IFRS 15 Revenue from contracts
Scope
Does not apply to
IFRS lease contracts
IFRS 17- Insurance contracts
Financial instruments from IFRS 9-11; IAS 27-28
Non-monetary exchanges between entities in the same line of business
Defined Terms
Contract – An agreement between two or more parties that creates enforceable rights and
obligations.
Customer – A party that has contracted with an entity to obtain goods or services that are
an output of the entity’s ordinary activities in exchange for consideration. (Not a customer if
sharing in risks and benefits related to the transaction)
Income – Increases in economic benefits during the accounting period in the form of inflows
or enhancements of assets or decreases of liabilities that result in an increase in equity,
other than those relating to contributions from equity participants.
Performance obligation – A promise in a contract with a customer to transfer to the
customer either:
a) A good or service (or a bundle of goods or services) that is distinct; or
b) A series of distinct goods or services that are substantially the same and that have the
same pattern of transfer to the customer.
Revenue – Income arising in the course of an entity’s ordinary activities.
Stand-alone selling price- The price at which an entity will sell a promised good or service
separately to a customer
Transaction price (for a contract with a customer) – The amount of consideration to which
an entity expects to be entitled in exchange for transferring promised goods or services to a
customer, excluding amounts collected on behalf of third parties.
Steps
1. Identify the contract(s) with the customer
Definition of a contract
Contract – An agreement between two or more parties that creates enforceable rights and
obligations.
Criteria
1. The parties to the contract have approved the contract (writing, or customary business
practices- committed to perform obligations)
2. The entity can identify each party’s rights in relation to the goods or services to be
transferred
, 3. The entity can identify the payment terms and conditions for the goods or services to be
transferred
4. The contract has commercial substance (risk, timing or amount of future cash flows
expected to change- *not commercial substance if e.g. exactly the same items are traded)
5. It is probable that the entity will collect the consideration to which it will be entitled in
exchange for the goods and services transferred. Entity will consider only the customer’s
ability and intention to pay amount of consideration that is due.
Existence of a contract
Does not exist if each party to the contract has the unilateral enforceable right to terminate
a wholly unperformed contract without compensating the other party (or parties)
A contract is wholly unperformed if both of the following criteria are met:
a) the entity has not yet transferred any promised goods or services to the customer; and
b) the entity has not yet received, and is not yet entitled to receive, any consideration in
exchange for promised goods or services.
If criteria are not met
If an entity receives consideration from the customer without meeting the criteria the entity
shall recognise the consideration received as revenue only when either of the following
events has occurred:
a) the entity has no remaining obligations to transfer goods or services to the customer and
all, or substantially all, of the consideration promised by the customer has been received
by the entity and is non-refundable; or
b) the contract has been terminated and the consideration received from the customer is
non-refundable.
Will recognise consideration as a liability until these events occur
Example
Telcom pty ltd entered into a contract with a customer on 1 July 2017. The
customer subscribes for a 12-month contract and in return receive a FREE
Headset from Telcom. The customer will pay a monthly fee of R200 as per the
contract and she will receive the Headset immediately after signing the
contract. Telcom sells the Headsets for R700 each and an identical contract
(without the Headset) for R140 per month. Telcom has a 31 December year
end.
2. Identify the performance obligations in t
contract
At contract inception, identify either:
- A good or a service (or a bundle of goods or services) that is distinct; or
- A series of distinct goods or services that are substantially the same and that have the
same pattern of transfer to the customer
Scope
Does not apply to
IFRS lease contracts
IFRS 17- Insurance contracts
Financial instruments from IFRS 9-11; IAS 27-28
Non-monetary exchanges between entities in the same line of business
Defined Terms
Contract – An agreement between two or more parties that creates enforceable rights and
obligations.
Customer – A party that has contracted with an entity to obtain goods or services that are
an output of the entity’s ordinary activities in exchange for consideration. (Not a customer if
sharing in risks and benefits related to the transaction)
Income – Increases in economic benefits during the accounting period in the form of inflows
or enhancements of assets or decreases of liabilities that result in an increase in equity,
other than those relating to contributions from equity participants.
Performance obligation – A promise in a contract with a customer to transfer to the
customer either:
a) A good or service (or a bundle of goods or services) that is distinct; or
b) A series of distinct goods or services that are substantially the same and that have the
same pattern of transfer to the customer.
Revenue – Income arising in the course of an entity’s ordinary activities.
Stand-alone selling price- The price at which an entity will sell a promised good or service
separately to a customer
Transaction price (for a contract with a customer) – The amount of consideration to which
an entity expects to be entitled in exchange for transferring promised goods or services to a
customer, excluding amounts collected on behalf of third parties.
Steps
1. Identify the contract(s) with the customer
Definition of a contract
Contract – An agreement between two or more parties that creates enforceable rights and
obligations.
Criteria
1. The parties to the contract have approved the contract (writing, or customary business
practices- committed to perform obligations)
2. The entity can identify each party’s rights in relation to the goods or services to be
transferred
, 3. The entity can identify the payment terms and conditions for the goods or services to be
transferred
4. The contract has commercial substance (risk, timing or amount of future cash flows
expected to change- *not commercial substance if e.g. exactly the same items are traded)
5. It is probable that the entity will collect the consideration to which it will be entitled in
exchange for the goods and services transferred. Entity will consider only the customer’s
ability and intention to pay amount of consideration that is due.
Existence of a contract
Does not exist if each party to the contract has the unilateral enforceable right to terminate
a wholly unperformed contract without compensating the other party (or parties)
A contract is wholly unperformed if both of the following criteria are met:
a) the entity has not yet transferred any promised goods or services to the customer; and
b) the entity has not yet received, and is not yet entitled to receive, any consideration in
exchange for promised goods or services.
If criteria are not met
If an entity receives consideration from the customer without meeting the criteria the entity
shall recognise the consideration received as revenue only when either of the following
events has occurred:
a) the entity has no remaining obligations to transfer goods or services to the customer and
all, or substantially all, of the consideration promised by the customer has been received
by the entity and is non-refundable; or
b) the contract has been terminated and the consideration received from the customer is
non-refundable.
Will recognise consideration as a liability until these events occur
Example
Telcom pty ltd entered into a contract with a customer on 1 July 2017. The
customer subscribes for a 12-month contract and in return receive a FREE
Headset from Telcom. The customer will pay a monthly fee of R200 as per the
contract and she will receive the Headset immediately after signing the
contract. Telcom sells the Headsets for R700 each and an identical contract
(without the Headset) for R140 per month. Telcom has a 31 December year
end.
2. Identify the performance obligations in t
contract
At contract inception, identify either:
- A good or a service (or a bundle of goods or services) that is distinct; or
- A series of distinct goods or services that are substantially the same and that have the
same pattern of transfer to the customer
