Contract Modifications under IFRS 15

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Contract Modifications under IFRS 15 – Just two practical examples, to better understand all kind of things for IFRS 15.

On 1 January 20X1, Wireless Company enters into a two-year contract with a customer for a 2-gigabyte (GB) data plan with unlimited talk and text for CU60/month and a subsidised handset for which the customer pays CU200. Contract Modifications under IFRS 15

The handset has a stand-alone selling price of CU600. Contract Modifications under IFRS 15

For purposes of this illustration, the time value of money has not been considered, the stand-alone selling price of the wireless plan is assumed to be the same as the contractual price and the effect of the constraint on variable consideration … Read more

Stand-alone selling price

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Exact wording: Stand-alone selling price of a good or a service.

The price at which an entity would sell a promised good or service separately to a customer.

The best evidence of standalone selling price is the price that the entity charges for the good or service in a separate transaction with a customer. However, in many cases goods or services are sold exclusively as a package with other goods or services rather than on an individual basis (e.g. non-renewable customer support).  In these cases, the standalone selling price must be estimated. The revenue standard does not prohibit any method for estimating the standalone selling price, as long as the estimation results in an accurate representation of … Read more

Contract modifications and variable consideration

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Contract modifications and variable consideration are discussed on this page.

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. Contract modifications and variable consideration

Contract modification

A contract modification arises when the parties approve a change in the scope and/or the price of a … Read more

Determining stand-alone selling prices

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Determining stand-alone selling prices is a logical step in determining the correct pricing of a contract under IFRS 15. To allocate the transaction price on a relative stand-alone selling price basis, an entity must first determine the stand-alone selling price of the distinct good or service underlying each performance obligation. Under the standard, this is the price at which an entity would sell a good or service on a stand-alone (or separate) basis at contract inception.

IFRS 15 indicates the observable price of a good or service sold separately provides the best evidence of stand-alone selling price. However, in many situations, stand-alone selling prices will not be readily observable. In those cases, the entity must estimate the … Read more

Step 3 Determining Transaction Price

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Step 3 Determining Transaction Price is all about correct revenue accounting in respect of the transaction price for the contract as part of IFRS 15 Revenue from contracts with customers. Step 3 Determining Transaction Price

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 3 Determining Transaction Price

IFRS 15 introduced a five step process for recognising revenue, as follows:Step 3 Determining Transaction Price

  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 … Read more

Step 4 Allocate the transaction price

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Step 4 Allocate the transaction price to each specific performance obligation is the fourth step in the process required by IFRS 14 Revenue from contracts with customers in order to properly recognise 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.

IFRS 15 introduced a five step process for recognising revenue, as follows:Step 4 Allocate the transaction price

  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

After determining the transaction price in Step 3, companies … Read more

Revenue from Contracts with Customers short version

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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 … Read more

Interest-free term loan No bank debt

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Interest-free term loan No bank debt is a case covering several interesting accounting issues under IFRS 9:

  • Initial recognition, recalculating interest-free to an imputed effective interest and classification of capital contribution,
  • Classification of the loan as at amortised costs (business model test and SPPI test),
  • Impairment triggering Interest-free term loan No bank debt
  • Credit stage assessment (Stage 1, Stage 2 or Stage 3)
  • Default assessment Interest-free term loan No bank debt

THE CASE

Parent A advances an unsecured loan for €1m to Subsidiary B on 1 January 2018 with the following terms:

  • 0% interest (assume that a market rate of interest for a similar loan is estimated at 7%);
  • €1m repayable in 5
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Accounting treatment acquisition of a business or assets

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Accounting treatment acquisition of a business or asset(s)Accounting treatment acquisition of a business or assets – An entity has to determine whether a transaction or other event is a business combination, which requires that the assets acquired and liabilities assumed constitute a business. If the assets acquired are not a business, the reporting entity shall account for the transaction or other event as an asset acquisition.

Whether the simplified (optional) concentration tests is applied or a detailed assessment applying the normal requirements in IFRS 3 is applied, in IFRS 3 (simplified in May 2019) the result of the assessment of what was acquired is the acquirer obtained control over a business (business combination or business acquisition) or a (group of similar) identifiable asset(s) (asset Read more