Series provision

Series provision – IFRS 15 Revenue from Contracts with Customers (contents page is here) 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.Series provision

Under IFRS 15 a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer are accounted for as a single performance obligation.

As a result in certain contracts, multiple distinct goods or services will comprise a single performance obligation. These distinct goods and services may be identical to each other, or not.

A series of distinct goods or services provided over time (e.g. delivering utilities, cleaning services etc.) are considered a single performance obligation if they are substantially the same and have the same pattern of transfer to the customer. This is known as the ‘series provision’.

A series of distinct goods or services has the same pattern of transfer to the customer if both of the following criteria are met:

Example – Series of distinct services treated as a single performance obligation

Entity B contracts to provide property management services for a 5-year period. The compensation is a percentage of the property rental and reimbursement for the labor costs of the services.

Analysis
This contract contains multiple distinct services, each being periodic property management services. Each distinct service is the substantially the same and is provided as a series.

Entity B next assesses whether the series of distinct services have the same pattern of transfer to the customer.

The property management services are simultaneously received and consumed by the customer – therefore each distinct service would meet the criteria to be a performance obligation that would be satisfied over time.

Finally, Entity B implicitly uses labor costs incurred to measure progress for all services in the series.

In conclusion, the arrangement is a series of distinct services that should be treated as a single performance obligation that is performed over time.

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There are three primary areas in which the accounting treatment may vary for a performance obligation if it is determined that a promise is a single performance obligation comprised of a series of distinct goods rather than a single performance obligation comprised of goods or services that are not distinct from each other:Portfolio of contracts (or performance obligations)

The need to consider whether the series provision should apply is relevant to many service contracts and also contracts involving the delivery of a quantity of similar items where those items are not all delivered at the same time, but over the contractual period.

Series provision

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