will be increased by a corresponding amount.

IFRS 15 Presentation in main statements


Although there are two components within the transaction price when there is a significant financing component (i.e., the revenue component and the significant financing component), it is only in the case of deferred payment terms that there are two cash flow components. In that case, the revenue component cash flows should be classified as cash flows from operating activities, and the cash flows related to the significant financing component should be classified consistent with the entity’s choice to present cash flows from interests received/paid in accordance with IAS 7 33 (i.e., as cash flows from operating or investing/financing activities). If the customer pays in advance, the sum of the cash amount and the accrued interest represent revenue, and thus there is only one cash flow component. Accordingly, the cash received should be classified as cash flows from operating activities.

Impairment losses on receivables, with or without a significant financing component, are presented in line with the requirements of IAS 1 and disclosed in accordance with IFRS 7 Financial Instruments: Disclosures. However, as discussed in contract balances above, IFRS 15 makes it clear that such amounts are disclosed separately from impairment losses from other contracts. [IFRS 15 113(b)] Bombardier Inc. provided disclosure of impairment losses recognised on its contracts with customers in note 18.

18. CONTRACT BALANCES

…….. IFRS 15 Presentation in main statements

IFRS 15 Presentation in main statements

IFRS 15 Presentation in main statements

Annualreporting provides financial reporting narratives using IFRS keywords and terminology for free to students and others interested in financial reporting. The information provided on this website is for general information and educational purposes only and should not be used as a substitute for professional advice. Use at your own risk. Annualreporting is an independent website and it is not affiliated with, endorsed by, or in any other way associated with the IFRS Foundation. For official information concerning IFRS Standards, visit IFRS.org or the local representative in your jurisdiction.

Something else -   Transition to new IFRS 15 Disclosures

Leave a comment