Goods and services

What can happen to a contract with a customer?

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What can happen to a contract with a customer? – 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.

In step 1 Identify the contract there are some specifically identified circumstances to capture the day-to-day complexities of selling products and services to customers into useful financial reporting:

  1. Combination
… Read more

Financing component in the contract

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Financing component in the contract – 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. Financing component in the contract

The existence of a significant financing component in the contract

This section is part of step 3 determining the transaction price. The timing of payments specified in … Read more

Share-based payment

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In share-based payment transactions, an entity receives goods or services from a counterparty and grants equity instruments (equity-settled share-based payment transactions) or incurs a liability to deliver cash or other assets for amounts that are based on the price (or value) of equity instruments (cash-settled share-based payment transactions) as consideration.

The following transactions are not in the scope of IFRS 2:

  • transactions with counterparties acting as shareholders rather than as suppliers of goods or services;
  • transactions in which a share-based payment is made in exchange for control of a business; and
  • transactions in which contracts to acquire non-financial items in exchange for a share-based payment are in the scope of the financial instruments standards.

A ‘counterparty’ can be … Read more

Financial reporting in change

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Financial reporting in change – Many different bodies of practices are used around the world for external financial reporting and these include different approaches to measurement.

  1. Different jurisdictions have developed their own financial reporting requirements, influenced by differences in the uses made of financial reporting information and in business and regulatory environments.
  2. Even within a single jurisdiction, different approaches are sometimes adopted for different entities in order to reflect variations in size, ownership and governance.
  3. Businesses undertake different types of transaction or hold different types of asset or liability. Practices develop that reflect the needs and experiences of particular types of business.

These bodies of practices are rarely systematic; they have evolved over time as collections of diverse responses … Read more

Identify the contract with the customer – Engineering & Construction industry

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Identify the contract with the customer – This part relates to a complete explanation of IFRS 15 Revenue from contracts with customers in respect of Engineering & Construction contracts, see Revenue from Engineering & Construction contracts. Identify the contract with the customer

The model in IFRS 15 applies to each contract with a customer. Contracts may be written, oral or implied by an entity’s customary business practices, but must be legally enforceable and meet specified attributes. To apply the five-step model in IFRS 15, an entity must first identify the contract, or contracts, to provide goods or services to customers.

Attributes of a contract Identify the contract with the customer

To help entities determine whether (and when) their arrangements … Read more

Identify the performance obligations in the contract

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Identify the performance obligations in the contract – This part relates to a complete explanation of IFRS 15 Revenue from contracts with customers in respect of Engineering & Construction contracts, see Revenue from Engineering & Construction contracts. Identify the performance obligations in the contract

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.

IFRS 15 identifies several activities common to engineering & construction entities that are considered promised goods and services, including the construction, … Read more

Presentation Insurance contracts

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Presentation Insurance contractsPresentation Insurance contracts – IFRS 17 specifies minimum amounts of information that need to be presented on the face of the statement of financial position and statement of financial performance. These are supplemented by disclosures to explain the amounts recognized on the face of the primary financial statements (see ‘Disclosure of Insurance contracts’).

IFRS 17 requires separate presentation of amounts relating to insurance contracts issued and reinsurance contracts held in the primary statements. There is nothing to prevent an entity from providing further sub-analysis of the required line items (which may make the relationship of the reconciliations to the face of the statement of financial position more understandable).

Indeed, IAS 1 Presentation of Financial Statements requires presentation of additional line … Read more

Creating a new contract or not?

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Creating a new contract or not

What is a modification of a contract and what is a new contract?

The way chosen in IFRS 15 Revenue from Contracts with Customers is that the general rule is that a modification is a continuation of an existing contract with some changes. To account for a change (modification) in a contract as being a new contract some hurdles have to be taken. Creating a new contract or not

So, an entity must determine whether the modification creates a separate contract or whether it will be accounted for as part of the existing contract. Creating a new contract or not

Two criteria must be met for a modification to be treated as a separate … Read more

Obligation

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Obligations may be legally enforceable as a consequence of a binding contract or statutory requirement. This is normally the case, for example, with amounts payable for goods and services received. However, obligations do not have to be legally binding.

If, for example, an entity decides as a matter of policy to rectify faults in its products even when these become apparent after the warranty period has expired, the costs that are expected to be incurred in respect of goods already sold are liabilities.

Obligations do not include future commitments.

Some liabilities can be measured only by using a substantial degree of estimation. Some entities describe these liabilities as provisions. In some countries, such provisions are not regarded as liabilities … Read more