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IFRS 15 Real estate Revenue complete and accurate recognition

12/04/2023 by 75385885

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 need 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.

11 Best fair value measurements under IFRS 13

29/06/202126/03/2020 by 75385885

11 Best fair value measurements under IFRS 13

Several IFRS standards provide guidance regarding the scope and application of the fair value option for assets and liabilities. Here they are from 1 to 11…….

1 Investments in associates and joint ventures

Investments held by venture capital organizations and the like are exempt from IAS 28’s requirements only when they are measured at fair value through profit or loss (FVPL) in accordance with IFRS 9. Changes in the fair value (FV) of such investments are recognized in profit or loss in the period of change.

The IASB acknowledged that FV information is often readily available in venture capital organizations and entities in similar industries, even for start-up and non-listed entities, as the methods and basis for fair value measurement are well established. The IASB also confirmed that the reference to well-established practice is to emphasize that the exemption applies generally to those investments for which fair value is readily available.

2 Intangible assets

Subsequent to initial recognition of intangible assets, an entity may adopt either the cost model or the revaluation model as its accounting policy. The policy should be applied to the whole of a class of intangible assets and not merely to individual assets within a class, unless there is no active market for an individual asset.

The revaluation model may only be adopted if the intangible assets are traded in an active market; hence it is not frequently used. Further, the revaluation model may not be applied to intangible assets that have not previously been recognized as assets. For example, over the years an entity might have accumulated for nominal consideration a number of licenses of a kind that are traded on an active market. 11 Best fair value measurements under IFRS 13

The entity may not have recognized an intangible asset as the licenses were individually immaterial when acquired. If market prices for such licenses significantly increased, the value of the licenses held by the entity would substantially increase. In this case, the entity would be prohibited by IAS 38 from applying the revaluation model to the licenses, because they were not previously recognized as an asset.

Asset management or investment management

19/05/2021 by 75385885

Asset management or investment management

are closely related industries that in their core refer to the financial service of managing assets by means of financial instruments and/or other investments with the aim of increasing the invested assets.

An asset manager is a financial professional who analyses, collects and handles a client’s financial portfolio. Asset managers focus on specific asset investments, such as real estate, exchange-traded funds, stocks or fixed-income securities. An asset manager’s goal is to increase returns from client investments and restructure them when needed to gain their clients more profit.

An investment manager is a general term for a financial professional who uses risk assessment to ensure their clients receive a profitable return on their investments. Their duties include tax planning, estate planning, retirement planning, philanthropy and education. The main goal of an investment manager is to generate a steady flow of profit through investment strategies for their clients.

A primary difference between asset managers and investment managers is their customer base. Asset managers typically work with individuals or businesses that have extensive amounts of money, while investment managers often work with individuals or businesses with any size of income.

The two most significant IFRS accounting matters for asset management or investment management entities are:

Timing of revenue and profit recognition
Valuation of investments (assets) the entity holds or invests on behalf of its customers
- IFRS 9 Financial instruments, and
- IAS 40 Investment property.

Fair value option

23/02/202025/02/2019 by 75385885

Fair value option - There are two of them 1) the FV option for debt instruments and 2) the FVOCI option for equity instruments (not held for trading)

Identify the performance obligations in the contract

21/12/201920/05/2019 by 75385885

Identify the performance obligations in the contract – 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. Identify the performance obligations in the contract

Once an entity has identified the contract with a customer, it evaluates the contractual terms and its customary business practices to identify all the promised goods or services within the contract and determine which of those promised goods or services (or bundles of promised goods or services) will be treated as separate performance obligations.

IFRS 15 identifies several activities common to engineering & construction entities that are considered promised goods and services, including the construction, … Read more