sets the principles to apply when reporting about: nature, amount, timing & uncertainty of revenue and cash flows from a contract with a customer
five-step model
determine the transaction price;
allocate the transaction price to the performance obligations in the contract;
identify the performance obligations in the contract;
recognise revenue when (or as) the entity satisfies a performance obligation
identify the contract(s) with a customer;
IFRS 15. Revenue from Contracts with Customers
Step 1: Identify the contract with the customer
The payment terms are identified;
The contract has a commercial substance;
Each party’s rights to the goods/services transferred are identified;
It is probable that an entity will collect the consideration. Necessary to evaluate the customer’s ability and intention to pay.
Parties to the contract has approved it and are committed to perform;
apply IFRS 15 to all contracts that have the following 5 attributes:
contract combination
happens when you need to account for two or more contract as for 1 contract and not separately
is the change in the contract’s scope, price or both (when you add certain goods or services, you deal with the contract modification)
Step 2: Identify the performance obligations in the contract
DISTINCT means separable, or separately identifiable.
Performance obligations can be both explicit (e.g. written in the contract) and implicit (e.g. implied by some customary practices).
PERFORMANCE OBLIGATION is any good or service that contract promises to transfer to the customer (either a single product or a series of distinct goods).
Step 3: Determine the transaction price
It’s NOT always the price set in the contract. It is you expectation of what your receive
To estimate transaction price necessary to take into account: variable discounts (bonuses, discounts), value of money (in the case of delay), non-cash items, etc.
TRANSACTION PRICE is the amount of consideration than 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.
Step 4: Allocate the transaction price to the performance obligations
Exceptions: when allocating discounts & when allocating considerations with variable amounts
STAND-ALONE selling price is a price at which an entity would sell a promised good or a service separately to the customer.
Generally, do it based on their relative stand-alone selling prices
Step 5 Recognize revenue when (or as) the entity satisfies a performance obligation
Over time (control is passed to the customer over some period of time); or
At the point of time (control is retained by the supplier until it is transferred at some moment).
A performance obligation can be satisfied either:
contract costs
Costs to obtain a contract: these costs would not have been incurred without an effort to obtain a contract – for example, legal fees, sales commissions and similar. Are recognised as an asset if they are expected to be recovered
Costs to fulfill a contract: If these costs are within the scope of IAS 2, IAS 16, IAS 38, treat them in line with the appropriate standard.If not, then capitalize them only if certain criteria are met.
two types of costs related to the contract: