IFRS 15 Revenue Disclosures Examples

IFRS 15 Revenue Disclosures Examples

IFRS 15 Revenue Disclosures Examples provides the context of disclosure requirements in IFRS 15 Revenue from contracts with customers and a practical example disclosure note in the financial statements. However, as this publication is a reference tool, no disclosures have been removed based on materiality. Instead, illustrative disclosures for as many common scenarios as possible have been included.

Please note that the amounts disclosed in this publication are purely for illustrative purposes and may not be consistent throughout the example disclosure related party transactions.

Users of the financial statements should be given sufficient information to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. To achieve this, entities must provide qualitative and quantitative information about their contracts with customers, significant judgements made in applying IFRS 15 and any assets recognised from the costs to obtain or fulfil a contract with customers. [IFRS 15.110]

Disaggregation of revenue

[IFRS 15.114, IFRS 15.B87-B89]

Entities must disaggregate revenue from contracts with customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. It will depend on the specific circumstances of each entity as to how much detail is disclosed. The Reporting entity Plc has determined that a disaggregation of revenue using existing segments and the timing of the transfer of goods or services (at a point in time vs over time) is adequate for its circumstances. However, this is a judgement and will not necessarily be appropriate for other entities.

Other categories that could be used as basis for disaggregation include:IFRS 15 Revenue Disclosures Examples

  1. type of good or service (eg major product lines)
  2. geographical regions
  3. market or type of customer
  4. type of contract (eg fixed price vs time-and-materials contracts)
  5. contract duration (short-term vs long-term contracts), or
  6. sales channels (directly to customers vs wholesale).

When selecting categories for the disaggregation of revenue entities should also consider how their revenue is presented for other purposes, eg in earnings releases, annual reports or investor presentations and what information is regularly reviewed by the chief operating decision makers. [IFRS 15.B88]

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Commodity finance IFRS the 6 best examples

Commodity finance IFRS the 6 best examples – A key issue is whether the contract to deliver a non-financial item (the commodity) falls within the scope of IFRS 9 Financial Instruments. Although IFRS 9 would appear to apply only to financial assets and financial liabilities, certain contracts for non-financial items are also within its scope.

The scope of IFRS 9

In determining whether the transaction is within the scope of IFRS 9, key guidance is set out in IFRS 9 2.4. IFRS 9 2.4 notes that

This Standard shall be applied to those contracts to buy or sell a non-financial item that can be settled net in cash or in another financial instrument, or by exchanging financial instruments, Read more

IFRS 15 Volume discounts and Margin guarantees

IFRS 15 Volume discounts and Margin guarantees – Volume discounts

To entice customers to buy/order more goods, it is not uncommon for wholesalers to provide customers with volume discounIFRS 15 Volume discounts and Margin guaranteests/rebates. Under IFRS 15, volume discounts/rebates is a type of variable consideration. [IFRS 15 50 – 59] IFRS 15 Volume discounts and Margin guarantees

Wholesalers are to record revenue at the amount it expects to receive (net of discounts/rebates). This means that wholesalers will recognise revenue at the average expected price per unit – by estimating the total expected sales volume and the total sales expected revenue (after deducting discount/rebates). IFRS 15 Volume discounts and Margin guarantees

The case – Volume discounts IFRS 15 Volume discounts and Margin guaranteesRead more

IFRS vs US GAAP Revenue recognition

IFRS VS US GAAP Revenue recognition – In May 2014, the FASB and IASB issued their long-awaited converged standards on revenue recognition, Revenue from Contracts with Customers. The revenue standards, as amended, were effective for calendar year-end companies in 2018 (2019 for non-public entities following US GAAP). The new model impacts revenue recognition under both US GAAP and IFRS, and, with the exception of a few discrete areas as summarized below, eliminates many of the existing differences in accounting for revenue between the two frameworks. Nearly all industries having contracts in the scope of the new standards are affected, and some will see pervasive changes.

Standards Reference 

US GAAP 

IFRS

ASC 340-40 Contracts with customers

ASC 606 Revenue from contracts

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Step 5 Recognise the revenue when the entity satisfies each performance obligation

Step 5 Recognise the revenue when the entity satisfies each performance obligation the the end of the process in revenue recognition as introduced by IFRS 15 Revenue from contracts with customers. Step 5 Recognise the revenue

IFRS 15 The revenue recognition standard provides a single comprehensive standard that applies to nearly all industries and has changed revenue recognition quite significant. Step 5 Recognise the revenue

IFRS 15 introduced a five step process for recognising revenue, as follows:Step 5 Recognise the revenue

  1. Identify the contract with the customer
  2. Identify the performance obligations in the contract
  3. Determine the transaction price for the contract
  4. Allocate the transaction price to each specific performance obligation
  5. Recognise the revenue when the entity satisfies each performance obligation

Step 4 Revenue recognition

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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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Revenue from Contracts with Customers short version

Revenue from Contracts with Customers short version – 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. Revenue from Contracts with Customers short version

Revenue is now recognised by a vendor when control over the goods or services is transferred to the customer. In contrast, IAS 18 Revenue based revenue recognition around an analysis of … Read more

Unspecified additional software products

Unspecified additional software products – As part of a contract with a customer, a software entity may license software today and promise to deliver unspecified additional software products in the future. For example, the software entity may agree to deliver all new products to be introduced in a family of products over the next two years. Unspecified additional software products may be treated as a separately identifiable component under current IFRS by some entities.

If so, the amount allocated to the component is recognised as revenue over the period that the products are provided. Other entities may account for the unspecified additional software products together with the related licence as a single component. The timing of revenue recognition, in those … Read more

Specified upgrades for software contracts

Specified upgrades for software contracts – Entities may provide customers with the right to specified upgrades or enhancements as part of a software arrangement. Under IFRS 15, entities will need to evaluate whether the rights to receive specified upgrades or enhancements are promised goods or services and potentially separate performance obligations. If the specified upgrade is a separate performance obligation, a portion of the transaction price is allocated to it and revenue recognition is deferred until the specified upgrade is provided. Specified upgrades for software contracts

Specified upgrades for software contractsSome entities may account for a specified upgrade or enhancement as a separate identifiable component under current IFRS and allocate revenue to it, while others may account for it together with other components. … Read more

Technology reseller arrangements

Technology reseller arrangements

IFRS 15 also changed practice for entities that sell their products through distributors or resellers (collectively referred to in this section as resellers). It is common in the technology industry for entities to provide resellers with greater rights than end-customers. For example, an entity may provide a reseller with price protection and extended rights of return.

Under IFRS 15, entities will need to first evaluate when control of the product transfers to the end-customer. To do this, first, entities may need to assess whether their contracts with resellers are consignment arrangements, under which control likely would not transfer until delivery to the end-customer (see Consignment arrangements). The standard provides three indicators that an arrangement is a … Read more