Step 4 – Allocate the transaction price to the performance obligations in the contract: for a contract that has more than one performance obligation, the entity will allocate the transaction price to each performance obligation separately, in exchange for satisfying each performance obligation. However, those incremental costs are limited to the costs that the entity would not have incurred if the contract had not been successfully obtained (e.g. [IFRS 15:51], The standard deals with the uncertainty relating to variable consideration by limiting the amount of variable consideration that can be recognised. The benefits related to the asset are the potential cash flows that may be obtained directly or indirectly. IFRS 15 is to be applied retrospectively using either a full retrospective approach (subject to certain practical expedients) or a modified retrospective approach. 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. the customer can benefit from the good or services on its own or in conjunction with other readily available resources; and. Please read, International Financial Reporting Standards, Revenue from Contracts with Customers — A guide to IFRS 15, Collection of IFRS 15 news and publications, Joint Transition Resource Group for Revenue Recognition, Clarifications to IFRS 15: Issues emerging from TRG discussions, FRC publishes thematic review findings on IFRS 15 and IFRS 16, IAAER grants for research informing the IASB's work, IPSASB extends comment letter deadline for its three recent exposure drafts, ESMA publishes 24th enforcement decisions report, A Roadmap to Applying the New Revenue Recognition Standard (2020), Deloitte comment letter on tentative agenda decision on IFRS 15 — Training costs to fulfil a contract, Deloitte comment letter on tentative agenda decision on IFRS 15 — Compensation for delays or cancellations, A Closer Look — Revenue recognition - evaluating whether an entity is acting as a principal or as an agent, IFRIC 15 — Agreements for the Construction of Real Estate, IFRIC 18 — Transfers of Assets from Customers, SIC-31 — Revenue – Barter Transactions Involving Advertising Services, Project on revenue added to the IASB's agenda, Effective for an entity's first annual IFRS financial statements for periods beginning on or after 1 January 2017, IASB defers effective date of IFRS 15 to 1 January 2018. if other standards specify how to separate and/or initially measure one or more parts of the contract, then those separation and measurement requirements are applied first. The Standard introduces a 5-step approach to revenue recognition: Step 1 – Identify the contract with a customer: a contract is defined as an agreement (including oral and implied), between two or more parties, that creates enforceable rights and obligations and sets out the criteria for each of those rights and obligations. For example, telecommunication companies do provide mobile plans that include a mobile handset, call minutes and data package. For example, real estate companies currently recognize revenue upon the transfer of risks and rewards to customers in accordance with the IFRS Interpretations Committee (IFRIC) 15, which is practically upon completion of the project development and handover of real estate units to customers. IFRS 15 supersedes the current revenue recognition standards including IAS 18 Revenue, IAS 11 Construction Contracts and their related interpretations. The general principle is that revenue is recognised at a point in time. In that scenario: [IFRS 15:7], 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 reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. These topics should be considered carefully when applying IFRS 15. A practical expedient is available, allowing the incremental costs of obtaining a contract to be expensed if the associated amortisation period would be 12 months or less. IFRS 15 sets the criteria for combined accounting. Please see About Deloitte to learn more about our global network of member firms. 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 15:56], However, a different, more restrictive approach is applied in respect of sales or usage-based royalty revenue arising from licences of intellectual property. [IFRS 15:C1], When first applying IFRS 15, entities should apply the standard in full for the current period, including retrospective application to all contracts that were not yet complete at the beginning of that period. Such a contract, for example an agreement to buy a car that will be delivered in three months’ time, will appear in the income statement when the transaction is performed and the goods or services are passed to the client. IFRS 15 Summary Notes Page 1 (kashifadeel.com)of 21 IFRS 15 Revenue from Contracts with Customers DEFINITIONS contract An agreement between two or more parties that creates enforceable rights and obligations. Account for the contract as a lease 21 B. Step 3 – Determine the transaction price: transaction price is the amount of consideration that the entity can be entitled to, in exchange for transferring the promised goods and services to a customer, excluding amounts collected on behalf of third parties. a contract in the scope of IFRS 15 is onerous. ‘success fees’ paid to agents). Account for the whole contract as a derivative or account for an embedded derivative in the contract separately (IFRS 9) 23 C. Account for a PPA as a “normal” executory contract (IAS 37) 24 D. Consolidate the project entity and eliminate intercompany PPA 25 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. It is interesting to understand why some of the big real estate players in the region chose an early adoption of IFRS 15, and the majority of key telecommunication companies are making significant investments to assess its impact and have initiated implementation plans even prior to the date of adoption of the standard. These industries will be greatly affected by steps (2) and (4) with respect to the unbundling of contracts and allocation of total revenue to the unbundled parts. 17 According to IFRS 15, an entity shall recognise the incremental costs of obtaining a contract with a customer as an asset if the entity expects to recover those costs. Residual approach (only permissible in limited circumstances). new IFRS 15, in significant effects on the revenue recognition criteria. Costs to fulfil a contract are similar in nature to work-in-progress, but they … We go through the new IFRS standard with examples as to what guidance will be provided in future. As challenges grow tougher, jobs get more complicated, and expectations of business and Deloitte grow, the connections we make will be more important than ever. An entity that chooses to apply IFRS 15 earlier than 1 January 2018 should disclose this fact in its relevant financial statements. 30 IFRS 15 Revenue from Contracts with Customers Page 3 of 4 Effective Date Periods beginning on or after 1 January 2018 Step 2 (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. This paper deals with the accounting for direct selling costs incurred in obtaining passenger tickets. [IFRS 15:1] Application of the standard is mandatory for annual reporting periods starting from 1 January 2018 onwards. Real estate and contract manufacturer industries. A collection of Butterfly Effect stories highlighting how our Deloitte professionals are positively impacting the lives of women and girls around the world. A receivable is recognised when the entity’s right to consideration is unconditional except for the passage of time. [IFRS 15:1] Application of the standard is mandatory for annual reporting periods starting from 1 January 2018 onwards. a good or service (or a bundle of goods or services) that is distinct; or. The core principle is to recognize revenue as depicting “the transfer of goods or services” to customers for an “amount that reflects the consideration” to which the “entity expects to be entitled in exchange for those goods or services.”. [IFRS 15:32], Control of an asset is defined as the ability to direct the use of and obtain substantially all of the remaining benefits from the asset. The contract stipulates that both sides still have duties to perform before it becomes fully executed. 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