IFRS 15 — Revenue from Contracts with

Customers

Overview
IFRS 15 speci es how and when an IFRS reporter will
recognise revenue as well as requiring such entities to
provide users of nancial stat ments with more i fo m tive,
relevant di cl sures. The standard provides a single, pri ci-
ples based ve-step model to be applied to all contracts
with customers.
IFRS 15 was issued in May 2014 and applies to an annual
reporting period beginning on or after 1 January 2018. On
12 April 2016, cla f ing amen ments were issued that have
the same e ective date as the

S pe seded Standards
IFRS 15 replaces the following standards and i te pr ta-
tions:

IAS 11 Co stru tion contracts

IAS 18 Revenue
IFRIC 13 Customer Loyalty Pr grammes
IFRIC 15 Agre ments for the Co stru tion of Real
Estate
IFRIC 18 Transfers of Assets from Customers
SIC-31 Revenue - Barter Tran a tions Involving A ver-
ti ing Services

Summary of IFRS 15
Objective
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 The objective of IFRS 15 is to establish the pri c ples that
an entity shall apply to report useful i fo m tion to users of
nancial stat ments about the nature, amount, timing, and
u ce tainty of revenue and cash ows arising from a
contract with a customer. [IFRS 15:1] A pl c tion of the
standard is mandatory for annual reporting periods starting
from 1 January 2018 onwards. Earlier a pl c tion is
permitted.

Key d tions
[IFRS 15: Appendix A]
Contract
An agreement between two or more parties that creates en-
forc able rights and obli tions.
Customer
A party that has co tracted with an entity to obtain goods
or services that are an output of the entity’s ordinary a ti i-
ties in exchange for co si e tion.
Income
Increases in economic bene ts during the accounting
period in the form of in ows or e hanc ments of assets or
decreases of l bi ties that result in an increase in equity,
other than those relating to co tr b tions from equity pa tic-
pants.
Pe fo mance obli tion
A promise in a contract with a customer to transfer to the
customer either:
a good or service (or a bundle of goods or services)
that is distinct; or
a series of distinct goods or services that are su stan-
tially the same and that have the same pattern of
transfer to the customer.
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 Revenue
Income arising in the course of an entity’s ordinary a ti i-
ties.
Tran a tion price
The amount of co si e tion to which an entity expects to
be entitled in exchange for tran fe ring promised goods or
services to a customer, excluding amounts collected on
behalf of third parties.

Accounting r quir ments for revenue

The ve-step model framework

The core principle of IFRS 15 is that an entity will recognise
revenue to depict the transfer of promised goods or
services to customers in an amount that re ects the con-
si e tion to which the entity expects to be entitled in
exchange for those goods or services. This core principle
is delivered in a ve-step model framework: [IFRS 15:IN7]
Identify the contract(s) with a customer
Identify the pe fo mance obli tions in the contract
Determine the tran a tion price
Allocate the tran a tion price to the pe fo mance oblig-
tions in the contract
Recognise revenue when (or as) the entity satis es a
pe fo mance obli tion.
A pl c tion of this guidance will depend on the facts and
ci cu stances present in a contract with a customer and
will require the exercise of judgment.

Step 1: Identify the contract with the customer

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 A contract with a customer will be within the scope of IFRS
15 if all the following co d tions are met: [IFRS 15:9]
the contract has been approved by the parties to the
contract;
each party’s rights in relation to the goods or services
to be tran ferred can be ide t ed;
the payment terms for the goods or services to be
tran ferred can be ide t ed;
the contract has co me cial substance; and
it is probable that the co si e tion to which the entity
is entitled to in exchange for the goods or services will
be collected.
If a contract with a customer does not yet meet all of the
above criteria, the entity will continue to re-assess the
contract going forward to determine whether it su se-
quently meets the above criteria. From that point, the entity
will apply IFRS 15 to the contract. [IFRS 15:14]
The standard provides detailed guidance on how to
account for approved contract mo c tions. If certain con-
d tions are met, a contract mo c tion will be accounted
for as a separate contract with the customer. If not, it will be
accounted for by modifying the accounting for the current
contract with the customer. Whether the latter type of mo i-
c tion is accounted for prospe tively or re r spe tively
depends on whether the remaining goods or services to be
delivered after the mo c tion are distinct from those
delivered prior to the mo c tion. Further details on
accounting for contract mo c tions can be found in the
Standard. [IFRS 15:18-21].

Step 2: Identify the pe fo mance obli tions in the contract

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 At the inception of the contract, the entity should assess
the goods or services that have been promised to the
customer, and identify as a pe fo mance obli tion: [IFRS
15.22]
a good or service (or bundle of goods or services) that
is distinct; or
a series of distinct goods or services that are su stan-
tially the same and that have the same pattern of
transfer to the customer.
A series of distinct goods or services is tran ferred to the
customer in the same pattern if both of the following criteria
are met: [IFRS 15:23]
each distinct good or service in the series that the
entity promises to transfer co se tively to the
customer would be a pe fo mance obli tion that is
satis ed over time (see below); and
a single method of measuring progress would be used
to measure the entity’s progress towards complete sat-
i fa tion of the pe fo mance obli tion to transfer each
distinct good or service in the series to the customer.
A good or service is distinct if both of the following criteria
are met: [IFRS 15:27]
the customer can bene t from the good or services on
its own or in co jun tion with other readily available
resources; and
the entity’s promise to transfer the good or service to
the customer is se rately ide t f ble from other
promises in the contract.
Factors for co si e tion as to whether a promise to
transfer goods or services to the customer is not se rately
ide t able include, but are not limited to: [IFRS 15:29]
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 the entity does provide a si ni cant service of i t grat-
ing the goods or services with other goods or services
promised in the contract;
the goods or services si ni cantly modify or customise
other goods or services promised in the contract;
the goods or services are highly i te r lated or highly
i te d pe dent.

Step 3: Determine the tran a tion price

The tran a tion price is the amount to which an entity
expects to be entitled in exchange for the transfer of goods
and services. When making this d te m n tion, an entity will
consider past customary business practices. [IFRS 15:47]
Where a contract contains elements of variable co si e a-
tion, the entity will estimate the amount of variable co sid-
e tion to which it will be entitled under the contract. [IFRS
15:50] Variable co si e tion can arise, for example, as a
result of discounts, rebates, refunds, credits, price co ces-
sions, i ce tives, pe fo mance bonuses, penalties or other
similar items. Variable co si e tion is also present if an
entity’s right to co si e tion is co ti gent on the o cur-
rence of a future event. [IFRS 15:51]
The standard deals with the u ce tainty relating to variable
co si e tion by limiting the amount of variable co si e a-
tion that can be reco nised. Speci cally, variable co si er-
tion is only included in the tran a tion price if, and to the
extent that, it is highly probable that its inclusion will not
result in a si ni cant revenue reversal in the future when the
u ce tainty has been su s quently resolved. [IFRS 15:56]
However, a di erent, more r stri tive approach is applied in
respect of sales or u age-based royalty revenue arising
from licences of i te le tual property. Such revenue is
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 reco nised only when the u de l ing sales or usage occur.
[IFRS 15:B63]

Step 4: Allocate the tran a tion price to the pe fo mance

obli tions in the contracts
Where a contract has multiple pe fo mance obli tions, an
entity will allocate the tran a tion price to the pe fo mance
obli tions in the contract by reference to their relative
stan alone selling prices. [IFRS 15:74] If a stan alone
selling price is not directly o ser able, the entity will need
to estimate it. IFRS 15 suggests various methods that might
be used, including: [IFRS 15:79]
Adjusted market a ses ment approach
Expected cost plus a margin approach
Residual approach (only pe mi s ble in limited ci cum-
stances).
Any overall discount compared to the aggregate of stand-
alone selling prices is allocated between pe fo mance
obli tions on a relative stan alone selling price basis. In
certain ci cu stances, it may be a pr pr ate to allocate
such a discount to some but not all of the pe fo mance
obli tions. [IFRS 15:81]
Where co si e tion is paid in advance or in arrears, the
entity will need to consider whether the contract includes a
si ni cant nancing arrang ment and, if so, adjust for the
time value of money. [IFRS 15:60] A practical expedient is
available where the interval between transfer of the
promised goods or services and payment by the customer
is expected to be less than 12 months. [IFRS 15:63]

Step 5: Recognise revenue when (or as) the entity satis es a

pe fo mance obli tion
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 Revenue is reco nised as control is passed, either over
time or at a point in time. [IFRS 15:32]
Control of an asset is de ned as the ability to direct the use
of and obtain su sta tially all of the remaining bene ts from
the asset. This includes the ability to prevent others from
directing the use of and obtaining the bene ts from the
asset. The bene ts related to the asset are the potential
cash ows that may be obtained directly or i d rectly. These
include, but are not limited to: [IFRS 15:31-33]
using the asset to produce goods or provide services;
using the asset to enhance the value of other assets;
using the asset to settle l bi ties or to reduce
expenses;
selling or e chan ing the asset;
pledging the asset to secure a loan; and
holding the asset.
An entity reco nises revenue over time if one of the
following criteria is met: [IFRS 15:35]
the customer s mu t n ously receives and consumes
all of the bene ts provided by the entity as the entity
performs;
the entity’s pe fo mance creates or enhances an asset
that the customer controls as the asset is created; or
the entity’s pe fo mance does not create an asset with
an a te n tive use to the entity and the entity has an
e forc able right to payment for pe fo mance
completed to date.
If an entity does not satisfy its pe fo mance obli tion over
time, it satis es it at a point in time. Revenue will therefore
be reco nised when control is passed at a certain point in
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 time. Factors that may indicate the point in time at which
control passes include, but are not limited to: [IFRS 15:38]
the entity has a present right to payment for the asset;
the customer has legal title to the asset;
the entity has tran ferred physical po se sion of the
asset;
the customer has the si ni cant risks and rewards
related to the ownership of the asset; and
the customer has accepted the asset.

Contract costs
The i cr me tal costs of obtaining a contract must be
reco nised as an asset if the entity expects to recover
those costs. However, those i cr me tal costs are limited
to the costs that the entity would not have incurred if the
contract had not been su ces fully obtained (e.g. ‘success
fees’ paid to agents). A practical expedient is available,
allowing the i cr me tal costs of obtaining a contract to be
expensed if the a s c ated amo t s tion period would be 12
months or less. [IFRS 15:91-94]
Costs incurred to ful l a contract are reco nised as an
asset if and only if all of the following criteria are met: [IFRS
15:95]
the costs relate directly to a contract (or a speci c an-
ti pated contract);
the costs generate or enhance resources of the entity
that will be used in sa i f ing pe fo mance obli tions
in the future; and
the costs are expected to be recovered.
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 These include costs such as direct labour, direct materials,
and the a l c tion of overheads that relate directly to the
contract. [IFRS 15:97]
The asset reco nised in respect of the costs to obtain or
ful l a contract is amortised on a sy te atic basis that is
co si tent with the pattern of transfer of the goods or
services to which the asset relates. [IFRS 15:99]

Di cl sures
The di cl sure objective stated in IFRS 15 is for an entity to
disclose su cient i fo m tion to enable users of nancial
stat ments to u de stand the nature, amount, timing and
u ce tainty of revenue and cash ows arising from
contracts with customers. Therefore, an entity should
disclose qua t tive and qua t t tive i fo m tion about all of
the following: [IFRS 15:110]
its contracts with customers;
the si ni cant judgments, and changes in the
judgments, made in applying the guidance to those
contracts; and
any assets reco nised from the costs to obtain or ful l
a contract with a customer.
Entities will need to consider the level of detail necessary to
satisfy the di cl sure objective and how much emphasis to
place on each of the r quir ments. An entity should
aggregate or di a gr gate di cl sures to ensure that useful
i fo m tion is not obscured. [IFRS 15:111]
In order to achieve the di cl sure objective stated above,
the Standard i tr duces a number of new di cl sure re-
quir ments. Further detail about these speci c r quire-
ments can be found at IFRS 15:113-129.
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