IFRS 15
Revenue From Contracts
Background
o Revenue: income arising in the course of an entity’s ordinary activities
o Income: increases in economic benefits during the accounting period in the form of
inflows / enhancements of assets / decrease of liabilities resulting in an increase of equity,
other than those relating to contributions from equity participants
o Exclusions from IFRS 15:
§ Lease contract (IFRS 16)
§ Insurance contract (IFRS 17)
§ Financial instruments (IFRS 9)
§ Non-monetary exchanges between entities in the same line of business (trade)
o Contract: agreement between 2/more parties that creates enforceable rights &
obligations
o Customer: a party that has contracted with an entity to obtain goods/services that are
an output of entity’s ordinary activities in exchange for consideration
1 Identify contract with customer
Must already be legally enforceable
o For a contract with a customer to exist, all of the criteria has to be met
a) the parties to the contract have approved the contract & must be committed to their
obligations
Þ approval = written, oral, implied by customary business practices
b) entity can identify each party’s rights regarding goods & services to be transferred
Þ normally specified in contract
Þ must apply IFRS 15 during contractual period for which parties have
enforceable rights & obligations
Þ if contract is automatically renewable, there will be a new contract upon
renewal if contract continues indefinitely, entity can identify & enforce its
rights & obligations for each period until the contract is terminated
c) entity can identify payment terms for goods/services to be transferred
Þ to be able to determine amount at which to measure revenue
d) contract must have commercial substance
= risk, timing & amount of entity’s future cashflows will change as a result of
the contract
e) it’s probable that the entity will collect consideration to which it’s entitled
Þ consider customer’s ability & intention to pay consideration when it’s due
Þ assess customer’s credit risk
, o if criteria isn’t met, any consideration received must be recognized as a liability
Dr Bank (SFP)
Cr Income received in advance
o amount received can only be recognized as revenue when
§ entity has no remaining obligation & all/most of the consideration promised by
the customer has been received (amount is non-refundable) or
§ contract has been terminated & amount is non-refundable
Dr Income received in advance (SFP)
Cr Revenue (p/l)
2 Identify the Performance Obligations
o Performance Obligation: a promise in a contract with a customer to transfer to the
customer
(a) A distinct good/service (or a bundle of goods/services)
(b) A series of distinct goods/services that are substantially the same & have the same
pattern of transfer to the customer
o Must identify @ inception of contract
o Performance obligations don’t have to be limited to what’s explicitly stated in contract -
à can be implied by entity’s customary business practices & published policies if they
create valid expectations in the customer
o Criteria to be Distinct: both must be met
(a) Customer can benefit from good/service on its own / together with resources that
are readily available to customer
- Benefit = use, consumer, sell for amount > scrap value
- Readily available good/service = sold separately
= already obtained from entity
= already obtained elsewhere
The fact that the entity regularly sells good/service separately indicates that the customer can
obtain benefit from good/service on its own/in combo with other readily available resources
(b) Entity’s promise to transfer good/service is separately identifiable from other promises
in contract
- Separately identifiable
= promise to transfer each good/service promised individually or
= promise to transfer combined item/s
- Not separately identifiable
= entity provides significant service of integrating into combined output
= 1/more goods/services significantly modifies/customizes 1/more of the other
goods/services promised
= goods/services are highly interdependent/interrelated
à entity would not meet its promise by transferring each separately
Revenue From Contracts
Background
o Revenue: income arising in the course of an entity’s ordinary activities
o Income: increases in economic benefits during the accounting period in the form of
inflows / enhancements of assets / decrease of liabilities resulting in an increase of equity,
other than those relating to contributions from equity participants
o Exclusions from IFRS 15:
§ Lease contract (IFRS 16)
§ Insurance contract (IFRS 17)
§ Financial instruments (IFRS 9)
§ Non-monetary exchanges between entities in the same line of business (trade)
o Contract: agreement between 2/more parties that creates enforceable rights &
obligations
o Customer: a party that has contracted with an entity to obtain goods/services that are
an output of entity’s ordinary activities in exchange for consideration
1 Identify contract with customer
Must already be legally enforceable
o For a contract with a customer to exist, all of the criteria has to be met
a) the parties to the contract have approved the contract & must be committed to their
obligations
Þ approval = written, oral, implied by customary business practices
b) entity can identify each party’s rights regarding goods & services to be transferred
Þ normally specified in contract
Þ must apply IFRS 15 during contractual period for which parties have
enforceable rights & obligations
Þ if contract is automatically renewable, there will be a new contract upon
renewal if contract continues indefinitely, entity can identify & enforce its
rights & obligations for each period until the contract is terminated
c) entity can identify payment terms for goods/services to be transferred
Þ to be able to determine amount at which to measure revenue
d) contract must have commercial substance
= risk, timing & amount of entity’s future cashflows will change as a result of
the contract
e) it’s probable that the entity will collect consideration to which it’s entitled
Þ consider customer’s ability & intention to pay consideration when it’s due
Þ assess customer’s credit risk
, o if criteria isn’t met, any consideration received must be recognized as a liability
Dr Bank (SFP)
Cr Income received in advance
o amount received can only be recognized as revenue when
§ entity has no remaining obligation & all/most of the consideration promised by
the customer has been received (amount is non-refundable) or
§ contract has been terminated & amount is non-refundable
Dr Income received in advance (SFP)
Cr Revenue (p/l)
2 Identify the Performance Obligations
o Performance Obligation: a promise in a contract with a customer to transfer to the
customer
(a) A distinct good/service (or a bundle of goods/services)
(b) A series of distinct goods/services that are substantially the same & have the same
pattern of transfer to the customer
o Must identify @ inception of contract
o Performance obligations don’t have to be limited to what’s explicitly stated in contract -
à can be implied by entity’s customary business practices & published policies if they
create valid expectations in the customer
o Criteria to be Distinct: both must be met
(a) Customer can benefit from good/service on its own / together with resources that
are readily available to customer
- Benefit = use, consumer, sell for amount > scrap value
- Readily available good/service = sold separately
= already obtained from entity
= already obtained elsewhere
The fact that the entity regularly sells good/service separately indicates that the customer can
obtain benefit from good/service on its own/in combo with other readily available resources
(b) Entity’s promise to transfer good/service is separately identifiable from other promises
in contract
- Separately identifiable
= promise to transfer each good/service promised individually or
= promise to transfer combined item/s
- Not separately identifiable
= entity provides significant service of integrating into combined output
= 1/more goods/services significantly modifies/customizes 1/more of the other
goods/services promised
= goods/services are highly interdependent/interrelated
à entity would not meet its promise by transferring each separately
