An entity applies the principles in IFRS 15 on how to separate a contract with a customer that is partially within the scope of IFRS 15 and partially within the scope of other standards. The allocation of cash flows between the host insurance contract and the distinct goods or non-insurance services must be based on the stand-alone selling price of the components. In the absence of stand-alone selling prices that are directly observable, an entity must estimate the stand-alone selling prices to allocate the transaction price to each of the components. Cash outflows must be allocated to their related component, or, if not clearly related to one of the components, systematically and rationally allocated between components [IFRS 17 12… Read more
Before the entity accounts for an insurance contract based on the guidance in IFRS 17, it should analyse whether the contract contains components that should be separated. IFRS 17 distinguishes between three different kinds of component that have to be accounted for separately if certain criteria are met: Separation of Insurance Contracts
- embedded derivatives; Separation of Insurance Contracts
- investment components; and Separation of Insurance Contracts
- promises to transfer distinct goods or distinct non-insurance services.
An entity applies IFRS 17 to all remaining components of the contract. Separation of other non-insurance components is prohibited.
Under IFRS 17 separation of any components (except the three components above) is prohibited unless it is explicitly required under the standard. This might have … Read more
To apply IFRS 15, automotive parts suppliers (APSs) will need to change the way they evaluate long-term supply contracts. APSs need to use significant judgement when they identify separate performance obligations (i.e., units of account), which may be different from those identified under IAS 18.
APSs commonly enter into long-term arrangements with Original Equipment Manufacturers (OEMs) to provide specific parts, such as seat belts or steering wheels. An arrangement typically includes the construction for the tooling, which is required to be used when manufacturing the parts to meet the OEM’s specifications. In many cases, the APS will construct and transfer the legal title for the tooling to the OEM after construction, even though they will retain physical possession … Read more
To apply IFRS 15, original equipment manufacturers (OEMs) will need to change the way they evaluate incentives. OEMs need to use significant judgement when they identify separate performance obligations (i.e., units of account), which may be different from those identified under IAS 18.
OEMs frequently offer sales incentives in contracts to sell vehicles to dealers. These sales incentives may be cash rebate bonuses or another type of incentive available to dealers and retail customers (who purchase the vehicle from the dealer). They may also include free, or heavily discounted, goods or services provided to retail customers, such as free satellite radio or free maintenance for a specified period. Dealer sales vehicle incentives
Under IFRS 15, cash incentives (i.e., cash, … Read more
Once an entity has identified the contract with a customer, it evaluates the contractual terms and its customary business practices to identify all the promised goods or services within the contract and determine which of those promised goods or services (or bundles of promised goods or services) will be treated as separate performance obligations.
Promised goods and services represent separate performance obligations if they are: Performance obligations in software and cloud services
• Distinct (by themselves or as part of a bundle of goods and services) Performance obligations in software and cloud services
Or Performance obligations in software and cloud services
This part relates to a complete explanation of IFRS 15 Revenue from contracts with customers in respect of Engineering & Construction contracts, see https://annualreporting.info/revenue-from-engineering-construction-contracts/.
Once the performance obligations are identified and the transaction price has been determined, IFRS 15 requires (with some exceptions, as discussed below) an entity to allocate the transaction price to the performance obligations in proportion to their stand-alone selling prices (i.e., on a relative stand-alone selling price basis).
To allocate the transaction price on a relative stand-alone selling price basis, an entity must first determine the stand-alone selling price (i.e., the price at which an entity would sell a good or service on a stand-alone basis at contract inception) for each performance obligation. The observable … Read more