IFRS 15 Revenue from Contracts with Customers Presented by Dwayne Riley ACCA, CAT. 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. Where the entity has performed by transferring a good or service to the customer and the customer has not yet paid the related consideration, a contract asset or a receivable is presented in the statement of financial position, depending on the nature of the entity’s right to consideration. Further detail about these specific requirements can be found at IFRS 15:113-129. How should an entity determine whether a promise is a distinct … Variable consideration is also present if an entity’s right to consideration is contingent on the occurrence of a future event. PSAK 72/IFRS 15 - Revenue from Contracts with Customers. the customer can benefit from the good or services on its own or in conjunction with other readily available resources; and. From that point, the entity will apply IFRS 15 to the contract. using the asset to produce goods or provide services; using the asset to enhance the value of other assets; using the asset to settle liabilities or to reduce expenses; the customer simultaneously receives and consumes all of the benefits provided by the entity as the entity performs; the entity’s performance creates or enhances an asset that the customer controls as the asset is created; or. In certain circumstances, it may be appropriate to allocate such a discount to some but not all of the performance obligations. IFRS 15 Revenue from Contracts with Customers applies to all contracts with customers except for: leases within the scope of IAS 17 Leases; financial instruments and other contractual rights or obligations within the scope of IFRS 9 Financial Instruments, IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures; insurance contracts within the scope of IFRS 4 Insurance Contracts; and non-monetary exchanges between entities in the same line of business to facilitate sales to customers or potential customers. [IFRS 15:105], A contract liability is presented in the statement of financial position where a customer has paid an amount of consideration prior to the entity performing by transferring the related good or service to the customer. a good or service (or a bundle of goods or services) that is distinct; or. IFRS 15 Revenue from Contracts with Customers — Your Questions Answered. Contracts with customers will be presented in an entity’s statement of financial position as a contract liability, a contract asset, or a receivable, depending on the relationship between the entity’s performance and the customer’s payment. [IFRS 15:47], Where a contract contains elements of variable consideration, the entity will estimate the amount of variable consideration to which it will be entitled under the contract. IFRS 15 was issued in May 2014 and applies to an annual reporting period beginning on or after 1 January 2018. the entity’s promise to transfer the good or service to the customer is separately idenitifable from other promises in the contract. Revenue will therefore be recognised when control is passed at a certain point in time. Your email address will not be published. Contracts with customers will be presented in an entity’s statement of financial position as a contract liability, a contract asset, or a receivable, depending on the relationship between the entity’s performance and the customer’s payment. [IFRS 15: Appendix A]An agreement between two or more parties that creates enforceable rights and obligations.A party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration.Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in an increase in equity, other than those relating to contributions from equity participants.A promise in a contract with a customer to transfer to the customer either: Income arising in the course of an entity’s ordinary activities.The amount of consideration to which 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. In simpler terms, IFRS 15 covers all contracts with customers, and disposal or sale of non-currents assets owned by an entity. In order to achieve the disclosure objective stated above, the Standard introduces a number of new disclosure requirements. [IFRS 15:18-21]. An entity that chooses to apply IFRS 15 earlier than 1 January 2018 should disclose this fact in its relevant financial statements. [IFRS 15:5], A contract with a customer may be partially within the scope of IFRS 15 and partially within the scope of another standard. IFRS 15 revenue from contracts with customers The existing rules on revenue recognition in IAS 11 and IAS 18 and some IFRICs are sometimes accused of being lacking in detail. 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 related to the ownership of the asset; and. a single method of measuring progress would be used to measure the entity’s progress towards complete satisfaction of the performance obligation to transfer each distinct good or service in the series to the customer. * … An entity should aggregate or disaggregate disclosures to ensure that useful information is not obscured. IFRS 15 Revenue from Contracts with Customers6 Step 5: Recognise revenue when a performance obligation is satisfied An entity shall recognise revenue when (or as) it satisfies a performance … [IFRS 15:81], Where consideration is paid in advance or in arrears, the entity will need to consider whether the contract includes a significant financing arrangement and, if so, adjust for the time value of money. Residual approach (only permissible in limited circumstances). When making this determination, an entity will consider past customary business practices. Contract assets and receivables shall be accounted for in accordance with IFRS 9. Recognise revenue when (or as) the entity satisfies a performance obligation. the customer can benefit from the good or services on its own or in conjunction with other readily available resources; and. Right Reserved and 30 have not been amended but have … PSAK 72/IFRS 15 - from! 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