Revenue

Recognition
Update
01

04/2015

IFRS 15
Revenue from
Contracts with
Customers

from Contracts with

Customers issued in

INTRO

IFRS 15 Revenue

May 2014 should be on

the agenda in your company.
In this newsletter we give you
a short intro to the standard
please get in contact when you
need a deeper insights.

Pernilla Lundqvist,
head of Nordic IFRS 15
Revenue topic team,
Accounting Advisory
Services, KPMG Sweden

IFRS 15 Revenue from

Contracts with Customers
IFRS 15 Revenue from Contracts with Customers introduces a brand
new model for recognizing revenue in the financial statements. In a board
meeting 28 April, IASB decided to issue an exposure draft proposing to
defer the mandatory implementation of IFRS 15 with one year.
The new model in IFRS 15 consists of 5 steps. The standard establishes the principles that an entity shall apply to report revenue. The standard may, without doubt,
be a challenge for many companies however, it is important to bear in mind that
if the standard is a challenge to implement, it is because the underlying business
is complicated. If your sales are straight-forward, plain sales of one product,
no bundling or add ons, IFRS 15 as such should not be difficult to implement.
However, the more fancy your sales are, the more challenges you will face.
The 5 step model in IFRS 15, compared to the requirements in IAS 18, can be
presented as on following page.

Jan Aastveit, Department

of Professional Practice,
KPMG Norway
2

IFRS today compared to IFRS 15

Overall
approach

Revenue may be generated by the sale of goods, construction contracts,

the rendering of services, use of entitys assets that generate fees.

NEW Indentify the contract(s) with a customer

Indentify the performance obligations in the contract

Step 1: Identify components

NEW Determine the transaction price

Allocate the transaction price to the performance obligations in the contract

Step 2: Allocate consideration

Recognize revenue when (or as) the entitiy satisfies a performance obligation

Step 3: Recognize revenue

And more specifically, under IFRS 15, the following analysis should be done:

High level overview of the accounting

IFRS 15 contains a five-step contract based control model for recognizing revenue:
Step 1: Identify the contract
Step 2: Identify performance obligations
Step 3: Determine the transaction price
Step 4:

Allocate the transaction price to

performance obligations

Step 5:

Recognize revenue as performance

obligations satisfied

Contract
Performance
obligation 1

Performance
obligation 2

Transaction price for the contract

Transaction price allocated
to performance obligation 1

Transaction price allocated

to performance obligation 2

Revenue on
performance obligation 1

Revenue on
performance obligation 2

A short example, using an ordinary transaction we all know, is used to illustrate

some aspects of the standard:

What is being sold?

Washing machine + 12 months warranty

5000

3289

= 5000 (5000/7600)

ElektroButikken has year-end 31

December. In Mid-December 2017
ElektroButikken starts its usual year-end
sale. 28 December 2017, Ole Olsen buys
a new washing machine. Salesprice is
5000, including:

2 years extended warranty

1000

658

= 5000 (1000/7600)

Repair/maintenance

750

493

= 750000 (5000/7600)

Laundry powder

450

296

= 5000 (450/7600)

Voucher

400

263

= 5000 (400/7600)

7600

5000

12 months warranty (not sold

separately)
2 years extenced warranty (can be
purchased separately)

Sum

Calculation

Revenue recognition under IFRS 15 Revenue from Contracts with Customers

Repair an mantenance (can be

purchased separately)
Laundry powder

2 years extended warranty

Voucher (30% off next purchase in

ElektroButikken, time limit 6 months,
max amount 500,-.)

Repair/maintenance

As the example illustrates, bundled sales

should be broken down into separate
components, and revenue should be
recognized when product or service is
delivered.

Transaction
price allocated

IFRS 15 language: Identification of performance obligations and allocation of trans

action price.

Goods/service

How should ElektroButikken account for

this sale under IFRS 15 Revenue from
Contracts with Customers?

Stand-alone
selling price

Goods/service

Washing machine
+ 12 months warranty

31 December
2017

31 December
2018

31 December
2019

31 December
2020

3289

SUM
3289

329

329

658

164

164

165

493

Laundry powder

197

99

Voucher

263

Sum

3289

624

296
263

592

494

5000

The example is a simplified example to illustrate some of the main priniciples in IFRS 15. The name Elektro
Butikken is a name used for illlustration purposes only, and not based on a real-life company we know.
The example is based on the facts the given. In real-life, facts may differ, for example, 2 years extended
warranty may be an insurance contract and ElektroButikken may be an agent selling insurance contracts
on behalf of an insurance company. Further, it might be the laundry powder producer that sells the laundry
powder, not ElektroButikken, etc. This to illustrate that implementation of IFRS 15 requires a good under
stading of the underlying business.
IAS 18 is an old standard. Whether or not IFRS 15 represents a change in a case like the one in this publi
cation depends on how IAS 18 has been implemented..

Edition closed
29 April 2015

An example like this can of course not

illustrate all requirements in the new
standard. We do advice you to get
started. You may have to change your
systems, you may have to train your
people. We expect most companies to
be affected by the new standard, in one
way or another. Over time, the amount
recognized as revenue will typically
not change, however, the timing of the
revenue may change, as will presen
tation and related disclosures.

Layout and production

Keops as, Asker, Norway

Transistion approaches under IFRS 15

Revenue recognition update

Published by KPMG as a Nordic venture. KPMG in
Denmark, Finland, Iceland, Norway and Sweden
cooperate closely on building IFRS expertise in all
areas including IFRS 15 Revenue recognition from
Contracts with Customers.
Internet
KPMG Norway
KPMG Sweden
KPMG Denmark

KPMG Iceland
KPMG Finland

Authors and contacts:

Jan Aastveit, Pernilla Lundqvist

Your contacts in Denmark, Iceland and Finland:

Transistion approach

Mari Suomela, Authorised

Public Accountant,KPMG
OY AB Finland

In short, the choices you have can be

summarized as follows. The chart summa
rizes the transition options available to
entities with a Dec. 31 year end and
presenting one year of comparative data:

2017

Date of cumulative
effect adjustment

Full retrospective

Restate for all contracts

Apply to all contracts

January 1, 2016

Retrosepctive using one or

more practical expedients

Restate for all contracts

exept for contracts or
estimates covered by
the practical expedients
elected by the entity

Apply to all contracts

January 1, 2016

Cumulative effect at the

date of adoption

No contracts restated;
reported on the basis of
IAS 18

Apply to all contracts

January 1, 2017

Darnell Wagnild, KPMG

Denmark

Jhann I. C. Solomon,
Accounting Advisory
Services, KPMG Iceland

2016

One of the most important things

to think about in addition to working
through the standard, is giving informa
tion to the market about expected
effects, and to evaluate and decide upon
how to implement the standard.

Comment: Please note that if the expected exposure draft is implemented as suggested, all dates can be
deferred with one year.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity.
Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is a ccurate as of the
date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional
advice after a thorough examination of the particular situation.
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