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IFRS 15 Real estate Revenue complete and accurate recognition

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IFRS 15 Real estate

Under IFRS 15 real estate entities recognize revenue over the construction period if certain conditions are met.

Key points

  • An entity must judge whether the different elements of a contract can be separated from each other based on the distinct criteria. A more complex judgment exists for real estate developers that provide services or deliver common properties or amenities in addition to the property being sold.
  • Contract modifications are common in the real estate development industry. Contract modifications might needIFRS 15 Real estate to be accounted for as a new contract, or combined and accounted for together with an existing contract.
  • Real estate managers may structure their arrangements such that services and fees are in different contracts. These contracts may meet the requirements to be accounted for as a combined contract when applying IFRS 15.
  • Real estate management entities are often entitled to several different fees. IFRS 15 will require a manager to consider whether the services should be viewed as a single performance obligation, or whether some of these services are ‘distinct’ and should therefore be treated as separate performance obligations.
  • Variable consideration for entities in the real estate industry may come in the form of claims, awards and incentive payments, discounts, rebates, refunds, credits, price concessions, performance bonuses, penalties or other similar items.
  • Real estate developers will need to consider whether they meet any of the three criteria necessary for recognition of revenue over time.

IFRS 15 core principle

The core principle of IFRS 15 is that revenue reflects the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

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Consignment arrangements under IFRS 15

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Consignment arrangements

An entity may deliver goods to another party but retain control of the goods – e.g. it may deliver a product to a dealer or distributor for sale to an end customer. These types of arrangements are called ‘consignment arrangements’, and do not allow the entity to recognize revenue on delivery of the products to the intermediary. [IFRS 15.B77]

IFRS 15 provides indicators that an arrangement is a consignment arrangement as follows. [IFRS 15.B78]

Consignment arrangements

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IFRS 15 Revenue Disclosures Examples

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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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Construction contract – How 2 best account for it in IFRS 15

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

Legally enforceable contract

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Legally enforceable contract – A contract, under the broadest possible definition, is a legally enforceable promise. Contracts are classified in many different ways.

Long-term supply contracts

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Long-term supply contracts – To apply IFRS 15, automotive parts suppliers (APSs) will need to change the way they evaluate long-term supply contracts. APSs need to use significant judgement when they identify separate performance obligations (i.e., units of account), which may be different from those identified under IAS 18. Tooling equipment APSs commonly enter into long-term arrangements with Original Equipment Manufacturers (OEMs) to provide specific parts, such as seat belts or steering wheels. An arrangement typically includes the construction for the tooling, which is required to be used when manufacturing the parts to meet the OEM’s specifications. In many cases, the APS will construct and transfer the legal title for the tooling to the OEM after construction, even though they … Read more

Transfer of control for distinct licences

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Transfer of control for distinct licences – IFRS 15 indicates that an entity must determine, at contract inception, whether it will transfer control of a promised good or service over time. If an entity does not satisfy a performance obligation over time, the performance obligation is satisfied at a point in time. A performance obligation is satisfied over time if it meets one of the following criteria: Transfer of control for distinct licences The customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs – by providing hosting services, for example. Transfer of control for distinct licences The entity’s performance creates or enhances an asset that the customer controls as the asset is created … Read more

The best list of all names for 1 Derivative

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IFRS 9 Definition of derivative: A financial instrument or other contract within the scope of IFRS 9 with all three of the following characteristics…….

Contractually linked instruments

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Contractually linked instruments – IFRS 9 provides guidance when an entity prioritises payments for linked instruments that create concentrations of credit risk