This publication has been carefully prepared, but it has been written

in
general terms and should be seen as broad guidance only. The
publication cannot be relied upon to cover specific situations and
you should not act, or refrain from acting, upon the information
contained therein without obtaining specific professional advice.
Please contact your respective BDO member firm to discuss these
matters in the context of your particular circumstances. Neither
BDO IFR Advisory Limited, Brussels Worldwide Services BV, BDO
International Limited and/or BDO member firms, nor their
respective partners, employees and/or agents accept or assume
any liability or duty of care for any loss arising from any action taken

IFRS AT A GLANCE
or not
taken by anyone in reliance on the information in this publication or
for any decision based on it.

IFRS 15 Revenue from Contracts

Service provision within the international BDO network of
independent member firms (‘the BDO network’) in connection with

with Customers
IFRS (comprising International Financial Reporting Standards,
International Accounting Standards, and Interpretations developed
by the IFRS Interpretations Committee and the former Standing
Interpretations Committee), and other documents, as issued by the
International Accounting Standards Board, is provided by BDO IFR
Advisory Limited, a UK registered company limited
by guarantee. Service provision within the BDO network is
coordinated by Brussels Worldwide Services BV, a limited liability
company incorporated in Belgium with its statutory seat in
Zaventem.

Each of BDO International Limited (the governing entity of the

BDO network), Brussels Worldwide Services BV, BDO IFR
Advisory Limited and the member firms is a separate legal entity
and has no liability for another such entity’s acts or omissions.
Nothing in the arrangementsor
rules of the BDO network shall constitute or imply an agency
relationship or a partnership between BDO International Limited,
Brussels Worldwide Services BV, BDO IFR Advisory Limited
and/or the member firms of the BDO network.

BDO is the brand name for the BDO network and for each of the
BDO member firms.

© 2020 BDO IFR Advisory Limited, a UK registered company

limited by guarantee. All rights reserved.

www.bdo.global
 28

IFRS 15 Revenue from Contracts with Customers

Page 1 of 4
Effective Date
Periods beginning on or after 1 January 2018

SCOPE DEFINITIONS
Applies to all contracts with customers, except: Contract: Revenue: Distinct: Performance obligation:
 Lease contracts (refer to IFRS 16) An agreement between two or more parties Income arising in the course of an entity’s Refer to Step 2 below. A promise to transfer to the customer either:
 Insurance contracts (refer to IFRS 4 / IFRS that creates enforceable rights and obligations. ordinary activities. (i) A distinct (bundle of) good(s) or service(s)
17) (ii) A series of substantially the same distinct
 Financial instruments and other contractual Customer: Income: Stand-alone selling price: goods or services that have the same pattern
rights or obligations (refer to IFRS 9/IAS 39, A party that has contracted with an entity to Increases in economic benefits in the form of The price at which a of transfer to the customer, and the pattern
IFRS 10, IFRS 11, IAS 27, and IAS 28) obtain goods or services that are an output of inflows or enhancements of assets or decreases promised good or service of transfer is both over time and represents
 Certain non-monetary exchanges. the entity’s ordinary activities in exchange for of liabilities that result in an increase in equity would be sold separately the progress towards complete satisfaction
consideration. (other than those from equity participants). to a customer. of the performance obligation.

Specific quantitative disclosure requirement: THE ‘FIVE STEP’ MODEL

Revenue from contracts with customers is recognised based on the application of a principle-based ‘five step’ model:

Step 1 and 2 Step 3 Step 4 Step 5

Identify… Determine… Allocate… Recognise…

…the transaction …revenue when

…the performance …the transaction price to each each performance
…the contract obligation is
obligation(s) price performance
obligation satisfied

STEP 1 – IDENTIFY THE CONTRACT

Features of a ‘contract’ under IFRS 15 Contract modifications
Contracts, and approval of contracts, can be written, oral or implied by an entity’s customary business practices. A change in enforceable rights and obligations (i.e. scope and/or price) is only accounted for as a contract
modification if it has been approved, and creates new or changes existing enforceable rights and obligations.
IFRS 15 requires contracts to have all of the following attributes:
 The contract has been approved
Contract modifications are accounted for as a separate contract if, and only if:
 The rights and payment terms regarding goods and services to be transferred can be identified
 The contract scope changes due to the addition of distinct goods or services, and
 The contract has commercial substance
 The change in contract price reflects the standalone selling price of the distinct good or service.
 It is probable that the consideration will be received (considering only the customer’s ability and intention to pay).
If each party to the contract has a unilateral enforceable right to terminate a wholly unperformed contract without Contract modifications that are not accounted for as a separate contract are accounted for as either:
compensating the other party (or parties), no contract exists under IFRS 15. (i) Replacement of the original contract with a new contract (if the remaining goods or services under the
original contract are distinct from those already transferred to the customer)
Combining multiple contracts 86.

(ii) Continuation of the original contract (if the remaining goods or services under the original contract are not
Contracts are combined if they are entered into at (or near) the same time, with the same customer, if either: distinct from those already transferred to the customer, and the performance obligation is partially satisfied
 The contracts are negotiated as a package with a single commercial objective at modification date).
 The consideration for each contract is interdependent on the other, or
87.

(iii) Mixture of (i) and (ii) (if elements of both exist).

 The overall goods or services of the contracts represent a single performance obligation. 88.
 29

IFRS 15 Revenue from Contracts with Customers

Page 2 of 4 Effective Date
Periods beginning on or after 1 January 2018

STEP 2 – IDENTIFY THE PERFORMANCE OBLIGATIONS

Performance obligations are the contractual
promise by an entity, to transfer to a
DEFINITION OF ‘DISTINCT’ (TWO CRITERIA TO BE MET)
customer, distinct goods or services, either
individually, in a bundle, or as a series over (i) The customer can ‘benefit’ from the good or service (ii) The promise to transfer a good or service is separable from other promises in the contract
time (Refer to the ‘Definitions’ section above). Benefit from the good or service can be through either: The assessment requires judgement, and consideration of all relevant facts and circumstances.
Activities of the entity that do not result in a  Use, consumption, or sale (but not as scrap) A good or service may not be separable from other promised goods or services in the contract, if:
transfer of goods or services to the customer  Held in a way to generate economic benefits.  There are significant integration services with other promised goods or services
(e.g. certain internal administrative ‘set-up Benefit from the good or service can be either:  It modifies/customises other promised goods or services
activities’) are not performance obligations of  On its own  It is highly dependent/interrelated with other promised goods or services.
the contract with the customer and do not give  Together with other readily available resources (i.e. those which can be
rise to revenue. acquired by the customer from the entity or other parties).

STEP 3 – DETERMINE THE TRANSACTION PRICE

The transaction price is the amount of consideration an entity expects to be entitled to in exchange for transferring the promised goods or services (not amounts collected on behalf of third parties, e.g. sales taxes or value added taxes).
The transaction price may be affected by the nature, timing, and amount of consideration, and includes consideration of significant financing components, variable components, amounts payable to the customer (e.g. refunds and rebates), and
non-cash amounts.

Accounting for a significant financing component Accounting for variable consideration

If the timing of payments specified in the contract provides either the customer or the entity with E.g. Discounts, rebates, refunds, credits, concessions, incentives, performance bonuses, penalties, and contingent payments.
a significant benefit of financing the transfer of goods or services. Variable consideration must be estimated using either:
The transaction price is adjusted to reflect the cash selling price at the point in time control of (i) Expected value method: based on probability weighted amounts within a range (i.e. for large number of similar contracts)
the goods or services is transferred.
(ii) Single most likely amount: the amount within a range that is most likely to arise.
A significant financing component can either be explicit or implicit.
Factors to consider include: Constraining (limiting) the estimates of variable consideration
 Difference between the consideration and cash selling price  Variable consideration is only recognised if it is highly probable that a subsequent change in its estimate would not result in a
 Combined effect of interest rates in the relevent market and length of time between transfer significant revenue reversal (i.e. a significant reduction in cumulative revenue recognised).
of control of the goods or services and payment.

A significant financing component does not exist when Accounting for consideration payable to the customer
 The customer paid in advance and timing of the transfer of control of the goods or services is Includes cash paid (or expected to be paid) to the customer (or the customer’s customers) as well as credits or other items such as coupons
at the customer’s discretion and vouchers.
 The consideration is variable with the amount or timing based on factors outside of the
Accounted for as a reduction in the transaction price, unless payment is in exchange for a good or service received from the customer in
control of the parties
which case no adjustment is made – except where:
 The difference between the consideration and cash selling price arises for other non-financing
 The consideration paid exceeds the fair value of the goods or services received (the difference is set against the transaction price)
reasons (i.e. performance protection).
 The fair value of the goods or services cannot be reliably determined (full amount taken against the transaction price).
Discount rate to be used
 Must reflect credit characteristics of the party receiving the financing and any Accounting for non-cash consideration
collateral/security provided. Is accounted for at fair value (if not reliably determinable, it is measured indirectly by reference to stand-alone selling price of the goods or
services).
Practical expedient – period between transfer and payment is 12 months or less
 Do not account for any significant financing component.
 30

IFRS 15 Revenue from Contracts with Customers

Page 3 of 4 Effective Date
Periods beginning on or after 1 January 2018

STEP 4 – ALLOCATE THE TRANSACTION PRICE TO EACH PERFORMANCE OBLIGATION

The transaction price (determined in Step 3) is Allocating a ‘discount’
allocated to each performance obligation (determined in A discount exists where the sum of the stand-alone selling price of each performance obligation exceeds the consideration payable.
Step 2) based on the stand-alone selling price of each
performance obligation. Discounts are allocated on a proportionate basis, unless there is observable evidence that the discount relates to one or more specific performance obligation(s) after meeting all of
the following criteria:
If the stand-alone selling price(s) are not observable,
 The goods or services (or bundle thereof) in the performance obligation are regularly sold on a stand-alone basis, and at a discount
they are estimated. Approaches to estimate may
 The discount is substantially the same in amount to the discount that would be given on a stand-alone basis.
include:
(i) Adjusted market assessment approach
(ii) Expected cost plus a margin approach Allocating variable consideration
(iii) Residual approach (i.e. residual after observable Variable consideration is allocated entirely to a performance obligation (or a distinct good or service within a performance obligation), if both:
stand-alone selling prices of other performance  The terms of the variable consideration relate specifically to satisfying the performance obligation (or transferring the distinct good or service within the performance
obligations have been deducted). obligation)
89.

90. Note that restrictive criteria must be met for  The allocation of the variable consideration is consistent with the principle that the transaction price is allocated based on what the entity expects to receive for satisfying the
approach (iii) to be applied. performance obligation (or transferring the distinct good or service within the performance obligation).

STEP 5 – RECOGNISE REVENUE AS EACH PERFORMANCE OBLIGATION IS SATISFIED

The transaction price allocated to each performance
obligation (determined in Step 4) is recognised
(i) RECOGNISING REVENUE OVER TIME (APPLIES IF ANY OF THE FOLLOWING THREE CRITERIA ARE MET)
as/when the performance obligation is satisfied,
either (a) Customer simultaneously receives and (c) The entity’s performance does not create an asset with an alternative use to the entity, and the entity has an
(i) Over time, or consumes all of the benefits enforceable right to payment for performance completed to date.
(ii) At a point in time. e.g. many recurring service contracts (such as (i) Alternate use (ii) Enforceable right to payment
cleaning services).
Satisfaction occurs when control of the promised good Assessment requires judgment and consideration of all facts and circumstances. Consider both the specific contractual terms
or service is transferred to the customer: If another entity would not need to substantially and any applicable laws or regulations.
An asset does not have an alternate use if the entity cannot practically or
 Ability to direct the use of the asset re-perform the work already performed by the Ultimately, other than due to its own failure to
contractually redirect the asset to another customer, such as:
 Ability to obtain substantially all the remaining entity in order to satisfy the performance perform as promised, an entity must be
 Significant economic loss, i.e. through rework, or reduced sale price
benefits from the asset. obligation, the customer is considered to be entitled to compensation that approximates the
(practical)
simultaneously receiving and consuming benefits. selling price of the goods or services
Factors to consider when assessing transfer of control:  Enforceable rights held by the customer to prohibit redirection of the transferred to date.
 Entity has present right to payment for the asset (b) The entity’s work creates or enhances an asset (contractual). The profit margin does not need to equal the
 Entity has physically transferred the asset asset controlled by the customer Whether or not the asset is largely interchangeable with other assets produced profit margin expected if the contract was
 Legal title of the asset by the entity should also be considered in determining whether practical or fulfilled as promised. For example, it could be
 Risks and rewards of ownership The asset being created or enhanced (e.g. a work
in progress asset) could be tangible or intangible. contractual limitations occur. a proportion of the expected profit margin that
 Acceptance of the asset by the customer. reflects performance to date.

Revenue that is recognised over time is recognised in a way that depicts the entity’s performance in transferring control of goods or services to customers. Methods include:
 Output methods: (e.g. Surveys of performance completed to date, appraisals of results achieved, milestones reached, units produced/delivered etc.)
 Input methods: (e.g. Resources consumed, labour hours, costs incurred, time lapsed, machine hours etc.), excluding costs that do not represent the seller’s performance.

(ii) RECOGNISING REVENUE AT A POINT IN TIME

Revenue is recognised at a point in time if the criteria for recognising revenue over time are not met.
Revenue is recognised at the point in time at which the entity transfers control of the asset to the customer (see adjacent box).
 31

IFRS 15 Revenue from Contracts with Customers

Page 4 of 4 Effective Date
Periods beginning on or after 1 January 2018

APPLICATION GUIDANCE WITHIN IFRS 15

Contract costs Licensing (of an entity’s intellectual property (IP))
IFRS 15 contains application guidance for:
 Contract costs Only incremental costs of obtaining a contract that are incremental and expected to be recovered (i) If the licence is not distinct from other goods or services
 Sale with a right of return can be recognised as an asset.
 Warranties  It is accounted for together with other promised goods or services as a single performance obligation
 Principal versus agent considerations If costs to fulfil a contract are within the scope of other IFRSs (e.g. IAS 2, IAS 16, IAS 38 etc.) apply  A licence is not distinct if either:
 Customer options for additional goods or those IFRSs.  It is an integral component to the functionality of a tangible good, or
services If not, a contract asset is recognised under IFRS 15 if, and only if, the costs:  The customer can only benefit from the licence in conjunction with a related service.
 Customers’ unexercised rights  Are specifically identifiable and directly relate to the contract (e.g. direct labour, materials,
 Non-refundable upfront fees (and some overhead allocations, explicitly on-charged costs, other unavoidable costs (e.g. sub- (ii) If the licence is distinct from other goods or services
related costs) contractors))
 Licensing  Create (or enhance) resources of the entity that will be used to satisfy performance  It is accounted for as a single performance obligation.
 Repurchase agreements obligation(s) in the future, and 91.
 Consignment arrangements  Are expected to be recovered.  Revenue from a distinct licence is recognised over time (refer Step 5) if, and only if:
 Bill-and-hold arrangements 92.
Costs that are recognised as an expense as incurred (a) The entity (is reasonably expected to) undertakes activities that will significantly affect the IP to which
 Customer acceptance.
 General and administrative expenses the customer has rights
94.
95. A summary is set out on this page for those  Wastage, scrap, and other (unanticipated) costs not incorporated into pricing the contract (b) The customer’s rights to the IP expose it to the positive/negative effects of the activities that the
items in bold type above.  Costs related to (or can’t be distinguished from) past performance obligations. entity undertakes in (a).
(c) No goods or services are transferred to customer as the entity undertakes the activities in (a).
Amortisation and impairment of contract assets 93.
 Amortisation is based on a systematic basis consistent with the pattern of transfer of the goods
or services to which the asset relates  Revenue from a distinct licence is recognised at a point in time (refer to Step 5) if the criteria for
 Impairment exists where the contract carrying amount is greater than the remaining recognition over time (above) are not met. The right is over the IP in its form and functionality at the point
consideration receivable, less directly related costs to be incurred. at which the licence is granted to the customer.
 Revenue is recognised at the point in time at which control of the licence is transferred to the
customer.

Warranties (fall into either one of the two categories): Non-refundable upfront fees

(i) Assurance type (apply IAS 37): (ii) Service type (accounted for separately in accordance with IFRS 15): Includes additional fees charged at (or near) the inception of the contract (e.g. joining fees, activation fees, set-up
 An assurance to the customer that the good or  A service is provided in addition to an assurance to the customer that the good or fees etc.).
service will function as specified service will function as specified
 The customer cannot purchase this warranty  This applies regardless of whether the customer is able to purchase this warranty Treatment dependents on whether the fee relates to the transfer of goods or services to the customer (i.e. a
separately from the entity. performance obligation under the contract):
separately from the entity.
98.
 Yes: Recognise revenue in accordance with IFRS 15 (as or when goods or services transferred)
In determining the classification (or part thereof) of a warranty, an entity considers: 96.
 Legal requirements: (warranties required by law are usually assurance type)  No: Treated as an advance payment for the performance obligations to be fulfilled.
 Length: (longer the length of coverage, more likely additional services are being provided) 97. (Note: Revenue recognition period may in some cases be longer than the contractual period if the customer
 Nature of tasks: (do they provide a service or are they related to assurance (e.g. return shipping for defective goods)). has a right to, and is reasonably expected to, extend/renew the contract).
PRESENTATION TRANSITION (APPENDIX C) DISCLOSURE
Statement of financial position Retrospective application (either) Overall objective to disclose sufficient information to enable users to understand the nature, amount, timing, and
 Contract assets and contract liabilities from customers are  For each prior period presented in accordance with IAS 8 Accounting uncertainty of revenue and cash flows arising from an entity’s contracts with customers.
presented separately Policies, Changes in Accounting Estimates and Errors; or
 Unconditional rights to consideration are presented separately  Cumulative effect taken to the opening balance of retained earnings in Contracts with customers (information regarding): Significant judgements:
as a receivable. the period of initial application.  Disaggregation of revenue  Performance obligation satisfaction
For full retrospective application, practical expedients (for)  Contract assets and contract liabilities  Transaction price (incl. allocation)
Statement of profit or loss and other comprehensive income  Restatement of completed contracts  Performance obligations (incl. remaining).  Determining contract costs capitalised.
 Line items (revenue and impairment) are presented separately  Determining variable consideration of completed contracts
in accordance with the requirements of IAS 1 Presentation of  Disclosures regarding the transaction price allocation to performance Use of practical expedients (related to): Contract costs capitalised:
Financial Statements. obligations still to be satisfied.  Significant financing component (12 month)  Method of amortisation
For both approaches there is a practical expedient for contracts modified  Contract costs (12 month amortisation).  Closing balances by asset type
in earlier periods.  Amortisation and impairment.
99.
 Contact
For further information about how BDO can assist you and your organisation, please get in touch with one of our key
contacts listed below.

Alternatively, please visit www.bdo.global where you can find full lists of regional and country contacts.

EUROPE

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ASIA PACIFIC

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LATIN AMERICA

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NORTH AMERICA & CARIBBEAN

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MIDDLE EAST

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SUB SAHARAN AFRICA

Theunis Schoeman South Africa tschoeman@bdo.co.za

This publication has been carefully prepared, but it has been
written in general terms and should be seen as broad guidance
only. The publication cannot be relied upon to cover specific
situations and you should not act, or refrain from acting, upon
the information contained therein without obtaining specific
professional advice. Please contact your respective BDO member
firm to discuss these matters in the context of your particular
circumstances. Neither BDO IFR Advisory Limited, Brussels
Worldwide Services BV, BDO International Limited and/or BDO
member firms, nor their respective partners, employees and/or
agents accept or assume any liability or duty of care for any loss
arising from any action taken or not
taken by anyone in reliance on the information in this publication or
for any decision based on it.

Service provision within the international BDO network of

independent member firms (‘the BDO network’) in connection with
IFRS (comprising International Financial Reporting Standards,
International Accounting Standards, and Interpretations developed
by the IFRS Interpretations Committee and the former Standing
Interpretations Committee), and other documents, as issued by the
International Accounting Standards Board, is provided by BDO IFR
Advisory Limited, a UK registered company limited
by guarantee. Service provision within the BDO network is
coordinated by Brussels Worldwide Services BV, a limited liability
company incorporated in Belgium with its statutory seat in
Zaventem.

Each of BDO International Limited (the governing entity of the

BDO network), Brussels Worldwide Services BV, BDO IFR
Advisory Limited and the member firms is a separate legal
entity and has no liability for another such entity’s acts or
omissions. Nothing in the arrangements or
rules of the BDO network shall constitute or imply an agency
relationship or a partnership between BDO International Limited,
Brussels Worldwide Services BV, BDO IFR Advisory Limited and/or
the member firms of the BDO network.

BDO is the brand name for the BDO network and for each of
the BDO member firms.

© 2020 BDO IFR Advisory Limited, a UK registered company

limited by guarantee. All rights reserved.

www.bdo.global