IFRS 15 Revenue Disclosures Examples

IFRS 15 Revenue Disclosures Examples

IFRS 15 Revenue Disclosures Examples provides the context of disclosure requirements in IFRS 15 Revenue from contracts with customers and a practical example disclosure note in the financial statements. However, as this publication is a reference tool, no disclosures have been removed based on materiality. Instead, illustrative disclosures for as many common scenarios as possible have been included.

Please note that the amounts disclosed in this publication are purely for illustrative purposes and may not be consistent throughout the example disclosure related party transactions.

Users of the financial statements should be given sufficient information to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. To achieve this, entities must provide qualitative and quantitative information about their contracts with customers, significant judgements made in applying IFRS 15 and any assets recognised from the costs to obtain or fulfil a contract with customers. [IFRS 15.110]

Disaggregation of revenue

[IFRS 15.114, IFRS 15.B87-B89]

Entities must disaggregate revenue from contracts with customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. It will depend on the specific circumstances of each entity as to how much detail is disclosed. The Reporting entity Plc has determined that a disaggregation of revenue using existing segments and the timing of the transfer of goods or services (at a point in time vs over time) is adequate for its circumstances. However, this is a judgement and will not necessarily be appropriate for other entities.

Other categories that could be used as basis for disaggregation include:

1. type of good or service (eg major product lines)
2. geographical regions
3. market or type of customer
4. type of contract (eg fixed price vs time-and-materials contracts)
5. contract duration (short-term vs long-term contracts), or
6. sales channels (directly to customers vs wholesale).

When selecting categories for the disaggregation of revenue entities should also consider how their revenue is presented for other purposes, eg in earnings releases, annual reports or investor presentations and what information is regularly reviewed by the chief operating decision makers. [IFRS 15.B88]

Where revenue is disaggregated on a basis other than reportable segments, the entity must disclose sufficient information so users of its financial statements can understand the relationship between the disaggregated revenue and the revenue information that is disclosed for each reportable segment. [IFRS 15.115]

Accounting policies and significant judgements

As explained fro the main statements in IAS 1 Presentation of Financial Statements, it is helpful for readers of the financial report if the notes for specific line items in the financial statements also set out:

1. information about accounting policies that are specific to the entity, and that explain how the line items are determined, and
2. information about significant judgements and estimates applied in relation to line items.

However, this format is not mandatory. IFRS 15 Revenue Disclosures Examples

A full list of all accounting policies is provided in note 25 together with relevant commentary.

Detailed commentary regarding the disclosure of significant judgements and estimates is provided in note 11.

Other potential disclosures

Issue not disclosed	Relevant disclosures or references
Revenue from contracts with customers is disclosed together with other sources of revenue in the statement of profit or loss [IFRS 15.113]	Disclose items of revenue from contracts with customers separately from other sources of revenue. IFRS 15 Revenue Disclosures Examples  IFRS 15 Revenue Disclosures Examples IFRS 15 Revenue Disclosures Examples  IFRS 15 Revenue Disclosures Examples
Costs incurred to obtain a contract [IFRS 15.127-129, IFRS 15.94] IFRS 15 Revenue Disclosures Examples IFRS 15 Revenue Disclosures Examples  IFRS 15 Revenue Disclosures Examples  IFRS 15 Revenue Disclosures Examples	For assets recognised, provide disclosures as per IFRS 15 paragraphs 127 and 128. Where no asset is recognised because the period of amortisation is one year or less, disclose that fact.

Example Disclosure IFRS 15 Revenue from contracts with customers

3 Revenue from contracts with customers

3(a) Disaggregation of revenue from contracts with customers

[IFRS 15.114] IFRS 15 Revenue Disclosures Examples 

The group derives revenue from the transfer of goods and services over time and at a point in time in the following major product lines and geographical regions:

Amounts in CU’000 2020 IFRS 15 Revenue Disclosures Examples	Furniture – manufacturing and wholesale		Furniture – retail	IT Consulting		Electronic equipment	All other segments	Total
	Neverland	China	Neverland	US	Europe	Neverland
Segment revenue	55,100	35,100	31,609	33,300	16,900	13,850	16,600	202,459
Inter-segment revenue	-1,200	-700	-900	-800	-300	-500	-400	-4,800
External customers’ revenue	53,900	33,400	30,709	32,500	16,600	13,350	16,200	197,659
Timing of revenue recognition
– At a point in time	53,900	34,400	30,709	1,000	600	13,350	16,200	150,159
– Over time	–	–	–	31,500	16,000	–	–	47,500
	53,900	34,400	30,709	32,500	16,600	13,350	16,200	197,659

Amounts in CU’000 2019	Furniture – manufacturing and wholesale		Furniture – retail	IT Consulting		Electronic equipment	All other segments	Total
	Neverland	Asia	Neverland	US	Europe	Neverland
Segment revenue	60,350	36,860	20,365	22,600	14,790	–	10,199	165,164
Inter-segment revenue	-1,150	-1,100	–	-600	-610	–	-100	-3,560
External customers’ revenue	59,200	35,760	20,365	22,000	14,180	–	10,099	161,604
Timing of revenue recognition
– At a point in time	59,200	35,760	20,365	800	500	–	10,099	126,724
– Over time	–	–	–	21,200	13,680	–	–	34,880
	59,200	35,760	20,365	22,000	14,180	–	10,099	161,604

IFRS References:

[IFRS 15.115 (Segment revenue), IFRS 8.23(a) (External customers’ revenue), (b) (Inter-segment revenue), IFRS 8.28(a) (External customers’ revenue), IFRS 15.B87-B89) (Timing of revenue recognition)

Revenues from external customers come from the sale of furniture on a wholesale and retail basis, from the provision of IT consulting services and from the sale of electronic equipment. The revenue from wholesale sales of furniture relates only to the group’s own brand, Pina Colada Furniture. The retail sales relate to the group’s own brand as well as other major retail brands. [IFRS 8.32]

Revenues of approximately CU26,320,000 (2019 – CU24,280,000) are derived from a single external customer. These revenues are attributed to the Neverland furniture manufacturing and wholesale segment. [IFRS 8.34]

The entity is domiciled in Neverland. The amount of its revenue from external customers, broken down by location of the customers, is shown in the graphs below. [IFRS 8.33(a)]

* Amounts are in CU’000!

3(b) Assets and liabilities related to contracts with customers

The group has recognised the following assets and liabilities related to contracts with customers:

Amounts in CU’000	Notes	31/12/20	31/12/19	01/01/19
Current contract assets relating to IT consulting contracts [IAS 1.77] IFRS 15 Revenue Disclosures Examples IFRS 15 Revenue Disclosures Examples	(b)(i), (c)(iv)	1,547	2,597	1,897
Loss allowance	12(c)	-28	-36	-30
Total contract assets [IFRS 15.116(a)]		1,519	2,561	1,867
IFRS 15 Revenue Disclosures Examples IFRS 15 Revenue Disclosures Examples  IFRS 15 Revenue Disclosures Examples
Non-current asset recognised for costs incurred to fulfil a contract [IAS 1.77]	(b)(iv)	312	520	–
IFRS 15 Revenue Disclosures Examples IFRS 15 Revenue Disclosures Examples  IFRS 15 Revenue Disclosures Examples
Contract liabilities – customer loyalty programme [IAS 1.77, IFRS 15.120(a)] IFRS 15 Revenue Disclosures Examples	(c)(iii)	552	536	450
Contract liabilities – IT consulting contracts [IAS 1.77] IFRS 15 Revenue Disclosures Examples	(b)(iii), (c)(iv)	1,430	989	205
Total current contract liabilities [IFRS 15.116(a)]		1,982	1,525	655

(i) Significant changes in contract assets and liabilities

Contract assets have decreased as the group has provided fewer services ahead of the agreed payment schedules for fixed-price contracts. The group also recognised a loss allowance for contract assets in accordance with IFRS 9, see note 12(c) for further information. [IFRS 15.118, IFRS 15.113(b)]

Contract liabilities for IT consulting contracts have increased by CU473,000 partly as a result of the acquisition of The Reporting entity Electronics Group, see note 14. The increase in 2019 was due to the negotiation of larger prepayments and an increase in overall contract activity.

(ii) Revenue recognised in relation to contract liabilities

The following table shows how much of the revenue recognised in the current reporting period relates to carried-forward contract liabilities and how much relates to performance obligations that were satisfied in a prior year:

Amounts in CU’000	31/12/20	31/12/19
Revenue recognised that was included in the contract liability balance at the beginning of the period [IFRS 15.116(b)]
– IT consulting contracts	989	205
– Customer loyalty programme	536	450
Revenue recognised from performance obligations satisfied in previous periods [IFRS 15.116(c)]
Consideration from furniture wholesale contract, not previously recognised due to the constraint, see (c)(i) below.	150	–

(iii) Unsatisfied long-term consulting contracts

The following table shows unsatisfied performance obligations resulting from fixed-price long-term IT consulting contracts:

Amounts in CU’000	31/12/20	31/12/19
Aggregate amount of the transaction price allocated to long-term IT consulting contracts that are partially or fully unsatisfied as at 31 December [IFRS 15.120(a)]	8,881	–

Management expects that 60% of the transaction price allocated to unsatisfied performance obligations as of 31 December 2020 will be recognised as revenue during the next reporting period (CU5,328,000). The remaining 40% (CU3,553,000) will be recognised in the 2022 financial year. The amount disclosed above does not include variable consideration which is constrained. [IFRS 15.120(b), IFRS 15.22]

All other IT consulting contracts are for periods of one year or less or are billed based on time incurred. As permitted under IFRS 15, the transaction price allocated to these unsatisfied contracts is not disclosed. [IFRS 15.121-122]

(iv) Assets recognised from costs to fulfil a contract

In addition to the contract balances disclosed above, the group has also recognised an asset in relation to costs to fulfil a long-term IT contract. This is presented within other assets in the balance sheet.

Amounts in CU’000	31/12/20	31/12/19
Asset recognised from costs incurred to fulfil a contract at 31 December [IFRS 15.128(a)]	312	520
Amortisation and impairment loss recognised as cost of providing services during the period [IFRS 15.128(b)]	208	–

In December 2019, the group incurred costs of CU520,000 in respect of data transfer for the set-up of an IT platform relating to a long-term IT contract. The costs relate directly to the contract, generate resources that will be used in satisfying the contract and are expected to be recovered. They were therefore recognised as an asset from costs to fulfil a contract. [IFRS 15.95, IFRS 15.127]

The asset is amortised on a straight-line basis over the term of the specific contract it relates to, consistent with the pattern of recognition of the associated revenue. [IAS 36.126(a)] Due to an increase in expected costs by 30% in the financial year 2020, management does not expect the capitalised costs to be completely recovered. An impairment loss of CU77,000 has therefore been recognised for the excess of the capitalised cost over the expected remaining consideration, less any directly related costs not yet recognised as expense.

3(c) Accounting policies and significant judgements

[IFRS 15.119]

(i) Sale of goods – wholesale

The group manufactures and sells a range of furniture and electronic equipment in the wholesale market. Sales are recognised when control of the products has transferred, being when the products are delivered to the wholesaler, the wholesaler has full discretion over the channel and price to sell the products, and there is no unfulfilled obligation that could affect the wholesaler’s acceptance of the products.

Delivery occurs when the products have been shipped to the specific location, the risks of obsolescence and loss have been transferred to the wholesaler, and either the wholesaler has accepted the products in accordance with the sales contract, the acceptance provisions have lapsed, or the group has objective evidence that all criteria for acceptance have been satisfied. [IFRS 15.119(a),(c), IFRS 15.123(a), IFRS 15.125]

The furniture is often sold with retrospective volume discounts based on aggregate sales over a 12 month period. Revenue from these sales is recognised based on the price specified in the contract, net of the estimated volume discounts. Accumulated experience is used to estimate and provide for the discounts, using the expected value method, and revenue is only recognised to the extent that it is highly probable that a significant reversal will not occur.

A refund liability (included in trade and other payables) is recognised for expected volume discounts payable to customers in relation to sales made until the end of the reporting period. No significant element of financing is deemed present as the sales are made with a credit term of 30 days, which is consistent with market practice. The group’s obligation to repair or replace faulty products under the standard warranty terms is recognised as a provision, see note 8(i). [IFRS 15.119(b),(d),(e), IFRS 15.123(b), IFRS 15.126]

A receivable is recognised when the goods are delivered as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due. [IFRS 15.117]

Critical judgements in recognising revenue [IFRS 15.123, IFRS 15.126(a),(b)]

The group has recognised revenue amounting to CU2,950,000 for sale of furniture to a wholesale customer in December 2020. The buyer has the right to rescind the sale if there is 5% dissatisfaction with the quality of the first 100 pieces of furniture sold. This specific concession was made because this is a new product line specifically designed for this customer. However, consistent with other contracts, the group does not have a right to payment until the furniture has been delivered to the customer. Based on the quality assurance system implemented, the group is confident that the quality of the product is such that the dissatisfaction rate will be well below 5%. Management has determined that it is highly probable that there will be no rescission of the contract, and that a significant reversal in the amount of revenue recognised will not occur. It is therefore appropriate to recognise revenue on this transaction during 2020 as control of the product is transferred to the customer. The profit recognised for this sale was CU1,625,000. The group would suffer an estimated pre-tax loss of CU1,760,000 in its 2021 financial statements if the sale is cancelled (CU1,625,000 for the reversal of 2020 profits and CU135,000 of costs connected with returning the stock to the warehouse). In 2019, the group did not recognise revenue of CU280,000 in relation to a wholesale contract with volume discounts for a new customer and new product line. The group did not have any experience with the customer’s purchase pattern and the product line. Management therefore determined that it was not highly probable that a portion of the revenue will not reverse. Of the CU280,000 of revenue not recognised in 2019, CU150,000 was recognised in the current financial year based on the actual volume sold for the contract period, see (b)(ii) above.

(ii) Sale of goods – retail

The group operates a chain of retail stores selling household furniture. Revenue from the sale of goods is recognised when a group entity sells a product to the customer. [IFRS 15.119(a),(c), IFRS 15.123, IFRS 15.125]

Payment of the transaction price is due immediately when the customer purchases the furniture and takes delivery in store. It is the group’s policy to sell its products to the end customer with a right of return within 28 days. Therefore, a refund liability (included in trade and other payables) and a right to the returned goods (included in other current assets) are recognised for the products expected to be returned.

Accumulated experience is used to estimate such returns at the time of sale at a portfolio level (expected value method). Because the number of products returned has been steady for years, it is highly probable that a significant reversal in the cumulative revenue recognised will not occur. The validity of this assumption and the estimated amount of returns are reassessed at each reporting date. [IFRS 15.117, IFRS 15.119(b), (d), IFRS 15.123(b), IFRS 15.126]

The group’s obligation to repair or replace faulty products under the standard warranty terms is recognised as a provision, see note 8(i). [IFRS 15.119(e)]

(iii) Sale of goods – customer loyalty programme

The group operates a loyalty programme where retail customers accumulate points for purchases made which entitle them to discount on future purchases. A contract liability for the award points is recognised at the time of the sale. Revenue is recognised when the points are redeemed or when they expire 12 months after the initial sale. [IFRS 15.119(a),(c), IFRS 15.120(b), IFRS 15.125]

Critical judgements in allocating the transaction price [IFRS 15.123(b), IFRS 15.126(c)]

The points provide a material right to customers that they would not receive without entering into a contract. Therefore, the promise to provide points to the customer is a separate performance obligation. The transaction price is allocated to the product and the points on a relative stand-alone selling price basis. Management estimates the stand-alone selling price per point on the basis of the discount granted when the points are redeemed and on the basis of the likelihood of redemption, based on past experience. The stand-alone selling price of the product sold is estimated on the basis of the retail price. Discounts are not considered as they are only given in rare circumstances.

A contract liability is recognised until the points are redeemed or expire. [IFRS 15.117]

(iv) IT consulting services

The IT consulting division provides business IT management, design, implementation and support services under fixed-price and variable-price contracts. Revenue from providing services is recognised in the accounting period in which the services are rendered. For fixed-price contracts, revenue is recognised based on the actual service provided to the end of the reporting period as a proportion of the total services to be provided, because the customer receives and uses the benefits simultaneously. This is determined based on the actual labour hours spent relative to the total expected labour hours. [IFRS 15.119(a),(c), IFRS 15.124]

Some contracts include multiple deliverables, such as the sale of hardware and related installation services. However, the installation is simple, does not include an integration service and could be performed by another party. It is therefore accounted for as a separate performance obligation. [IFRS 15.119(c)]

Where the contracts include multiple performance obligations, the transaction price will be allocated to each performance obligation based on the stand-alone selling prices. Where these are not directly observable, they are estimated based on expected cost plus margin. If contracts include the installation of hardware, revenue for the hardware is recognised at a point in time when the hardware is delivered, the legal title has passed and the customer has accepted the hardware. [IFRS 15.22, IFRS 15.73, IFRS 15.79, IFRS 15.119(a), IFRS 15.125]

Estimates of revenues, costs or extent of progress toward completion are revised if circumstances change. Any resulting increases or decreases in estimated revenues or costs are reflected in profit or loss in the period in which the circumstances that give rise to the revision become known by management. [IFRS 15.119(a), IFRS 15.123(a)]

In the case of fixed-price contracts, the customer pays the fixed amount based on a payment schedule. If the services rendered by The Reporting entity Plc exceed the payment, a contract asset is recognised. If the payments exceed the services rendered, a contract liability is recognised. [IFRS 15.117]

If the contract includes an hourly fee, revenue is recognised in the amount to which The Reporting entity Plc has a right to invoice. Customers are invoiced on a monthly basis and consideration is payable when invoiced. [IFRS 15.117, IFRS 15.B16]

Critical judgements in allocating the transaction price [IFRS 15.123(b), IFRS 15.126(c)]

Some fixed-price IT support contracts include an allowance for one free of charge hardware replacement per contract period up to a specified value. Because these contracts include two performance obligations, the transaction price must be allocated to the performance obligations on a relative stand-alone selling price basis. Management estimates the stand-alone selling price at contract inception, based on observable prices of the type of hardware likely to be provided and the services rendered in similar circumstances to similar customers. If a discount is granted, it is allocated to both performance obligations based on their relative stand-alone selling prices.

(v) Land development and resale

The group develops and sells residential properties. Revenue is recognised when control over the property has been transferred to the customer. The properties have generally no alternative use for the group due to contractual restrictions. However, an enforceable right to payment does not arise until legal title has passed to the customer. Therefore, revenue is recognised at a point in time when the legal title has passed to the customer. [IFRS 15.119(a),(c), IFRS 15.123, IFRS 15.125]

The revenue is measured at the transaction price agreed under the contract. In most cases, the consideration is due when legal title has been transferred. While deferred payment terms may be agreed in rare circumstances, the deferral never exceeds 12 months. The transaction price is therefore not adjusted for the effects of a significant financing component. [IFRS 15.117, IFRS 15.119(b), IFRS 15.123(b), IFRS 15.126, IFRS 15.129, IFRS 15.63]

(vi) Financing components

The group does not expect to have any contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a consequence, the group does not adjust any of the transaction prices for the time value of money. [IFRS 15.129, IFRS 15.63]

IFRS 15 Revenue Disclosures Examples IFRS 15 Revenue Disclosures Examples IFRS 15 Revenue Disclosures Examples IFRS 15 Revenue Disclosures Examples IFRS 15 Revenue Disclosures Examples IFRS 15 Revenue Disclosures Examples IFRS 15 Revenue Disclosures Examples IFRS 15 Revenue Disclosures Examples IFRS 15 Revenue Disclosures Examples IFRS 15 Revenue Disclosures Examples IFRS 15 Revenue Disclosures Examples IFRS 15 Revenue Disclosures Examples IFRS 15 Revenue Disclosures Examples