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Revenue Lyst1052

IFRS 15 outlines the steps for revenue recognition from contracts with customers, which includes identifying the contract, performance obligations, determining transaction price, allocating it, and recognizing revenue. Key criteria for a valid contract include approval by parties, identifiable payment terms, commercial substance, and probable payment. The standard also addresses considerations like variable consideration, financing components, and indicators of control transfer.

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9 views23 pages

Revenue Lyst1052

IFRS 15 outlines the steps for revenue recognition from contracts with customers, which includes identifying the contract, performance obligations, determining transaction price, allocating it, and recognizing revenue. Key criteria for a valid contract include approval by parties, identifiable payment terms, commercial substance, and probable payment. The standard also addresses considerations like variable consideration, financing components, and indicators of control transfer.

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REVENUE FROM CONTRACTS WITH IFRS 15

CUSTOMERS
WHAT IS REVENUE
SALE IN NORMAL COURSE OF BUSINESS AND NOT SALE OF NON CURRENT ASSETS.
WHY IAS 18 WAS CRITCISED?
STEPS IN REVENUE RECOGNITION
1 'Identify the contract
2 Identify the separate performance obligations within a contract
3 Determine the transaction price
4 Allocate the transaction price to the performance obligations in the contract
5 Recognise revenue when (or as) a performance obligation is satisfied.'
STEPS EXAMPLE
STEP 1
IFRS 15 says that a contract is an agreement between two parties that creates rights
and
obligations. A contract does not need to be written.
An entity can only account for revenue from a contract if it meets the following criteria:
• the parties have approved the contract and each party’s rights can be identified
• payment terms can be identified
• the contract has commercial substance
• It is probable that entity will be paid.
TYU
STEP 2 SEPARATE PERFORMANCE OBLIGATION
Distinct performance obligations within a contract must be identified. A promised good
or service
is distinct if:
• the customer can benefit from the good or service on its own or by using resources
that are readily available, and
• the promise to provide the good or service is separately identifiable from other
contractual promises.
TYU
PRINCIPAL AND AGENT
WARRANTY
STEP 3 DETERMINE TRANSACTION PRICE
When determining the transaction price, the following must be considered:
• variable consideration
• significant financing components
• non-cash consideration
• consideration payable to a customer.
VARIABLE CONSIDERATION
If a contract includes variable consideration then an entity must estimate the
amount it will be entitled to.
IFRS 15 says that this estimate 'can only be included in the transaction
price if it is highly probable that a significant reversal in the amount of
cumulative revenue recognised will not occur when the uncertainty is
resolved' (IFRS 15, para 56).
Note that if a product is sold with a right to return it then the consideration is
variable. The entity must estimate the variable consideration and decide
whether or not to include it in the transaction price.
The refund liability should equal the consideration received (or receivable)
that the entity does not expect to be entitled to.
TYU
FINANCING COMPONENT
In determining the transaction price, an entity must consider if the timing of payments provides
the customer or the entity with a financing benefit.
IFRS 15 provides the following indications of a significant financing component:
• the difference between the amount of promised consideration and the cash selling price of
the
promised goods or services
• the length of time between the transfer of the promised goods or services to the customer
and
the payment date.
If there is a financing component, then the consideration receivable needs to be discounted to
present value using the rate at which the customer borrows money.
NON CASH/ PAYABLE TO CUSTOMER
STEP 4 ALLOCATION
BASED ON STAND ALONE SELLING PRICES
STEP 5 REVENUE RECOGNITION
IFRS 15 (para 35) states that an entity satisfies a performance obligation over time if one of
the
following criteria is met:
(a) 'the customer simultaneously receives and consumes the benefits provided by the entity’s
performance as the entity performs
(b) the entity’s performance creates or enhances an asset (for example, work in progress)
that the
customer controls as the asset is created or enhanced, or
(c) the entity’s performance does not create an asset with an alternative use to the entity and
the entity has an enforceable right to payment for performance completed to date'.
INDICATORS OF TRANSFER OF CONTROL
• 'The entity has a present right to payment for the asset
• The customer has legal title to the asset
• The entity has transferred physical possession of the asset
• The customer has the significant risks and rewards of ownership of the asset
• The customer has accepted the asset’.

ALSO REFERRED IN IFRS 16 SALES AND LEASEBACK


SALE AND REPURCHASE
CONTRACT MODIFICATIONS

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