Contract costs

Contract costs from Contracts with Customers

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Contract costs from Contracts with Customers

– 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. Contract costs from Contracts with Customers

Contract costs are initially recognised as an asset and expensed on a systematic basis that is consistent with the transfer to the customer of the good or service to which those costs relate. Contract costs comprise both incremental costs of obtaining a contract and costs to fulfill a contract. Contract costs from Contracts with Customers

Incremental costs of obtaining a contract

Incremental costs incurred in obtaining a contract are those that would not have been incurred had that individual contract not been obtained. This is restrictive and includes only costs such as a sales commission that is paid only if the contract is obtained, unless the costs can be explicitly recharged to a customer. Contract costs from Contracts with CustomersContract costs from Contracts with Customers

As a practical expedient, incremental costs of obtaining a contract can be recognised as an immediate expense rather than capitalised if the period over which they would otherwise be expensed (or amortized) is one year or less. Contract costs from Contracts with Customers

All other ongoing costs of running the business, including costs that are incurred with the intention of obtaining a contract with a customer, are not incremental and will be expensed unless they fall within the scope of another accounting standard (such as IAS 16 Property, Plant and Equipment) and are required to be accounted for as an asset.

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IAS 36 Best brilliant impairment of telecom assets

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IAS 36 Best brilliant impairment of telecom assets sets out the procedures that an entity should follow to ensure that it carries its assets at no more than their recoverable amount. Recoverable amount is the higher of the amount to be realised through using or selling the asset. Where the carrying amount exceeds the recoverable amount, the asset is impaired and an impairment loss must be recognised. The standard details the circumstances when an impairment loss should be reversed, and also sets out required disclosures for impaired assets, impairment losses, reversals of impairment losses as well as key estimates and assumptions used in measuring the recoverable amounts of cash-generating units (CGUs) that contain goodwill or intangible assets with indefinite lives. … Read more

Construction contract – How 2 best account for it in IFRS 15

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A construction contract is a contract specifically negotiated for the construction of (a combination of) assets that are closely interrelated in terms of design

The perfect 5 step-by-step revenue model

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The perfect 5 step-by-step revenue model -IFRS 15 Revenue from Contracts with Customers was issued on 28 May 2014. It supersedes: IAS 18 Revenue; The perfect 5 step-by-step revenue model IAS 11 Construction contracts; The perfect 5 step-by-step revenue model IFRIC 13 Customer Loyalty Programmes; The perfect 5 step-by-step revenue model IFRIC 15 Agreements for the Construction of Real Estate; The perfect 5 step-by-step revenue model IFRIC 18 Transfers of Assets from Customers; and The perfect 5 step-by-step revenue model SIC-31 Revenue – Barter Transactions Involving Advertising Services. The perfect 5 step-by-step revenue model IFRS 15 will improve comparability of reported revenue over a range of industries, companies and geographical areas globally. IFRS 15’s objective is to establish principles that … Read more

Loss-making or onerous construction contracts

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Loss-making or onerous construction contracts These are just two names for the same thing, an onerous contract is an accounting term that refers to a contract that will cost a company more to fulfill than what the company will receive in return. Loss-making or onerous construction contracts IAS 37 defines an onerous contract as “a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.” Loss-making or onerous construction contracts The term “unavoidable costs” also has a specific meaning for accounting purposes. The IASB explains it as “the lower of the cost of fulfilling the contract and any compensation or penalties arising from failure to fulfill it.” … Read more

IFRS 15 Presentation in main statements

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IFRS 15 Presentation in main statements – While an entity must provide sufficient information to meet the objective, the disclosures described in the standards are not intended to be a checklist of minimum requirements. That is, entities do not need to include disclosures that are not relevant or are not material to them. In addition, an entity does not need to disclose information in accordance with the revenue standards if it discloses that information in accordance with another standard. Entities are required to consider the level of detail necessary to satisfy the disclosure objective and the degree of emphasis to place on each of the various requirements. The level of aggregation or disaggregation of disclosures requires judgement. Furthermore, entities are … Read more

Software warranties

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Software warranties – A customer may have the option to separately purchase a warranty on a product (e.g., computer hardware, equipment) for a period of time

Service Concession Arrangements

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Illustrative examples Service Concession Arrangements These examples accompany, but are not part of, IFRIC 12. Example 1: The grantor gives the operator a financial asset Arrangement terms Service Concession Arrangements IE1 The terms of the arrangement require an operator to construct a road—completing construction within two years—and maintain and operate the road to a specified standard for eight years (ie years 3–10). The terms of the arrangement also require the operator to resurface the road at the end of year 8—the resurfacing activity is revenue-generating. At the end of year 10, the arrangement will end. The operator estimates that the costs it will incur to fulfil its obligations will be: Table 1.1 Contract costs Service Concession Arrangements IE2 The terms … Read more