IFRS 15 Retail – the finest perfect examples

IFRS 15 Retail revenue – finest perfect examples

Retail is the process of selling consumer goods or services to customers through multiple channels of distribution to earn a profit. Retailers satisfy demand identified through a supply chain. The term “retailer” is typically applied where a service provider fills the small orders of many individuals, who are end-users, rather than large orders of a small number of wholesale, corporate or government clientele. (Source: Wikipedia)

So what is the IFRS 15 guidance for retail?

Here are the cases covering the most significant accounting topics for retail in IFRS 15.


Case – Customer incentives Buy three, get coupon for one free

Death By Chocolate Ltd, a high street chain, is offering a promotion whereby a customer who purchases three boxes of chocolates at €20 per box in a single transaction in a store receives an offer for one free box of chocolates if the customer fills out a request form and mails it to them before a set expiration date.

Death By Chocolate estimates, based on recent experience with similar promotions, that 80% of the customers will complete the mail in rebate required to receive the free box of chocolates.

How is a ‘buy three, get one free’ transaction accounted for and presented by Death By Chocolate?

The rules

IFRS 15.22 states: “At contract inception, an entity shall assess the goods or services promised in a contract with a customer and shall identify as a performance obligation each promise to transfer to the customer either:IFRS 15 Retail

  1. a good or service (or a bundle of goods or services) that is distinct; or
  2. a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer (see paragraph 23).”

IFRS 15.26 provides examples of distinct goods and services, including “granting options to purchase additional goods or services (when those options provide a customer with a material right, as described in paragraphs B39-B43)”.

IFRS 15.B40: “If , in a contract, an entity grants a customer the option to acquire additional goods or services, that option gives rise to a performance obligation in the contract only if the option provides a material right to the customer that it would not receive without entering into that contract (for example, a discount that is incremental to the range of discounts typically given for those goods or services to that class of customer in that geographical area or market).

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IFRS 15 Real estate Revenue complete and accurate recognition

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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5 steps in IFRS 15 – best quick read

5 steps in IFRS 15

Under IFRS 15 Revenue from contracts with customers, entities apply the 5 steps in IFRS 15 to determine when to recognize revenue, and at what amount. The model specifies that revenue is recognized when or as an entity transfers control of goods or services to a customer at the amount to which the entity expects to be entitled. Depending on whether certain criteria are met, revenue is recognized:

  • over time, in a manner that best reflects the entity’s performance; or
  • at a point in time, when control of the goods or services is transferred to the customer.

IFRS 15 provides application guidance on numerous related topics, including warranties and licenses. It also provides guidance on when to capitalize the costs of obtaining a contract and some costs of fulfilling a contract (specifically those that are not addressed in other relevant authoritative guidance – e.g. for inventory).

5 steps in IFRS 15 – What is IFRS 15?

Step 1: Identify the contract with a customer

A contract with a customer is in the scope of IFRS 15 when the contract is legally enforceable and certain criteria are met. If the criteria are not met, then the contract does not exist for purposes of applying the general model of IFRS 15, and any consideration received from the customer is generally recognized as a deposit (liability). Contracts entered into at or near the same time with the same customer (or a related party of the customer) are combined and treated as a single contract when certain criteria are met.

A contract with a customer is in the scope of IFRS 15 when it is legally enforceable and meets all of the following criteria. [IFRS 15.9]

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Series provision

Series provision – 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. Under IFRS 15 a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer are accounted for as a single performance obligation. As a result in certain … Read more

The perfect 5 step-by-step revenue model

The perfect 5 step-by-step revenue model -IFRS 15 Revenue from Contracts with Customers was issued on 28 May 2014. It supersedes: IAS 18 Revenue; The perfect 5 step-by-step revenue model IAS 11 Construction contracts; The perfect 5 step-by-step revenue model IFRIC 13 Customer Loyalty Programmes; The perfect 5 step-by-step revenue model IFRIC 15 Agreements for the Construction of Real Estate; The perfect 5 step-by-step revenue model IFRIC 18 Transfers of Assets from Customers; and The perfect 5 step-by-step revenue model SIC-31 Revenue – Barter Transactions Involving Advertising Services. The perfect 5 step-by-step revenue model IFRS 15 will improve comparability of reported revenue over a range of industries, companies and geographical areas globally. IFRS 15’s objective is to establish principles that … Read more

Distinct goods or services

Distinct goods or services is a cornerstone of IFRS 15 Revenue from contracts with customers. Distinct means the customer can benefit directly from the service

Performance obligation

A performance obligation is a promise in a contract to transfer to the customer either 1 distinct goods/services or 2 a series of distinct goods/services

Allocate the transaction price to POs – E&C 1 Best Complete Read

Allocate the transaction price to POs – This part relates to a complete explanation of IFRS 15 Revenue from contracts with customers in respect of Engineering & Construction contracts, see Revenue from Engineering & Construction contracts. Allocate the transaction price to POs Once the performance obligations are identified and the transaction price has been determined, IFRS 15 requires (with some exceptions, as discussed below) an entity to allocate the transaction price to the performance obligations in proportion to their stand-alone selling prices (i.e., on a relative stand-alone selling price basis). Allocate the transaction price to POs To allocate the transaction price on a relative stand-alone selling price basis, an entity must first determine the stand-alone selling price (i.e., the price at … Read more