IFRS 15: Revenue
STEPS of IFRS 15
- Application of IFRS 15
- Scope
- Topics covered in Fin Acc II
- Overview
- Contract costs
- Contract modification
- Installment Sales
- Options to acquire additional G/S
- Contracts for construction of specialised assets
- Measurement
- Performance obligations
- Presentation and disclosure
- Objectives and References
applies to the accounting for the revenue and cash flows from contracts with customers
customer
that contracts with an entity
to obtain goods/services
that are an output of the entity's ordinary services
party
in exchange for consideration
does NOT apply to contracts which are entered into for a purpose OTHER than acquiring the G/S produced by the entity during the ordinary course of its business
3) Transfer of G/S
4) Determine the transaction price
2) Identify G/S
5) Allocate the transaction price
STEPS
3) Determine the transaction price
4) Allocate the transaction price to the performance obligations
2) Identify the performance obligations
5) Recognise revenue when (or as) the performance obligations are satisfied
1) Identify a contract with a customer
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)
promises within the contract
separate = distinct
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
when/as
point in time
over time
1) Contract assessment
6) Contract costs
is contract in scope?
if it is, does contract meet the criteria in par 9?
if par 9 criteria met
identify all the promises t provide G/S specified in contract
Recognition
which promises are distinct?
if point in time
if over time
when does entity transfer control of G/S?
revenue recognised NOW
stage of completion assessed to determine when to recognise revenue
Recognition
determine total consideration to be received on the contract
i.e. amount to be received for transferring the G/S per the contract to the customer
Measurement
allocate it to the performance obligations
i.e. allocate the total consideration to the individual bundles of distinct G/S
Measurement
Measurement
account for contract-related costs NOT within the scope of another IFRS
substance of transaction
IFRS 15 does not specifically deal with instalment sales
def
contractual features
for which the sales price is collected
through the payment of periodic instalments
sales transaction
over an estimated period of time
e.g. customer buys a new car from a supplier and agrees to settle the sales price over a 4 year period in equal monthly instalments
2) provision of finance to customer
i.e. total consideration received includes a variable component
1) sale of goods AND
ito IFRS 15, any significant financing component must be accounted for SEPARATELY
IFRS 9
accounted for using IFRS 9
amortised cost using an effective interest rate method
amount received from the customer is unconditional
seller remains the legal owner
purchaser may NOT remove the goods outside SA
purchaser has selected goods from seller, and seller has no knowledge if the purpose for which goods are required
seller has the right to repossess the goods if the purchaser fails to make punctual payments
inception of agreement
control of the goods usually passes to the purchaser on the date that the instalment sales agreement is signed.
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
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
to ensure collectability of the amount due from purchaser
without the written consent of the seller
cede
pledge the goods
sell
N.B! legal title is NOT required for control
Repossession
Tax
upon repossession
represent 2nd hand goods for resale
when a purchaser fails to pay instalments due
should be measured at the LOWER of
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
recondition goods
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
s11(j): provision for doubtful debts
deferred tax must be provided iro the related future tax consequences
s24 allowance
1)
2)
2 classes of costs
construction costs
other issues and common terms
revenue recognition
current tax
def
industries referred to as
par 18-21
determine whether it is
in the scope or price (or both)
of an existing customer contract
change
variations or
amendments to the contract
change orders,
or not
separate 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
2) Satisfaction of PO
3) Recognising revenue
1) Identification of PO
4) Principles and agents
2) Allocation of the transaction price
- Changes in the transaction price
1) Determination of the transaction price
for free or at a discount
including
customer options to acquire additional G/S
customer award credits/points or
discounts on future G/S
sales incentives
example
customer loyalty programme
PnP smart shopper programme
3 scenarios
2) Supply of points for redemption at a different supplier
3) Retail points involving agents
1) Supply of loyalty points by the reporting entity
discusses the relevant accounting implications
1) incremental costs to obtain a contract
2) costs to fulfill a contract
i.e. as opposed to expensing them as incurred
if ALL are satisfied
such costs be recognised as an asset
e.g. sales commission paid to a sales representative once a contract is obtained
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
then those costs are capitalised under IFRS 15
if ALL are satisfied
if costs incurred to fulfill a contract are NOT within the scope of another IFRS (e.g. IAS 2 Inventories)
assets recognised in accordance with these paragraphs are AMORTISED and tested for impairment
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
guidance on contract costs is particularly relevant for entities that earn revenue from the construction of specialised assets for customers
intro
accounting for construction contracts
PO satisfied over time
construction of assets
principles applicable for recognition and measurement of revenue
earn revenue by constructing customised assets for customers
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
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
par 35-37
par 39-45
par 31
par 50-54
recognition of revenue as PO are satisfied
identifying PO satisfied over time
measuring progress towards complete satisfaction of the PO
measuring the transaction price
construction contract
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
methods
stage of completion
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
1) Input method
2) Output 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
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
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)
SARS taxes the HIGHER of
cash received and
work certified less retentions
SARS allows
deduction of actual costs incurred during the year
s24C allowance
deferred tax
provided iro related future tax consequences
par 105-129
Appendix B
discusses how the principles in IFRS 15 can be applied to specific features of contracts entered into with customers
if PO satisfied over time
stage of completion
if PO satisfied at a point in time
Appendix B
revenue recognised at that point
when entity transfers control of the G/S to the customer
revenue recognised over time
as entity transfers control over the G/S
determine progress of PO
par 41-43
par 44-45
measuring the progress towards complete satisfaction of the PO
accounting implications if the entity cannot measure reliably the progress towards complete complete satisfaction of the PO
if a PO is satisfied at a point in time or over time
3 cases
specific cases
2) non-refundable fees
3) license agreements
1) unexercised customer rights
determining what G/S the entity will be providing to the customer
how to account for these
identify if principle or agent
whether or not the entity has transferred control to the customer is relevant
par B79-82
par B83-86
par B77-78
consignment sales
bill-and-hold arrangements
sales conditional on customer approval
distinct G/S
amounts collected on behalf of 3rd parties
take into account
determine the total amount of consideration
intention is to arrive at the best estimate of what the entity expects to receive for the G/S to be transferred to the customer
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
allocate the transaction price to each PO
SASP
par 87-89
par par 90
IAS 8 change in estimate
change in transaction price part of contract modification
AFTER a contract modification