IFRS 15 Revenue from contracts with customers Quick best overview

IFRS 15 Revenue from contracts with customers

the easy way to obtain an solid overview

IFRS 15 Revenue from contracts with customers

IFRS 15 Revenue from contracts with customers IFRS 15 Revenue from contracts with customers

IFRS 15 Revenue from contracts with customers IFRS 15 Revenue from contracts with customers

IFRS 15 Revenue from contracts with customers

IFRS 15 Revenue from contracts with customers IFRS 15 Revenue from contracts with customers

IFRS 15 Revenue from contracts with customers IFRS 15 Revenue from contracts with customers

IFRS 15 Revenue from contracts with customers IFRS 15 Revenue from contracts with customers

IFRS 15 Revenue from contracts with customers IFRS 15 Revenue from contracts with customers

IFRS 15 Revenue from contracts with customers IFRS 15 Revenue from contracts with customers

(Source https://www.bdo.global/en-gb/services/audit-assurance/ifrs/ifrs-at-a-glance)

What is the

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The Best 1 Perfect Read – Performance obligations at a point in time

Performance obligations at a point in time

or in full ‘Performance obligations satisfied at a point in time’) and Performance obligations satisfied over time are the two choices in IFRS 15. Performance obligations at a point in time

Determine over time

To determine whether revenue allocated to a performance obligation should be recognised over time, IFRS 15 requires an entity to consider three criteria. If any one of them is met, this means that control is transferred to the customer over time, and thus revenue shall likewise be recognised over time. The entity shall assess this at contract inception. Performance obligations at a point in time

In summary: Performance obligations at a point in time

Performance obligations at a point in time

These criteria shall be applied to all goods and services sold by the entity, irrespective of sector. Performance obligations at a point in time

However, the Basis for Conclusions suggests that these criteria are likely to be more relevant in certain situations (cf. IFRS 15.BC125, IFRS 15.BC129 and IFRS 15.BC132): Performance obligations at a point in time

  • “typical” (i.e. relatively simple) service provisions should generally be accounted for over time under criterion IFRS 15.35(a);
  • the second criterion (IFRS 15.35(b)) applies when the customer clearly controls work in progress;
  • the last criterion (IFRS 15.35(c)) should be considered, by default, when the two previous criteria are not met (for example, services tailored to a customer that ultimately result in the delivery of a report, or the construction of a complex industrial asset on the entity’s premises).

If a performance obligation is not satisfied over time, then an entity recognises revenue at the point in time at which it transfers control of the good or service to the customer. Performance obligations at a point in time

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The best way for IFRS 15 Measuring progress to completion

IFRS 15 Measuring progress to completion

– how to do it, what to use, learn it all

Introduction

For each performance obligation satisfied over time, revenue must be recognised over time (IFRS 15.39-45 & IFRS 15.B14-B19). To do so, an entity shall measure the progress towards complete satisfaction of the performance obligation.

The measurement of progress has the objective of faithfully depicting an entity’s performance in transferring control of the goods or services promised to the customer (that is, the extent to which the performance obligation is satisfied).

An entity shall apply a single method of measuring progress for each performance obligation satisfied over time, and shall apply that method consistently to similar performance obligations and in similar circumstances.

At the end of each reporting period, an entity shall remeasure its progress towards complete satisfaction of each performance obligation satisfied over time.

In July 2015 the Joint Transition Resource Group (TRG a combined effort by IASB and FASB to detect problems raised by the implementation of the revenue recognition standards) clarified that the principle of applying a single method of measuring progress for a given performance obligation is also applicable to a combined performance obligation, i.e. one that contains multiple non-distinct goods or services.

Hence, it is not appropriate to apply several methods depending on the stage of performance, even if these methods all belong to one of the two major categories of methods presented below (output methods vs input methods), for example a method measuring progress on the basis of hours expended, and a method measuring progress on the basis of labour costs incurred.

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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

Construction contract

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

Arrangements that do not meet the definition of a contract

What happens with arrangements that do not meet the definition of a contract under IFRS 15. How are these accounted for? What IFRSs are used in such a case? If an arrangement does not meet the criteria to be considered a contract under the standard, it must be accounted for as stipulated in IFRS 15 15 – 16 (recognition of the consideration received as revenue if certain events have been met or as a liability until one of these events have been met), using the following decision tree: Arrangements that do not meet the definition of a contract


Arrangements that do not meet the definition of a contract

If the arrangements identifies as a IFRS 15 Contract with customers go to Step 2 – 5

References:

  • Contract qualifying criteria –
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IFRS 15 Revenue aggregation and disaggregation at best

IFRS 15 Revenue aggregation and disaggregation

The objective of the disclosure requirements in IFRS 15 is to provide “sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers”.

To achieve that objective, entities are required to provide disclosures about their contracts with customers, the significant judgements, and changes in those judgements, used in applying the standards and assets arising from costs to obtain and fulfil its contracts. [IFRS 15 110]

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 … Read more