Royalty income intellectual property

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IFRS 15 Royalty income intellectual property provides application guidance on the recognition of revenue for sales-based or usage-based royalties on licences of intellectual property, which differs from the requirements that apply to other revenue from licences.

IFRS 15 B63 requires that royalties received in exchange for licences of intellectual property are recognised at the later of when:Royalty income intellectual property

(a) The subsequent sale or usage occurs.

and

(b) The performance obligation to which some or all of the sales-based or usage-based royalty has been allocated is satisfied (or partially satisfied).

Royalties revenue recognition

That is, an entity recognises the royalties as revenue for such arrangements when (or as) the customer’s subsequent sales or usage occurs, unless that pattern of recognition accelerates … Read more

What is it all about warranty accounting?

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Many if not most consumer goods are sold subject to some kind of product warranty. This includes everything from microwaves and computers to automobiles and trucks. Sales of products subject to warranties present yet another challenge to accrual accounting. What is it all about warranty accounting? What is it all about warranty accounting? What is it all about warranty accounting?

Purchase a warranty

If a customer has the option to separately purchase a warranty, then an entity accounts for that warranty as a performance obligation. If aWhat is it all about warranty accounting? customer does not have the option to separately purchase a warranty, then the entity accounts for the warranty using the cost accrual guidance in IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets… Read more

When is an asset identified?

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When is an asset identified is an important question in accounting for IFRS 16 Leases.

Even if an asset is specified, a customer does not have the right to use an identified asset if, at inception of the contract, a supplier has the substantive right to substitute the asset throughout the period of use (i.e., the total period of time that an asset is used to fulfil a contract with a customer, including the sum of any non-consecutive periods of time). When is an asset identified?

Substitution right

A substitution right is substantive if the supplier has the practical ability to substitute alternative assets throughout the period of use and the supplier would benefit economically from exercising its right to … Read more

Contract costs

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IFRS 15 for contract costs specifies the accounting treatment for costs an entity incurs to obtain and fulfil a contract to provide goods or services to customers as discussed below. An entity only applies these requirements to costs incurred that relate to a contract with a customer that is within the scope of IFRS 15.

When an entity recognises capitalised contract costs under IFRS 15, any such assets must be presented separately from contract assets and contract liabilities in the statement of financial position or disclosed separately in the notes to the financial statements (assuming they are material).Contract costs

Furthermore, entities must consider the requirements in IAS 1 on classification of current assets when determining whether their contract cost assets are … Read more

Acquisitions exclusively with a view to disposal

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Acquisitions exclusively with a view to disposal

Entities often acquire non-current assets exclusively with a view to disposal/sale (or acquisitions exclusively with a view to disposal). Such a non-current asset will be classified as held-for-sale at the date of the acquisition only if it is anticipated that it will be sold within the one-year period, and it is highly probable that the held-for-sale criteria will be met within a short period (normally three months) of the acquisition date.

If the criteria for classifying a non-current asset as held-for-sale occur after the balance sheet date, then the non-current asset should not be shown as held-for-sale but disclosure of the fact should be made.  Acquisitions exclusively with a view … Read more

Discontinued operations

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The definition: Discontinued operations is a component of an entity that either has been disposed off, or is classified as held for sale, and:

  1. represents a separate major line of business or geographical area of operations, Discontinued operations
  2. is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations; or
  3. is a subsidiary acquired exclusively with a view to resale. Discontinued operations

and the second definition: A component of an entity comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. In other words, a component of an entity will have been a cash-generating unit or a group … Read more

Presentation of discontinued operations

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The presentation of discontinued operations is part of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.

Presentation of discontinued operations

The profit or loss for the year on discontinued operations is presented as a separate line in the statement of profit or loss and other comprehensive income after the figure ‘profit for the year’. Presentation of discontinued operations

The line items from ‘Revenue’ to ‘profit for the year’ should therefore include continuing operations only. The figure for discontinued operations should include the post tax gain or loss on disposal of the assets of the operation (if sold) or the gain or loss on re-measurement following transfer to ‘held for sale’ (if relevant). Presentation of discontinued operations

If … Read more

IFRS 12 Disclosure of Interest in Other Entities

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IFRS 12 Disclosure of Interest in Other Entities is a consolidated disclosure standard requiring a wide range of disclosures about an entity’s interests in subsidiaries, joint arrangements, associates and unconsolidated ‘structured entities’. Disclosures are presented as a series of objectives, with detailed guidance on satisfying those objectives.

IFRS 12

Source: PKF Summaries & Snapshots

Or in more detail……

SCOPE

DEFINITIONS

SIGNIFICANT JUDGEMENTS AND ASSUMPTIONS

Applied by entities that have an interest in: Subsidiaries; joint arrangements, associates; and unconsolidated structured entities.

IFRS 12 does not apply to:

  • Post-employment benefit plans or other long-term employee benefit plans to which IAS 19 Employee Benefits applies,

  • Separate financial statements, where IAS 27 Separate Financial Statements applies

  • An interest held by an entity that

… Read more

Revenue recognition at a point in time

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Revenue recognition at a point in time is included in IFRS 15 Revenue from Contracts with Customers (contents page is here), that 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. Revenue recognition at a point in time

We can say that performance obligation satisfied at a … Read more

IFRS 15 Revenue recognition

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IFRS 15 Revenue recognition is a primary and fundamental subject in the recognition of revenue. There are two ways of recognising revenue, revenue recognition over time and revenue recognition at a point in time. Revenue recognition over time is often referred to as the ‘Percentage of completion‘ method under the (superseded) IAS 11 Construction contracts.

The general principle is the revenue is recognised at a point in time (and as such it is the most common type of sales transaction at least in volume, just think of: a retailer sells a candy bar for cash in the shopping mall). As a result there are three criterion (see below ability, direct the use and obtain benefits from) that … Read more