IFRS 15 Quick overview Revenue from contracts with customers

IFRS 15 Quick overview Revenue from contracts with customers – the easy way to obtain an solid overview.

What is the objective of IFRS 15?

To establish principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer.

How does IFRS 15 meet this objective?

The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Practical expedient – the portfolio

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Contract Modifications under IFRS 15

Contract Modifications under IFRS 15 – Just two practical examples, to better understand all kind of things for IFRS 15.

On 1 January 20X1, Wireless Company enters into a two-year contract with a customer for a 2-gigabyte (GB) data plan with unlimited talk and text for CU60/month and a subsidised handset for which the customer pays CU200. Contract Modifications under IFRS 15

The handset has a stand-alone selling price of CU600. Contract Modifications under IFRS 15

For purposes of this illustration, the time value of money has not been considered, the stand-alone selling price of the wireless plan is assumed to be the same as the contractual price and the effect of the constraint on variable consideration is not considered. … Read more

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 … Read more

IFRS 15 Property development obligations

IFRS 15 Property development obligations – 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.

This is an example for illustrating the concepts in ‘What is a good or service that is distinct?’

The scenarios in the following example demonstrates how two transactions which are substantively very … Read more

Identify Building Construction performance obligations

Identify Building Construction performance obligations – These are two examples in a small series for illustrating the concepts in What is a good or service that is distinct?

Construction of a building Identify Building Construction performance obligations

A building contractor (the vendor) enters into a contract to build a new office block for a customer. The vendor is responsible for the entire project, including procuring the construction materials, project management and associated services.

The project involves site clearance, foundations, construction, piping and wiring, equipment installation and finishing. Although the goods or services to be supplied Identify Building Construction performance obligations are capable of being distinct (because the customer could, for example, benefit from them on their own by using, consuming or selling the goods or … Read more

Long-term supply contracts

Long-term supply contracts – 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.

Tooling equipment

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 … Read more

Revenue recognition for technological goods services

Revenue recognition for technological goods services Revenue recognition for technological goods services – Technology entities commonly enter into transactions involving the delivery of multiple goods and services, such as professional services provided in conjunction with hardware and networking or hosting services.

Goods or services promised in a contract with a customer can be either explicitly stated in the contract or implied by an entity’s customary business practice (e.g., free access to a vendor’s online mobile controller application with the purchase of its audio hardware).

IFRS 15 requires entities to consider whether the customer has a valid expectation that the entity will provide a good or service even when it is not explicitly stated. If the customer has a valid expectation, the customer would view those promises Read more

Transfer of control for distinct software licences

Transfer of control for distinct software licences provides assistance in properly accounting for revenue in respect of IP licenses. IFRS 15 provides additional application guidance to help entities determine when control transfers for distinct licences of intellectual property (transfer of control for distinct software licences), based on the nature of the promise to the customer. This application guidance is applicable for both perpetual and term software licences.

IFRS 15 states that entities provide their customers with either:

Transfer of control for distinct software licences

transfer of control for distinct software licences

If the licence does not meet all three criteria, the licence is a right to use by default and the entity would recognise revenue at the point in time when the licence is delivered.

The key … Read more