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IFRS 15: Revenue (STEPS of IFRS 15 (3) Transfer of G/S (if point in time…

- - - - revenue recognised NOW
    - - stage of completion assessed to determine when to recognise revenue
- - - - accounted for using IFRS 9
      - amortised cost using an effective interest rate method
      - amount received from the customer is unconditional
  - - - this is to secure the amount owing from the purchaser
      - purchaser is normally responsible for the insurance, maintenance and repairs
      - UNTIL the purchaser has paid all the amounts due under the agreement
    - - purchaser may NOT
        
        cede
        
        pledge the goods
        
        sell
      - to ensure collectability of the amount due from purchaser
      - without the written consent of the seller
    - - to secure payment of the debt, legal ownership of item remains with the seller
      - UNTIL the last instalment is made
      - purchaser obtains possession of item
      - seller-buyer contract
  - - - the profit and finance charges already recognised
      - which are now unearned
      - both the amount owing by the debtor AND
      - must be written off
      - cost of the repossessed item is therefore the cost of the unpaid instalments
    - - cost OR
      - net realizable value
    - - necessary or desirable
      - make them easily saleable
      - cost of reconditioning
        
        PROVIDED cost plus reconditioning does NOT exceed the prospective selling price
        
        resulting balance is shown as a current asset (inventory) in the SOFP
        
        added to the cost of unpaid instalments
- - - - 1) Input method
        
        eg. resources consumed, labour hours expended, other costs incurred
        
        relative to the total expected inputs required to satisfy the PO fully
        
        recognise revenue based on entity's inputs to satisfy the PO
        
        costs incurred to date/ total estimated costs
        
        costs that do NOT reflect the entity's performance under the contract should be excluded (e.g. cost of wasted material)
      - 2) Output method
        
        e.g. surveys of work performed to date, appraisals of results achieved, milestones reached, time elapsed and units produced/delivered
        
        recognise revenue based on direct measurements of the value of G/S transferred to the customer to date
    - - the PO is satisfied over time
      - therefore recognise revenue over time
      - when an entity constructs a customised asset and transfers control over that asset as it is constructed
      - entity will recognise revenue based on how much it has performed
  - - - cash received and
      - work certified less retentions
    - - deduction of actual costs incurred during the year
      - s24C allowance
  - - - previously governed by IAS 11
      - IFRS 15 does NOT define 'construction contract'
    - - 1) entity is constructing/developing an asset and transferring control over the asset as it is developed/constructed OR
      - 2) an asset is constructed/developed and it has no alternate use to the entity which is entitled to compensation for progress completed to date
    - - e.g. construction of a customised office block for another entity
      - may extend > 1 financial year
      - takes a significant period of time
      - issue: when and how to recognise revenue and the associated costs
    - - par 35-37
        
        identifying PO satisfied over time
      - par 39-45
        
        measuring progress towards complete satisfaction of the PO
      - par 31
        
        recognition of revenue as PO are satisfied
      - par 50-54
        
        measuring the transaction price
    - - but payment terms may be sufficiently alligned with the progress towards complete satisfaction of the relevant PO
      - may be necessary to identify a financing component
- - - - the entity expects to recover the costs AND
      - the costs would NOT have been incurred unless the contract was obtained
      - costs are directly attributable to obtaining a contract with a customer
  - - - costs generate/enhance resources of the entity that will be used to satisfy the performance obligations AND
      - the entity expects to recover the costs
      - costs relate directly to a contract/ anticipated contract
- - - - if BOTH the conditions are met
        
        a) scope of the contract increases because additional G/S are promised and they are distinct
        
        b) price of the contract increases by an amount thats reflects the SASP of the additional promised G/S
- - - - par B79-82
        
        bill-and-hold arrangements
      - par B83-86
        
        sales conditional on customer approval
      - par B77-78
        
        consignment sales
  - - - revenue recognised over time
      - as entity transfers control over the G/S
    - - determine progress of PO
        
        par 41-43
        
        measuring the progress towards complete satisfaction of the PO
        
        par 44-45
        
        accounting implications if the entity cannot measure reliably the progress towards complete complete satisfaction of the PO
    - - revenue recognised at that point
      - when entity transfers control of the G/S to the customer
    - - if a PO is satisfied at a point in time or over time
      - 3 cases
        
        2) non-refundable fees
        
        3) license agreements
        
        1) unexercised customer rights
      - specific cases
- - - - IAS 8 change in estimate
    - - change in transaction price part of contract modification
      - AFTER a contract modification
  - - - constrained estimates of variable consideration
      - financing elements of the contract
      - estimates of variable consideration, incl amounts refundable to the customer
      - non-cash consideration
      - any consideration payable to the customer
- - - - in exchange for transferring the promised goods/services to the customer
      - amounts collected on behalf of 3rd parties (e.g. VAT)
      - amount of consideration which entity expects to be entitled to
      - consider effect of
        
        b) constraining estimates of variable consideration
        
        c) significant financing component
        
        a) variable consideration
        
        d) non-cash consideration
        
        consideration payable to the customer
    - - relative stand alone price basis
      - more than 1 SASP NOT known
        
        must be estimated
        
        par 79
    - - promises within the contract
      - separate = distinct
    - - when/as
      - point in time
      - over time
    - - ALL must be met
        
        c) payment terms can be identified
        
        d) contract has commercial substance
        
        b) parties rights can be identified
        
        e) probable that entity will collect the agreed consideration
        
        a) parties approved the contract (verbal/writing)