A86045Accoun,ngandFinancialRepor,ng(2017/2018)
Session5Revenuefromcontractswith
customers
PaulG.SmithB.A.,F.C.A.
SESSION5OVERVIEW
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Session5OverviewMins
Sessionoverviewandobjec,ves 5
Reviewofpre-workandsession4recap 5
IAS18RevenuesandIAS11Construc,onContracts 20
RA3Revenueaccoun,ngpoliciesStudentpresenta,onsofpre-workassignment
25
IFRS15Revenue–Objec,ve,Scope,Recogni,on,measurement,Presenta,onanddisclosure
30
Casestudy–Vespaexample 20
Specialconsidera,ons 20
Requiredreadingandassignmentfornextsession 5
Summaryandvalida,on,overviewofsession6 5
135
3A86045Accoun,ngandFinancialRepor,ng
CourseObjec,ves
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Attheendofthiscoursestudentswillbeableto:• Readandperformahighlevelinterpreta2onofthefinancialstatementsofcompaniesapplyinginterna9onalaccoun9ngstandards
• Iden2fyandevaluatetheimpactonacompaniesaccountsofalterna9veaccoun9ngmethods
• Carryoutahighlevelassessmentofthetheeconomic-financialposi9onofacompanyrepor9ngunderIAS/IFRS.
CourseOverview
A86045Accoun,ngandFinancialRepor,ng
1.Financialrepor,ngunderIFRS 14.Construc,oncontracts
2.Financialanalysis:Ra,oanalysis 15.OtherNon-financialliabili,es
3.Financialanalysis:SegmentsandEPS 16.Reviewsession
4.Reviewsession 17.Midtermtest
5.Revenues 18.FinancialInstruments1
6.Costsandexpenses 19.FinancialInstruments2
7.Taxa,on-DirectandIndirect 20.Reviewsession
8.Non-currentassets-Intangibleassets 21.CashFlowStatement
9.Non-currentassets-Tangibleassets 22.Groupaccounts/Businesscomb
10.Financialleases 23.Reviewsession
11.Impairmentofassets 24.Reviewsession
12.Reviewsession 25.Finaltest
13.Inventories
PGS
PT
PT
PGS
PGS
5
Objec,vesofSession5
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Attheendofthissessionstudentswillbeableto:1.demonstrateanunderstandingofthescopeofIFRS15–anditsapplica,ontosalesofgoodsandservicesandhowitrelatestointerest,royal,esanddividendincome.2.appreciate,throughcross-sectorcomparisons,theimportanceofindustrycontextinunderstandingacompany’srevenuerecogni,onpolicies.
SESSION4RECAP,REQUIREDREADINGANDPRE-WORK
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Session4ReviewofSessions1-3
• RegulatoryFramework(Chapter1)• IASBConceptualFramework(Chapter2)• Presenta,onofFinancialStatements(Chapter3)• Accoun,ngPolicies,Accoun,ngEs,matesandErrors(Chapter4)
• RelatedPar,es,ChangesinForeignCurrencies(Chapter21)
• Ra,oAnalysis(Chapter22)• EarningsPerShare(Chapter23)• SegmentalAnalysis(Chapter24)
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Session5Pre-work• Reading
– MelvilleInterna,onalFinancialRepor,ng-APrac,calGuide
• Chapter13–Revenue– Interna,onalaccoun,ngstandards
• IFRS15Revenuesfromcontractswithcustomers• ResearchAssignment
– RA4Foryourchosencompany,prepareabriefpresenta,onsummarizingthecompany’sbusinessmodeli.e.howthecompanygeneratesrevenuesandwhatitsaccoun,ngpolicy(ies)forrevenuerecogni,onis(are).
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IAS18REVENUESANDIAS11CONSTRUCTIONCONTRACTS
Standardsinforceun,lJanuary1,2018
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IAS18&11
IAS18• Scope
– Saleofgoods– Renderingofservices– Usebyothersoftheen,,es
assets,yieldinginterest,royal,esanddividends
• Measurement– Fairvalueofthe
considera,onreceivedorreceivable.
IAS11• Construc,oncontract:A
contractspecificallynego9atedfortheconstruc9onofanassetoracombina9onofassetsthatarecloselyinterrelatedorinterdependentintermsofdesign,technologyandfunc9onoftheirul9matepurposeoruse.Thesecanbe:
• Fixedpriceor,• Costplus
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IAS18Recogni,oncondi,ons
Goods-allofthefollowinga) Theen,tyhastransferredtothebuyerthe
significantrisksandrewardsofownershipofthegoods;
b) Theen,tyretainsneithercon,nuingmanagerialinvolvementtothedegreeusuallyassociatedwithownershipnoreffec,vecontroloverthegoodssold;
c) Theamountofrevenuecanbemeasuredreliably;
d) Itisprobablethattheeconomicbenefitsassociatedwiththetransac,onwillflowtotheen,ty;and
e) Thecostsincurredortobeincurredinrespectofthetransac,oncanbemeasuredreliably
Services-allofthefollowinga) Theamountofrevenuecanbemeasured
reliably;b) Itisprobablethattheeconomicbenefits
associatedwiththetransac,onwillflowtotheen,ty;
c) Thestageofcomple,onofthetransac,onattheendoftherepor,ngperiodcanbemeasuredreliably;and
d) Thecostsincurredforthetransac,onandthecoststocompletethetransac,oncanbemeasuredreliably
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USGAAPComparison1. Pervasiveevidenceofanarrangementexists2. Deliveryhasoccurredorserviceshavebeenrendered3. Theseller’spricetothebuyerisfixedanddeterminable4. Collectabilityisreasonablyassured
SeealsoSM1TheIncoterms®rules
IAS11Construc,onContracts
Revenues• Theini,alamountof
revenueagreedinthecontract;and
• Varia,onsincontractworkandclaims– Ifprobablethattheywill
resultinrevenue– Theyarecapableofbeing
reliablymeasured
Costs• Coststhatrelatedirectlyto
thespecificcontract• Coststhatareahributable
tocontractac,vity• Suchothercostsasare
specificallychargeabletothecustomer.
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Accoun,ngforconstruc,oncontracts
Whentheoutcomeofaconstruc,oncontractcanbees,matedreliably,contractrevenueandcontractcostaassociatedwiththeconstruc,oncontractshallberecognizedasrevenueandexpensesrespec,velybyreferencetothestageofcomple,onofthecontractac,vityattheendoftherepor,ngperiod.Anexpectedlossshallberecognizedimmediately.Theoutcomeofaconstruc,oncontractcanbees,matedreliablywhenallofthefollowingcondi,onsaresa,sfied:a) Totalcontractrevenuecanbemeasured
reliably;b) Itisprobablethattheeconomicbenefits
associatedwiththecontractwillflowtotheen,ty;
c) Bothcontractcoststocompletethecontractandthestageofcontractcomple,onattheendoftherepor,ngperiodcanbemeasuredreliably
d) Thecontractcostsahributabletothecontractcanbeclearlyiden,fiedandmeasuredreliably.
Contractprice
Contractcosts
Contractmargin
%
Originalcontract
100 60 40 40%
Changeorders
20 15 5 25%
Claims(intotal80)
20 20 0
Addi,onalcoststobeincurred
20 (20)
Revisedcontract
140 115 25 18%
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UsingthecosttocostmethodifcostsincurredtodateAtthebalancesheetdateamountto60then60/115%ofrevenueandmarginwouldberecognized
Measurement–IFRS13
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Revenueshallbemeasuredatthefairvalueoftheconsidera,onreceivedorreceivable
FairValueisthepricethatwouldbereceivedtosellanassetortotransferaliabilityinanorderlytransac9onbetweenmarketpar9cipantsatthemeasurementdate.
RESEARCHASSIGNMENTRA3ACCOUNTINGPOLICIESFORREVENUES
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RA3RevenueAccoun,ngPolicies
ReviewofPre-workassignment• Companyname• Industry(ies)inwhichitoperates• Businessmodel• Accoun,ngpoliciesforrevenuerecogni,on
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RA3Template
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GeneralRevenueRecogniRonAccounRngPolicy(ifany)
Typeofrevenue
BasisofrevenuerecogniRon
RA3Template
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GeneralRevenueRecogniRonAccounRngPolicy(ifany)
Typeofrevenue BasisofrevenuerecogniRon
Interestincome TheGroupappliesIAS39FinancialInstruments:Recogni,onandMeasurement
Feeandcommissionincome
TheGroupappliesIAS18Revenue.Feesreceivedarerecognizedasservicesareprovidedforexampleuponcomple,onoftheunderlyingtransac,on.
Tradingincome InaccordancewithIAS39tradingposi,onsareheldatfairvalueandtheresul,nggainsandlossesareincludedintheincomestatement
Investmentincome Dividendsarerecognizedwhentherighttoreceivethedividendhasbeenestablished.
Company_Barclays______________
RA3Template
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GeneralRevenueRecogniRonAccounRngPolicy(ifany)Netsalesarerecognizedwhentherisksandrewardsinherenttoownershipofthegoodshavebeentransferredtothecustomer.Salesincen,ves,cashdiscountsandproductreturnsaredeductedfromsales,asaretheincen,vesgrantedtodistributorsorconsumersresul,nginacashoullow,suchascommercialcoopera,on,coupons.Discountsandloyaltyprogrammes.Salesincen,ves,cashdiscounts,provisionsforreturnsandincen,vesgrantedtocustomersarerecordedsimultaneouslytotherecogni,onofthesalesiftheycanbees,matedinareasonablyreliablemanner,basedmainlyonsta,s,cscompiledfrompastexperienceandcontractualcondi,ons.
Typeofrevenue
BasisofrevenuerecogniRon
Company___L’Oreal____________
RA3Template
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GeneralRevenueRecogniRonAccounRngPolicy(ifany)Salesrepresentamountsreceivedandreceivablefromthirdpar,esforgoodssuppliedtothecustomersandforservicesrendered.Revenuefromthesalesforgoodsisrecognizedintheincomestatementatthemomentwhenthesignificantrisksandrewardsofownershipofthegoodshavebeentransferredtothebuyer,whichismainlyonshipment.Itismeasuredatthelistpriceapplicabletoagivendistribu,onchannelamerdeduc,onofreturns,salestaxes,pricingallowances,othertradediscountsandcouponingandpricepromo,onstoconsumers.Paymentsmadetothecustomersforcommercialservicesreceivedareexpensed.Otherrevenueisprimarilylicensefeesfromthirdpar,eswhichhavebeenearnedduringtheperiod.
Typeofrevenue
BasisofrevenuerecogniRon
Company__Nestlé_____________
RA3Template
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GeneralRevenueRecogniRonAccounRngPolicy(ifany)Underthecondi,onthatpersuasiveevidenceofanarrangementexists,revenueisrecognizedtotheextentthatitisprobablethattheeconomicbenefitswillflowtotheCompanyandtherevenuecanbereliablymeasured,regardlessofwhenthepaymentisbeingmade.Incaseswheretheinflowofeconomicbenefitsisnotprobableduetocustomerrelatedcreditrisks,therevenuerecognisedissubjecttotheamountofpaymentsirrevocablyreceived.
Typeofrevenue BasisofrevenuerecogniRon
Saleofgoods Whenthesignificantrisksandrewardsofownershipofthegoodshavepassedtothebuyer,usuallyondeliveryofthegoods
Construc,oncontracts InaccordancewithIAS11Construc,oncontractonthe%ofcomple,onbasisusingthecosttocostmethod.
Renderingofservices Straightlinebasisoverthetermofthecontractunlesstheperformancepahernisdifferentasservicesaredelivered.
Mul,pleelementarrangements
Determineunitsofaccoun,ngandallocaterevenuetothesebasedonfairvaluesbasedontheirrela,vefairvalues.
Interest Usingtheeffec,veinterestmethod
Royal,es OnanAccrualbasis
Opera,ngleases Straightlinebasisovertheleaseterm
Company___Siemens____________
RA3Template
A86045Accoun,ngandFinancialRepor,ng 23
GeneralRevenueRecogniRonAccounRngPolicy(ifany)ArrangementswithmulRpledeliverablesInrevenuearrangementswheremorethanonegoodorserviceisprovidedtothecustomer,considera,onisallocatedbetweenthegoodsandservicesusingrela,vefairvalueprinciples.Thefairvaluesdeterminedfordeliverablesmayimpactthe,mingoftherecogni,onofrevenue.Determiningthefairvalueofeachdeliverablecanrequirecomplexes,mates.TheGroupgenerallydeterminesthefairvalueofindividualelementsbasedonpricesatwhichthedeliverableisregularlysoldonastand-alonebasisamerconsideringanyappropriatediscounts.Grossvs.netpresentaRonWhentheGroupsellsgoodsorservicesasaprincipal,incomeandpaymentstosuppliersarereportedonagrossbasisinrevenueandopera,ngcosts.IftheGroupsellsgoodsorservicesasanagent,revenueandpaymentstosuppliersarerecordedinrevenueonanetbasis,represen,ngthemarginearned.WhethertheGroupisconsideredtobetheprincipleoranagentinthetransac,ondependsanalysisbymanagementofboththelegalformandsubstanceoftheagreementbetweentheGroupanditsbusinesspartners;suchjudgmentsimpacttheamountofreportedrevenueandopera,ngexpensesbutdonotimpactreportedassets,liabili,esandcashflows.
Typeofrevenue BasisofrevenuerecogniRon
Company__Vodafone_____________
IFRS15-REVENUEFROMCONTRACTSWITHCUSTOMERS
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ScopeofIFRS15
Revenuearisingfromallcontractswithcustomersexcept:• Leasecontracts(IFRS16)• Insurancecontracts(IFRS4/17)• Financialinstruments(IFRS7/9,IAS32)• Non-monetaryexchangesbetweenen,,esinthesamebusiness
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FrameworkforTimingofRevenueRecogni,on
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TimingofRecogni2on Criteria Examples
Duringproduc,on(accre,on) Revenuesaccrueover,me,andnosignificantuncertaintyexistsastomeasurabilityorcollec,bility.Acontractofsalehasbeenenteredintoandfuturecostscanbees,matedwithreasonableaccuracy.
Mostservices.Theaccrualofinterestanddividendincome.Construc,oncontractsusingthepercenatge-of-comple,onmethod
Atthecomple,onofproduc,on Thereisareadymarketforthecommoditythatcanrapidlyabsorbthequan,tyheldbytheen,ty;thecommoditycomprisesinterchangeableunits;themarketpriceshouldbedeterminableandstable;thereshouldbeinsignificantmarke,ngcostsinvolved.
Certainpreciousmetalsandcommodi,es.
Atthe,meofsale(butbeforedelivery) Goodshavealreadybeenacquiredormanufactured;goodsmustbecapableofimmediaatedeliverytothecustomer;sellingpricehasbeenestablished;allmaterialexpenseshavebeenascertained;nosignificantuncertain,esremain(e.g.ul,matecashcollec,on,returns)
Certainsalesofgoods(e.g."billandhold"sales)
Ondelivery Criteriaforrecogni,onbeforedeliverywerenotsa,sfiedandnosignificantuncertain,esremain.
Mostsalesofgoodsandsomeservices.Propertysaleswhereitisnotcertainthatthesalewillbecompleted.
Subsequenttodelivery Significantuncertaintyregardingcollec,bilityexistedatthe,meofdelivery;atthe,meofsaleitwasnotpossibletovaluetheconsidera,onwithsufficientaccuracy.
Certainsalesofgoodsandservices(e.g.wheretherightofreturnexists).Goodsshippedsubjecttocondi,ons(e.g.installa,onandinspec,on/performance).
Onanappor,onmentbasis(therevenuealloca,onapproach)
Whererevenuerepresentsthesupplyofini,alandsubsequentgoods/services.
Franchisefees.Saleofgoodswithamersalesservice.
Timingalsodependsonwhetherallthecriteriaforrevenuerecogni,onhavebeenmet.
SM2
Objec,veofIFRS15
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Theobjec9veofthisStandardistoestablishtheprinciplesthatanen9tyshallapplytoreportusefulinforma9ontousersoffinancialstatementsaboutthenature,amount,2minganduncertaintyofrevenueandcashflowsarisingfromacontractwithacustomer.
Revenue=Incomearisinginthecourseofanen9ty’sordinaryac9vi9es
5StepApproachinIFRS15
• 1.Iden,fythecontract(s)withacustomer• 2.Iden,fytheperformanceobliga,onsinthecontract
• 3.Determinethetransac,onprice• 4.Allocatethetransac,onpricetotheperformanceobliga,onsinthecontract
• Recognizerevenuewhen(oras)theen,tysa,sfiesaperformanceobliga,on
A86045Accoun,ngandFinancialRepor,ng 28
1.Iden,fytheContractAnen,tyshallaccountforacontractwithacustomeronlywhenallofthefollowingcriteriaaremet:a) Thepar,estothecontracthaveapprovedthecontract
andarecommihedtoperformtheirrespec,veobliga,ons;(WriMen,oral,implied-amaMeroflaw)
b) Theen,tycaniden,fyeachparty’srightsregardingthegoodsorservicestobetransferred;
c) Theen,tycaniden,fythepaymenttermsforthegoodsorservicestobetransferred;
d) Thecontracthascommercialsubstancee) Itisprobablethattheen,tywillcollecttheconsidera,on
towhichitwillbeen,tledinexchangeforthegoodsorservicesthatwillbetransferredtothecustomer.
A86045Accoun,ngandFinancialRepor,ng 29
Contractconsidera,ons
• Combina,onofcontracts– Nego,atedasapackage– Priceofonedependsontheother– Asingleperformanceobliga,on
• Contractmodifica,ons(scopeorprice)– ApprovedChangeorder,varia,on,amendment– Separatecontractifbothcriteriamet:
• Addi,onofdis,nctgoodsorservices• Priceincreasereflectsstand-alonesellingprice
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2.Iden,fyPerformanceobliga,ons
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Atcontractincep,on,anen,tyshallassessthegoodsorservicespromisedinacontractwithacustomerandshalliden,fyasaperformanceobliga,oneachpromisetotransfertothecustomereither:(a)agoodorservice(orabundleofgoodsorservices)thatisdis,nct*;or(b)aseriesofdis,nctgoodsorservicesthataresubstan,allythesameandthathavethesamepahernoftransfertothecustomer.
*Dis2nct=thecustomercouldbenefitfromthegoodorserviceonitsown,andthepromisetotransferthegoodorserviceisseparatelyiden9fiablewithinthecontract
3.DeterminetheTransac,onPrice
A86045Accoun,ngandFinancialRepor,ng 32
Anen,tyshallconsiderthetermsofthecontractanditscustomarybusinessprac,cestodeterminethetransac,onprice.Thetransac,onpriceistheamountofconsidera9ontowhichanen9tyexpectstobeen9tledinexchangefortransferringpromisedgoodsorservicestoacustomer,excludingamountscollectedonbehalfofthirdpar,es(forexample,somesalestaxes).Theconsidera,onpromisedinacontractwithacustomermayincludefixedamounts,variableamounts*,orboth.
*Variableconsidera,onarisesfromsuchthingsasreturns,discounts,refunds,incen,ves,penal,esetc.andneedstobees,mated.Ifthesecannotbees,matedreliablethenrevenueshouldnotberecognizedun,lsuch,meastheycanbees,mated.
Commonsalesdeduc,ons
• Returns• Allowances• Tradediscounts• Cashdiscounts• Volumerebates• Customerloyaltyschemes• Promo,onalac,vi,es• Chargebacks
A86045Accoun,ngandFinancialRepor,ng 33
Inwhichindustriesarethesenormally
tobefound?
4.Allocatethetransac,onpricetotheperformanceobliga,ons
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Theobjec,vewhenalloca,ngthetransac,onpriceisforanen,tytoallocatethetransac,onpricetoeachperformanceobliga,on(ordis,nctgoodorservice)inanamountthatdepictstheamountofconsidera,ontowhichtheen,tyexpectstobeen,tledinexchangefortransferringthepromisedgoodsorservicestothecustomer.Whenthereismorethanoneperformanceobliga9on,thetransac9onpriceisallocatedbetweenperformanceobliga9onsaccordingtothestandalonesellingpriceofeachobliga9on.Ifthetransac9onpriceislessthanthesumofthestandalonesellingpricesofeachperformanceobliga9on,thediscountisallocatedpropor9onatelyamongsttheperformanceobliga9ons.
5.RecognizeRevenueamerSa,sfac,onofperformanceobliga,ons
A86045Accoun,ngandFinancialRepor,ng 35
Anen,tyshallrecogniserevenuewhen(oras)theen,tysa,sfiesaperformanceobliga,onbytransferringapromisedgoodorservice(i.e.anasset)toacustomer.Anassetistransferredwhen(oras)thecustomerobtainscontrolofthatasset.
SeealsoSM1TheICCIncoterms®rules2010
Ifaperformanceobliga,onissa,sfied"over,me",revenueisrecognisedaccordingtotheprogressmadetowardscompletesa,sfac,onoftheobliga,on.
IFRS15Summary-SM5
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SM#5#IFRS#15#Revenues#from#contracts#with#customers
A#86045#Accounting#and#Financial#Reporting Paul#G.#Smith
Contract(modifications Principal(or(Agent1.#Identify(the(contract#(s)#with#a#customer.#In#some#cases#contracts#may#
need#to#be#combined#if#one#or#more#of#
the#following#criteria#are#met:
##I#Negotiated#as#a#package
##I#Consideration#in#one#depends#on#
the#other
##I#the#goods#and#services#are#a#single#
oerformance#obligation
(a)#The#parties#to#the#contract#
have#approved(the#contract#(in#writing,#orally#or#in#accordance#
with#business#practices)#and#are#
committed#to#perform#their#
respective#obligations
(b)#The#entity#can#identify#each#
partiy's#rights(regarding#goods#and#services#to#be#transferred
(c)#The#entity#can#identify#the#
payment(terms#for#the#goos#and#services#to#be#transferred
(d)#The#contract#has#commercial(substance#(i.e.#the#risk,#timing#or#
amount#of#the#entity's#future#cash#
flows#is#expected#to#change#as#a#
result#of#the#contract)
(e#)It#is#probable#that#the#entity#
will(collect(the(consideration#to#which#it#will#be#entitled#in#
exchange#for#the#goods#and#
services#that#will#be#transferred#
to#the#customer.
Contract#modifications#are#changes#in#scope#or#price#
(or#both)#approved#by#both#the#parties.#These#should#
be#accounted#for#as#a#separate#contract#if#both#of#the#
followimng#conditions#presenT:
##(a)#the#scope#increased#because#of#the#addition#of#
goods#or#services#that#are#distinct;#and
#(b)#the#price#increase#by#an#amount#which#reflects#
the#standIalone#selling#prices#of#the#additional#goods#
and#services
The#entity#shall#determine#whether#the#nature#
of#its#promise#is#a#performance#obligation#to#
provide#specific#goods#or#services(itself#(i.e.#as#principal)#or#to#arrange#for#the(other(party#to#provide#those#goods#and#services#(i.e.#as#agent)
2.#Identify#the#performance(obligations#in#the#contract.#Distinct#performance#obligations#are#
accounted#for#separately
At#contract#inception#the#entity#
shall#assess#the#goods#or#services#
promissed#and#identify#as#a#
performance#obligation#each#
promise#to#transfer#to#the#
customer#either:
#(a)#a(good(or(service(that(is(distinct;#or#(b)#a#series(of(distinct(goods(and(services#that#are#substantially#the#same
A#good#or#service#is#distinct#if#
both#the#following#conditions#are#
met:
##(a)#the#customer#can#benefit#
from#the#good#or#service#either#
on(its(own(or(together(with#resources#that#are#readily#
available#to#the#customer;#and#
#(b)#the#entity's#promise#to#
transfer#the#good#or#service#to#
the#customer#is#separately(identifiable#from#other#promises#
in#the#contract
Warranties:#Some#provide#
assurance#that#the#product#will#
function(as(intended#others#provide#an#additional(service.#If#there#is#an#option#to#purchase#
separately#this#is#an#additional#
distinct#service.#If#not#it#should#be#
accounted#for#under#IAS#37#
Provisions,#Contingent#Liabilities#
and#Contingent#Assets
Options(for(additional(goods(or(services#for#a#fee#or#at#a#discount#is#a#performance#obligation#only#if#
it#grants#a#material#right#that#the#
customer#would#not#have#
received#without#entering#into#
the#contract.#
Licences#establish#a#customer's#
right#to#the#intellectual#properrty#
of#an#entity#and#may#include:#
software#and#technology;#motion#
pictures,#music#and#
entertainment,#franchises,#
patents,#trademarks#and#
copyrights.#If#not#distinct#
aggregate#with#other#goods#and#
services.#If#distinct#evalaute#
whether#point#in#time#or#over#
time
Repurchase#agreements#are#contracts#in#which#the#
entity#sells#an#asset#and#also#promises#or#has#the#
option#to#repurchase#the#asset.#Three#types:
#(a)#A#forward#I#obligation
#(b)#Call#option#I#right#to#repurchase#
#(c)#Put#option#I#obligation#to#repurchase
In#a#forward#or#call#option,#the#customer#does#not#
obtain#control#and#is#similar#to#a#lease.
In#a#put#option#If#the#right#is#at#a#price#significantly#
lower#than#the#selling#price#then#this#should#be#
accounted#for#as#a#lease.#If#no#significant#incentive#to#
exercise#at#a#lower#price#account#for#as#right#of#
return
3.#Determine#the#transaction(price.#The#may#be#fixed,#variable#or#a#
combination#of#both.#The#contract#
price#is#adjusted#to#reflect#the#time#
value#of#money
The#contract#price#is#the#amount#
of#consideration#to#which#the#
entity#expects#to#be#entitled#in#
exchange#for#transferring#the#
promissed#goods#or#services#to#a#
customer#excluding#amounts#
collected#on#behalf#of#third#
parrties#e.g.#VAT
Variable(compensation#shall#be#estimated.#Consideration#can#vary#
because#of#discounts,#rebates,#
refunds,#credits,#price#
concessions,#incentives,#
performance#bonuses,#penalties#
or#other#similar#items.#It#can#also#
vary#if#contingent#on#future#
events#such#as#right#of#return#or#
achievement#of#milestaones.
The#promissed#amount#of#
consideration#shall#be#adjusted#
for#the#effect#of#the(time(value(of(money#if#the#timing#of#the#
payments#agreed#to#provide#the#
customer#with#a#significant#
benefit#of#financing.
Non@cash(consideration#shall#be#measured#at#fair#value.
Consideration(payable(to(a(customer#shall#be#accounted#for#as#a#reduction#in#the#transaction#
price#paid#and,#therefore,#
revenue#unless#this#is#in#exchange#
for#a#distinct#good#or#service.
When#a#sale#is#made#with#a(right(of(return#the#entity#shall#estiamte#the#amount#of#variable#consideration#
to#which#the#entity#expects#to#be#entitled.#It#shall#
create#a#refund#liability#and#an#asset#for#its#right#to#
recover#the#product.
4.(Allocate(the(trasaction(price#to#the#performance#obligations.#Based#on#the#
relative#standIalone#selling#prices#of#
each#distinct#good#or#service
The#entity#shall#determine#at#
contract#inception#the#stand@alone(selling(prices#of#the#distinct(goods(and(services(underlying#each#performance#obligation.
Stand@alone(selling(price#is#the#price#at#which#an#entity#would#sell#
a#promissed#good#or#service#
separatley#to#a#customer.#i.e#price#
list
If#a#standIalone#selling#price#is#not#
directly#oberservable,#an#entity#
shall#estimate#this.
Except#when#an#entity#has#
observable#evidence#that#a(discount(relates#to#only#one#or#more#but#not#all#performance#
obligations,#the#entity#shall#
allocate#the#discount#
proportionately#to#all#
performance#obligations.
5.#Recognize(revenue#when#(or#as)#the#entity#satisfies#performance#
obligations.#A#performance#obligation#
can#be#satisfied#at#a#point#in#time#
(goods)#or#over#time#(services)
A#performance#obligation#is#
satisfied#by#transferring#a#
promissed#good#or#service#(i.e.#an#
asset)#to##a#customer.#An#asset#is#
transferred#when#(or#as)#the#
customer(obtains(control#of#that#asset.
An#entity#transfers#control#of#a#
good#or#service#over(time#and,#therefore#satisfies#a#performance#
obligation#over#time,#if#any#of#the#
following#criteria#is#met:
#(a)#the#customer#simultaneoulsly#
receives#and#consumes#the#
benefits
#(b)#the#entity's#performane#
creates#or#enhances#an#asset#that#
the#customer#controls;#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
If#a#performance#obligation#is#not#
satisfied#over#time#it#is#satisfied#at#
a#point(in(time.#To#determine#the#
point#in#time#the#entity#shall#
consider#the#requirements#for#
control:
#(a)#right#to#payment
#(b)#legal#title
#(c)#physical#possession#
transferred
#(d)#customer#has#the#significant#
risks#and#rewards#of#ownership
#(e)#customer#has#accepted#the#
asset
For#performance#obligations#
satisfied#over#time##the#entity#
shall#measure(progress#towards#satisfaction#of#performance#
obligations#using#input(or(output(methods.
Consignment(arrangements#exist#when#the#other#paty#has#not#
obtained#control#of#the#product#
and#accordingly#the#entity#shall#
not#recognize#revenues
Bill(&(hold(arrangements#are#when#an#entity#bills#a#customer#
for#a#product#but#the#entity#
retains#physical#possession#until#it#
is#transferred#to#the#customer#at#
some#point#in#tim#ein#the#future.
Customers'(unexercised(rights((breakage).#Upon#receipt#of#a#prepayment#from#a#customer#an#entity#
shall#recognize#a#contrcat#liability#until#such#time#as#it#
satisfies#its#per#formance#obligations.#When#not#
exercised#this#is#referred#to#as#breakage#and#can#be#
recognized#as#revenue#when#exercis#is#remote.
Non@refundable(up@front(fees#e.g.#Clubs,#activation#fees,#set#up#fees.#The#entity#shall#asess#if#the#fee#
relates#to#a#transfer#of#a#promised#good#or#service.#If#
not#this#is#treated#as#an#advance#payment#.
Customer(acceptance#may#indicate#that#the#
customer#has#obtained#control#of#the#asset.#
Contract(costs
An(entity(shall(account(for(a(contrcat(with(a(customer(only(when(all(of(the(following(criteria(are(met:
Incremental(costs(of(obtaining(a(contractCosts#that#would#not#have#been#incurred#if#the#contract#had#not#been#
obtained#e.g.#sales#commission.#These#shall#be#recognbised#as#an#asset#if#
the#entity#expects#to#recover#these#costs
Costs(to(fulfil(a(contractCost#incurred#to#fulfil#a#contract#shall#be#recognized#as#an#asset#if#those#
costs#meet#all#the#foillowinng#criteria:
#(a)#thee#costs#relate#directly#to#the#contract
#(b)#the#costs#generate#or#enhance#resources#of#the#entity#that#will#be#
used#in#satisfying#performance#obligations#in#the#futures;#and
the#costs#are#expected#to#be#recovered
Disclosures
• the amount of revenue for the period, analysed into appropriate categories
• any impairment losses recognised in the period in relation to contract assets or receivables arising from contracts with customers
• the opening and closing balances of receivables, contract assets and contract liabilities, together with an explanation of significant changes during the period
• the amount of revenue allocated to performance obligations that are unsatisfied at the end of the period
• significant judgements made by the entity in applying the requirements of IFRS15.
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IFRS15requiresthaten,,esshoulddisclose:
CASESTUDY–MULTIPLEELEMENTS
A86045Accoun,ngandFinancialRepor,ng 38
PurchaseofaVespa
A86045Accoun,ngandFinancialRepor,ng 39
Dealerperspec,ve
A86045Accoun,ngandFinancialRepor,ng 40
1. Contract2. Performanceobliga,ons3. Considera,on4. Alloca,onoftheconsidera,on5. Recogni,onofrevenue
Transac,onListPrice€
Vespa150-Blue 3,500
Luggagebox-Blue 200
Crashhelmets(2)-Blue 300
Cover 100
4,100
Oneyear’sfeeInsurance 350
Threeyear’sfeemaintenance 300
Freeextendedthreeyearwarranty 300
5,050
Discount (1,050)
Agreedsellingprice 4,000
A86045Accoun,ngandFinancialRepor,ng 41
OTHERCONSIDERATIONS• Deliveryguaranteed7
workingdaysfromdateoforder
• Paymentbycreditcardor
banktransfer(priortodelivery)
SM4
SPECIALCONSIDERATIONS
A86045Accoun,ngandFinancialRepor,ng 42
GrossorNet-AgentorPrincipal
Anen,tyisac,ngasaprincipalwhenithasexposuretothesignificantrisksandrewardsassociatedwiththesaleofgoodsortherenderingofservices.Indica,onsthatanen,tyisac,ngasaprincipalinclude:a) Primaryresponsibilityforprovidingthegoodsand
servicesandacceptabilityoftheproductsorservice;b) Inventoryriskc) La,tudeinestablishingpricesd) BearingthecreditriskAfixedfeeorcommissionisastrongindicatorthatanen,tyisac,ngasanagent.
A86045Accoun,ngandFinancialRepor,ng 43
RevenueRecogni,on–Prac,calapplica,onissues
Saleofgoods• Billandhold• Shippedsubjecttocondi,ons• Layawaysales• Paymentinadvance• Milestonepayments• Saleandrepurchase• Salestointermediates• Subscrip,ons• Installmentsales• Realestatesales• Customeracceptance• Consignmentsales
Saleofservices• Installa,onfees• Servicingfeesincludedinprice• Adver,singcommissions• Insuranceagencycommissions• Financialservicesfees• Admissionfees• Tui,onfees• Ini,a,on,entranceand
membershipfees• Franchisefees• Developmentofcustomized
somware
A86045Accoun,ngandFinancialRepor,ng 44
Royal,es,dividendsandinterest
RoyalRes• CoveredbyIFRS15
– Somwarelicenses– Movies– Franchises– Patents,trademarks,
copyrights
• Pointin,meorover,me• Sales-basedorusage-based
Dividendsandinterest• Notpartofthescopeof
IFRS15• Dividendincomeshouldbe
recognizedwhenlegallydue• Interestincomeisgenerally
recognizedusingtheEffec,veInterestRate(EIR)method
A86045Accoun,ngandFinancialRepor,ng 45
SUMMARY,VALIDATIONANDPRE-WORKSESSION6
A86045Accoun,ngandFinancialRepor,ng 46
Session5Summary
• Revenues–largestnumberintheincomestatementandtheareamostsuscep,bletomanipula,on
• Fivestepapproachtorevenuerecogni,on• Importanceofindustrycontextandunderstanding
• Frameworkforrevenuerecogni,on• IFRS15nowsupercedesIAS18andIAS11
A86045Accoun,ngandFinancialRepor,ng 47
OverviewofSession6
• InSession6wewilllookatcostsandexpenses:– Classifica,on– Costofsales– Othergoodsandservices– Personnelexpenses
A86045Accoun,ngandFinancialRepor,ng 48
Otherexpensessuchasdeprecia,on,ammor,sa,onandincometaxeswillbecoveredinthesessionsrelatedtoTangibleandIntangibleFixedAssetsandTaxa,on
Session6Pre-work
• Reading– MelvilleInterna,onalFinancialRepor,ngAPrac,calGuide:
• Chapter13–Revenuesfromcontractswithcustomers– IFRS
• IFRS15-Revenuesfromcontractswithcustomers
• Exercises– Melville13.1–13.6– MelvilleOn-linemul,plechoiceques,onsforchapter13– ExerciseEX5Revenues
• ResearchassignmentRA4Employeebenefits
A86045Accoun,ngandFinancialRepor,ng 49
ResearchAssignmentRA4Employeebenefits
A86045Accoun,ngandFinancialRepor,ng 50
IAS19 Provideabriefdescrip9onastowhethertheseitemsarepresentand,ifso,thecompany’saccoun9ngpolicyforthese
Short-termbenefits
Servicesrendered
Paidabsences
Profitsharing
Long-termbenefits Termina,onindemni,es
Post-employmentbenefits
DefinedbenefitplansDefinedcontribu,onplansOtherpost-employmentbenefits
IFRS2
Share-basedpayments
EquitysehledCashsehled
Company____________
Session5Valida,on• Whatisthe5stepapproachtorecognizingrevenuesunderIFRS15?
• Whatarethe5condi,onsthatneedtobesa,sfiedinordertoaccountforacontractwithacustomerunderIFRS15?
• Howdoweaccountforrevenuesfromconstruc,oncontracts?
• Whatcriteriamustbesa,sfiedtoaccountforperformanceobliga,onsinamul,ple-elementtransac,on?Andhowisrevenueallocatedamongthedifferentelements?
A86045Accoun,ngandFinancialRepor,ng 51