IFRS 15 Quick overview Revenue from contracts with customers

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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

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Contract modifications and variable consideration

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Contract modifications and variable consideration are discussed on this page.

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 modifications and variable consideration

Contract modification

A contract modification arises when the parties approve a change in the scope and/or the price of a … Read more

IFRS 13 Asset accumulation method

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IFRS 13 Asset accumulation method – The asset accumulation method and the adjusted net asset method are both generally accepted business valuation methods of the asset-based business valuation approach.

The asset accumulation method is well suited for business and security valuations performed for transaction, taxation, and controversy purposes. All business valuation approaches and methods can indicate the defined value of the subject business entity. IFRS 13 Asset accumulation method

In addition, the asset accumulation method also helps to explain the concluded value—by specifically identifying the value impact of each category of the subject entity assets and liabilities.

IFRS 13 Asset accumulation method This informational content of the asset accumulation method is particularly useful in a transaction, taxation, or controversy context when … Read more

IFRS 16 Leases Lease liability

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IFRS 16 Leases Lease liability – The lease liability will be the present value of the lease payments not paid on the date the contract starts over the lease term. This will be calculated using the interest rate implicit in the lease or, if that is not known, the lessee’s incremental borrowing rate.

Lease payments IFRS 16 Leases – Lease liability

The lease payments included in the present value calculation are: IFRS 16 Leases Lease liability IFRS 16 Leases Lease liability

  • any fixed payments less any lease incentives receivable. This includes any payments which are ‘in-substance’ fixed payments – those payments which may be variable, but which are, in reality, unavoidable. One example is a payment
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Defined Contribution Pension Plans

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Defined Contribution Pension Plans Defined Contribution Pension Plans – In a defined contribution (DC) pension plan, workers accrue funds in individual accounts administered by the plan sponsor. The contributions of employees are typically deducted directly from their pay and frequently some portion of these contributions is matched by the employer. Since contributions to DC plans are generally a fixed percentage of earnings, DC assets build at a fairly steady rate over time (abstracting from the time-pattern of investment returns) – avoiding the backloading of accrued benefits that is a hallmark of DB plans.

So in contrast to a defined benefit (DB) plan, it is the contributions rather than the benefit that is fixed in a DC pension plan; the retirement Read more

Defined Benefit Pension Plans

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In traditional defined benefit pension plans, workers accrue a promise of a regular monthly payment from the date of their retirement until their death, or, in some cases, until the death Defined Benefit Pension Plans of their spouse. The promised life annuity (deferred) is commonly based on a formula linked to an employee’s wages or salary and years of tenure at the sponsoring firm. Defined Benefit Pension Plans

In a typical DB plan the member earns a unit of pension, usually expressed as a percentage of nominal earnings, for each year of credited service/participation. The DB pension may be indexed to inflation but in a number of countries such as the U.S. and Canada, this is uncommon in private sector pensions. Read more

Consolidation Assess control over an investment

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Consolidation Assess control over an investment IFRS 10 Consolidation Assess control over an investment is the key to consolidate a investee entity or not. Whether a subsidiary or a consolidated structured entity.

Voting rights in subsidiaries

In many cases, when decision-making is controlled by voting rights, and those voting rights entitle an entity to returns (e.g., voting shares), it is clear that whoever holds a majority of those voting rights controls the investee. However, in other cases (such as for structured entities, or when there are potential voting rights, or less than a majority of voting rights), it may not be so clear. Consolidation Assess control over an investment

Contractual relations for consolidated structured entities

In those instances, further analysis is needed … Read more

Revenue recognition over time enforceable payment right

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Revenue recognition over time enforceable payment right – 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 section is part of step 5 Recognise revenue as or when each performance obligation is satisfied. The performance obligation may be satisfied over time when … Read more

Variable consideration of the transaction price

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Variable consideration of the transaction price – 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. Variable consideration of the transaction price

This section is part of step 3 determining the transaction price. Instead of the amount of consideration specified in a contract Read more

Questions to Ask about the Statement of Financial Position

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Questions to Ask about the Statement of Financial Position – Directors or supervisory (non-executive) directors have to ask questions to the preparers of the financial statements to go prepared into the general meeting of shareholders. The question may be along these lines:

  • What are the components of cash and cash equivalents? Are any of these at risk of losing value? Questions to Ask about the Statement of Financial Position
  • Who owes us the accounts receivable? What is the age profile of these accounts? Is there likely to be a problem in collecting these amounts? Has any provision been taken for uncollectible amounts?
  • What are the components of prepaid expenses? (These often arise from amounts paid for
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