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INTRODUCTION
IFRS 15 Revenue from Contracts with Customers replaces:
Step 2
Step 3
Step 4
Step 5
recognise revenue when (or as) the entity satisfies a performance obligation
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A contract with a customer is in the scope of the Standard when it is legally enforceable and all of the
following criteria are met:
the contract is approved and the parties are committed to their obligations;
rights to goods or services and payment terms can be identified;
the contract has commercial substance; and
collection of consideration is probable.
Any consideration received under a contract with a customer that does not meet these criteria is
recognised as a liability until either of the following events has occurred:
there are no remaining obligations to transfer goods or services and all, or substantially all, of the
promised consideration has been received and is non-refundable; or
the contract is terminated and the consideration that has been received is non-refundable.
Combination of contracts
Two or more contracts entered into at or near the same time with the same customer (or related parties)
are combined and accounted for as a single contract, if one or more of the following criteria are met:
Contract modifications
A contract modification is a change in the scope or price (or both) of a contract that is approved by the
parties to the contract. The modification is approved when it creates legally enforceable rights and
obligations on the parties to the contract.
A contract modification is accounted for as follows:
Is contract modification approved?
No
Yes
Does it add distinct good or
services that are priced
commensurate with standalone selling prices?
No
Yes
Yes
Account for as
termination of existing
contract and creation
of new contract
No
Account for as part
of the original
contract
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the customer can benefit from the good or service either on its own or together with other resources
that are readily available to the customer; and
the entitys promise to transfer the good or service to the customer is separately identifiable from
other promises in the contract.
IFRS 15 requires a series of distinct goods and services that are substantially the same with the same
pattern of transfer to be regarded as a single performance obligation.
Step 3: Determine the transaction price
Step 3 requires the entity to determine the transaction price which is the amount of consideration to
which an entity expects to be entitled in exchange for transferring goods or services to a customer. The
transaction price excludes amounts collected on behalf of third parties e.g. certain sales taxes.
In determining the transaction price, an entity considers the effect of the following:
Variable
consideration
The existence of
a significant
financing
component in the
contract
Non-cash
consideration
Consideration
payable to a
customer
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 4 requires the allocation of the transaction price to each performance obligation on the basis of the
relative stand-alone price of each distinct good or service. The stand-alone selling price is the price at
which an entity would sell a promised good or service separately to a customer.
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If an observable selling price is not available, an estimate may be made by using one of the following
approaches. An entity maximises the use of observable inputs and applies a consistent estimation
method.
Discounts and variable consideration will typically be allocated proportionately to all of the performance
obligations in the contract, except when there is objective evidence that they relate to one or more
specific performance obligations.
Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation
Step 5 requires an entity to recognise revenue when (or as) it satisfies a performance obligation by
transferring a promised good or service to a customer, which is when the customer obtains control of that
good or service.
A performance obligation may be satisfied at a point in time or over time.
Performance obligations satisfied over time
An entity recognises revenue over time when one of the following criteria is met.
The customer simultaneously receives and
consumes the benefits provided by the entity's
performance as the entity performs.
eg constructing an asset on a
customer's site in some
jurisdictions
Measuring progress
For each performance obligation satisfied over time, an entity selects a single method for measuring
progress and applies it consistently to determine how much revenue should be recognised. Appropriate
methods include:
Output methodmeasures performance based on the value of the goods delivered relative to those
undelivered. Examples: surveys of performance to date, appraisals of results achieved, milestones
reached, units delivered and units produced.
Input methodmeasures performance based on the entitys efforts or inputs towards satisfying the
performance obligation relative to the total expected inputs. Examples: resources consumed, costs
incurred, labour hours expended and machine hours used.
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An entity recognises revenue over time only if it can reasonably measure its progress towards complete
satisfaction of the performance obligation. In circumstances in which it cannot reasonably measure the
outcome, but expects to recover the costs incurred in satisfying the performance obligation, an entity
recognises revenue only to the extent of the costs incurred.
Performance obligations satisfied at a point in time
If a performance obligation is not satisfied over time, then the entity recognises revenue at the point at
which it transfers control of the good or service to the customer. The customer has control of a good or
service when it has the ability to direct the use of, and obtain substantially all of the remaining benefits
from, the good or service.
Indicators that control has passed include the customer having:
a present
obligation
to pay
legal title
physical
possession
the risks
and
rewards of
ownership
accepted
the asset
CONTRACT COSTS
Incremental costs to obtain a contract
An entity recognises an asset for the incremental costs incurred as a result of obtaining a contract eg
sales commissions if those costs are expected to be recovered.
Costs that are incurred regardless of whether the contract is obtained are recognised as expenses as
they are incurred unless they meet the criteria to be capitalised as fulfilment costs.
As a practical expedient, an entity is not required to capitalise the incremental costs to obtain a
contract if the amortisation period of the resulting asset would not exceed one year.
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APPLICATION GUIDANCE
IFRS 15 provides application guidance to assist entities in applying the model to:
PRESENTATION
When either the entity or the customer has performed, the entity presents a contract asset or contract
liability in its statement of financial position. If the entity has an unconditional right to consideration,
then this is presented separately as a receivable.
DISCLOSURE
There is an explicit disclosure objective: to disclose sufficient information to help investors better
understand the following aspects of revenue and cash flows from contracts with customers:
nature;
amount;
timing; and
uncertainty.
The detailed disclosure requirements include qualitative and quantitative information about:
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Transition
An entity applies the Standard to all of its contracts with customers using either:
the retrospective method; or
the cumulative effect method.
Retrospective method
Note: the date of initial application is the start of the reporting period in which an entity first applies
the Standard. For instance, for an entity with a calendar year-end applying the Standard for the first
time as of the amended mandatory effective date and presenting one comparative period, the date of
initial application would be 1 January 2018.
Summary of the transition options
Approach
2017
2018
Date of equity
adjustment
Full retrospectiveno
practical expedient
IFRS 15
IFRS 15
1 January 2017
Retrospective with
practical expedients
Mixed
requirements*
IFRS 15
1 January 2017
Cumulative effect
IAS 11,18
IFRS 15
1 January 2018
IAS 11,18
* includes a mix of IFRS 15 for the restated contracts and IAS 11/18 final variable consideration where
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