The existence of a significant financing component in the contract

The timing of payments specified in a contract may be different from the timing of recognition of the related revenue (and, consequently, the timing of transfer of control of the related goods or services to the customer). If the timing of payments specified in the contract provides the customer or the vendor with a significant benefit of financing the transfer of goods or services, the transaction price is adjusted to reflect this financing component of the contract.

Output method – Measuring progress to completion

Output methods result in revenue being recognised based on direct measurement of the value of goods or services transferred to date in comparison with the remaining goods or services to be provided under the contract. When evaluating whether to apply an output method, consideration is given to whether the output selected would reflect the vendor’s performance toward complete satisfaction of its performance obligation(s). An output method would not reflect the vendor’s performance if the output selected fails to … Continue reading

Determining significant increases in credit risk

The transition from recognising 12-month expected credit losses (i.e. Stage 1) to lifetime expected credit losses (i.e. Stage 2) in IFRS 9 Financial Instruments is based on the notion of a significant increase in credit risk over the remaining life of the instrument. The focus is on the changes in the risk of a default, and not the changes in the amount of expected credit losses. For example, for highly collateralised financial assets such as real estate backed … Continue reading

Simplified approach – Trade receivables

Short term receivables:

For trade receivables and contract assets (including lease receivables) that do not contain a significant financing component in accordance with IFRS 15 Revenue from Contracts with Customers (so generally trade receivables and contract assets with a maturity of 12 months or less), ‘lifetime expected credit losses’ (i.e. stage 2 loss allowance) are recognised. Because the maturities will typically be 12 months or less, the credit loss for 12-month and lifetime expected credit losses would … Continue reading