Multiple advances for one delivery of goods

This is an example presented in IFRIC 22 Foreign Currency Transactions and Advance Consideration.

These examples accompany, but are not part of, IFRIC 22.

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 2—Multiple receipts for revenue recognised at a single point in time

On 1 June 20X2, Entity B entered into a contract with a customer to deliver goods on 1 September 20X2. The total fixed contract price is an amount of FC100, of which FC40 is due and received on 1 August 20X2 and the balance is receivable on 30 September 20X2.

Entity B initially recognises a non-monetary contract liability translating FC40 into its functional currency at the spot exchange rate between the functional currency and the foreign currency on 1 August 20X2. Applying paragraph 23(b) of IAS 21, Entity B does not update the translated amount of that non-monetary liability.

Applying paragraph 31 of IAS 15 Revenue from Contracts with Customers, Entity B recognises revenue on 1 September 20X2, the date on which it transfers the goods to the customer.

Entity B determines that the date of the transaction for the revenue relating to the advance consideration of FC40 is 1 August 20X2. Applying paragraph 22 of IAS 21, Entity B determines that the date of the transaction for the remainder of the revenue is 1 September 20X2.

On 1 September 20X2, Entity B:

  1. derecognises the contract liability of FC40 and recognises revenue using the exchange rate on 1 August 20X2; and
  2. recognises revenue of FC60 and a corresponding receivable using the exchange rate on that date (1 September 20X2).

The receivable of FC60 recognised on 1 September 20X2 is a monetary item. Entity B updates the translated amount of the receivable until the receivable is settled.