Multiple advances and multiple deliveries of goods is an example presented in IFRIC 22 Foreign Currency Transactions and Advance Consideration. Other example are Multiple advances and multiple service deliveries, Multiple advances for one delivery of goods and Advance payment to purchase Property, plant and equipment.
These examples accompany, but are not part of, IFRIC 22. Multiple advances and multiple deliveries of goods
In these examples, foreign currency amounts are ‘Foreign Currency’ (FC) and functional currency amounts are ‘Local Currency’ (LC).
The objective of these examples is to illustrate how an entity determines the date of the transaction when it recognises a non-monetary asset or non-monetary liability arising from advance consideration in a foreign currency before it recognises the related asset, expense or income (or part of it) applying relevant IFRSs.
Example 4—Multiple receipts for revenue recognised at multiple points in time Multiple advances and multiple deliveries of goods
On 1 January 20X4, Entity D enters into a contract to sell two products to a customer. Entity D transfers one product on 1 March 20X4 and the second on 1 June 20X4. As required by the contract, the customer pays a fixed purchase price of FC1,000, of which FC200 is due and received in advance on 31 January 20X4 and the balance is due and received on 1 June 20X4.
The following facts are relevant: Multiple advances and multiple deliveries of goods
- applying AASB 15, Entity D allocates FC450 of the transaction price to the first product and FC550 to the second product.
- Entity D has determined that, for this contract, the consideration of FC200 received on 31 January 20X4 relates to the first product transferred on 1 March 20X4. On transfer of that product to the customer, Entity D has an unconditional right to FC250 of the remaining consideration.
The spot exchange rates are:
|Date||Spot exchange rate FC:LC|
|31 January 20X4||1 : 1.50|
|1 March 20X4||1 : 1.70|
|1 June 20X4||1 : 1.90|
The following journal entries illustrate how Entity D accounts for the foreign currency aspects of the contract:
(a) Entity D receives the advance payment of FC200 on 31 January 20X4, which it translates into its functional currency using the exchange rate at 31 January 20X4.
|Cr Contract liability||200||300|
(b) Applying paragraph 23(b) of AASB 121, Entity D does not update the translated amount of the non-monetary contract liability.
(c) Entity D transfers the first product with a transaction price of FC450 on 1 March 20X4. Entity D derecognises the contract liability and recognises revenue of LC300. Entity D recognises the remaining revenue of FC250 relating to the first product and a corresponding receivable, both of which it translates at the exchange rate at the date that it initially recognises the remaining revenue of FC250, ie 1 March 20X4.
|Dr Contract liability||200||300|
(d) The receivable of FC250 is a monetary item. Entity D updates the translated amount of the receivable until the receivable is settled (1 June 20X4). At 1 June 20X4, the receivable of FC250 is equivalent to LC475. As required by paragraph 28 of IAS 21 Entity D recognises an exchange gain of LC50 in profit or loss.
|Cr Foreign exchange gain||–||–||50|
(e) Entity D transfers the second product with a transaction price of FC550 on 1 June 20X4. Entity D recognises revenue of FC550 using the exchange rate at the date of the transaction, which is the date that Entity D first recognises this part of the transaction in its financial statements, ie 1 June 20X4.
(f) Entity D also receives the remaining consideration of FC800 on 1 June 20X4. FC250 of the consideration received settles the receivable of FC250 arising on the transfer of the first product. Entity D translates the cash at the exchange rate at 1 June 20X4.
Background IFRIC Interpretation 22
Foreign Currency Transactions and Advance Consideration Multiple advances and multiple deliveries of goods
Paragraph 21 of IAS 21 The Effects of Changes in Foreign Exchange Rates requires an entity to record a foreign currency transaction, on initial recognition in its functional currency, by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency (the exchange rate) at the date of the transaction.
Paragraph 22 of IAS 21 states that the date of the transaction is the date on which the transaction first qualifies for recognition in accordance with IFRS Standards (Standards).
When an entity pays or receives consideration in advance in a foreign currency, it generally recognises a non-monetary asset or non-monetary liability before the recognition of the related asset, expense or income. The related asset, expense or income (or part of it) is the amount recognised applying relevant Standards, which results in the derecognition of the non‑monetary asset or non‑monetary liability arising from the advance consideration. Multiple advances and multiple deliveries of goods
The IFRS Interpretations Committee (the Interpretations Committee) initially received a question asking how to determine ‘the date of the transaction’ applying paragraphs 21–22 of IAS 21 when recognising revenue. The question specifically addressed circumstances in which an entity recognises a non-monetary liability arising from the receipt of advance consideration before it recognises the related revenue. Multiple advances and multiple deliveries of goods
In discussing the issue, the Interpretations Committee noted that the receipt or payment of advance consideration in a foreign currency is not restricted to revenue transactions. Accordingly, the Interpretations Committee decided to clarify the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income when an entity has received or paid advance consideration in a foreign currency. Multiple advances and multiple deliveries of goods
See also: The IFRS Foundation