HKFRS 15 Revenue

17/11/2016
HKFRS 15 Revenue
from Contracts with Customers (Part 1) 16 November 2016
LAM Chi Yuen Nelson 林智遠
FCPA(Practising), CFA Charter Holder
MBA MSc BBA ACIS ACS CGMA CPA(U.S.) CTA FCA
FCCA FCPA(Aust.) FHKIoD FSCA FTIHK MHKSI
© 2013‐2016 Nelson Consulting Limited 1
HKFRS 15 Issued in 2014
Step 5:
Step 3:
Step 1: Step 2: Step 4: Recognise
Determine
Identify the Identify the Allocate the revenue when or
the
contract with a performance transaction as performance
transaction
customer obligations price obligation is
price
satisfied
• HKFRS 15 establishes a comprehensive framework for determining
• when to recognise revenue and
• how much revenue to recognise.
• The core principle is that an entity recognises 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
• Under HKFRS 15, an entity applies a 5‐step approach in recognising
revenue
1
17/11/2016
Step 5:
Step 3:
Determine
the
transaction
price
satisfied
• Effective Date
– An entity shall apply HKFRS 15 for annual reporting periods beginning on or
after 1 January 2017 2018. (HKICPA Update No. 174)
– Earlier application is permitted.
– If an entity applies HKFRS 15, it shall disclose that fact.
Step 5:
Step 3:
Determine
the
transaction
price
satisfied
• HKFRS 15 supersedes the following Standards:
a. HKAS 11 Construction Contracts
b. HKAS 18 Revenue
c. HK(IFRIC)‐Int 13 Customer Loyalty Programmes
d. HK(IFRIC)‐Int 15 Agreements for the
Construction of Real Estate
e. HK(IFRIC)‐Int 18 Transfers of Assets from Customers
f. HK(SIC)‐Int 31 Revenue — Barter Transactions
Involving Advertising Services
2
17/11/2016
Contents in HKFRS 15 Issued in 2014
A. Objective Topics of Today, i.e. Part 1
B. Scope More complicated in Part 2
C. Recognition
– Identifying the contract (Step 1)
– Identifying performance obligations (Step 2)
– Satisfaction of performance obligations (Step 5)
D. Measurement
– Determining the transaction price (Step 4)
– Allocating the transaction price to performance obligations (Step 5)
E. Contract costs
F. Presentation
G. Disclosure Full set of presentation (with colour) can be found in:
www.facebook.com/NelsonCFA
Brief Summary of Changes
Existing Practice HKFRS 15
• Using IAS 11 and 18, IFRIC Int. 13, • Using HKFRS 15, one standard only
15, and 18, and SIC 31
• Inconsistent and diversified • Single and unified 5‐step revenue
practices recognition model
• Risk and reward approach in • Control approach in satisfying the
satisfying recognition performance obligation
• Limited guidance on multiple • More guidance on separating
element arrangements, variable elements, allocating the transaction
consideration, licences and etc. price, licences, and etc.
• New estimates and judgements
required
• New set of disclosure requirements
3
17/11/2016
Brief Summary of Changes
• There is an assessment that the steps in 5‐step model may be
most likely to affect the following specific industries:
© 2013‐2016 Nelson Consulting Limited Adapted from KPMG’s First Impression on IFRS 15 issued in June 2014 7
A. Objective
• The objective of HKFRS 15 is
– to establish the principles that an entity shall apply to report
useful information to users of financial statements about
the nature, amount, timing and uncertainty of revenue and
cash flows arising from a contract with a customer (HKFRS 15.1)
• To meet the objective
– The core principle of HKFRS 15 is that an entity shall 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. (HKFRS 15.2)
• When applying HKFRS 15, an entity shall
– consider the terms of the contract and all relevant facts and circumstances
– apply HKFRS 15, including the use of any practical expedients, consistently
to contracts with similar characteristics and in similar circumstances.
(HKFRS 15.3)
4
17/11/2016
A. Objective
• HKFRS 15 specifies the accounting for an
individual contract with a customer
– However, as a practical expedient, an entity may apply
HKFRS 15 to a portfolio of contracts (or performance
obligations) with similar characteristics
• if the entity reasonably expects that the effects on the financial
statements of applying HKFRS 15 to the portfolio would not differ
materially from applying HKFRS 15 to the individual contracts (or
performance obligations) within that portfolio
– When accounting for a portfolio, an entity shall use estimates and
assumptions that reflect the size and composition of the portfolio. (HKFRS
15.4)
B. Scope
• An entity shall apply HKFRS 15 to all contracts with customers,
except the following:
– lease contracts within the scope of HKAS 17 Leases;
– insurance contracts within the scope of HKFRS 4 Insurance Contracts;
– financial instruments and other contractual rights or obligations within the
scope of
• HKFRS 9 Financial Instruments, (or HKAS 39 if HKFRS 9 not yet applied)
• HKFRS 10 Consolidated Financial Statements, HKFRS 11 Joint
Arrangements, HKAS 27 Separate Financial Statements and HKAS 28
Investments in Associates and Joint Ventures; and
– non‐monetary exchanges between entities in the same line of business to
facilitate sales to customers or potential customers
• For example, HKFRS 15 would not apply to a contract between two oil
companies that agree to an exchange of oil to fulfil demand from their
customers in different specified locations on a timely basis. (HKFRS15.5)
5
17/11/2016
B. Scope
• An entity shall apply HKFRS 15 to a contract (other than a
contract listed above) only if the counterparty to the contract is a
customer. (HKFRS 15.6)
HKFRS 15 defines:
• A contract is an agreement between two or more
parties that creates enforceable rights and
obligations
• A customer is 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
B. Scope
Example
• A counterparty to the contract would not
be a customer if, for example,
– the counterparty has contracted with the entity
• to participate in an activity or process in
which the parties to the contract share in the
risks and benefits that result from the activity
or process (such as developing an asset in a
collaboration arrangement)
• rather than to obtain the output of the
entity’s ordinary activities. (HKFRS 15.6)
6
17/11/2016
B. Scope
• A contract with a customer may be
– partially within the scope of HKFRS 15 and
– partially within the scope of other Standards outside the HKFRS 15 scope
a. If the other Standards specify how to separate and/or initially measure
one or more parts of the contract, then an entity shall first apply the
separation and/or measurement requirements in those Standards
– An entity shall exclude from the transaction price the amount of the part (or
parts) of the contract that are initially measured in accordance with other
Standards and shall apply HKRS 15.73–86 to allocate the amount of the
transaction price that remains (if any) to each performance obligation within
the scope of HKFRS 15 and to any other parts of
the contract identified as point (b) below
b. If the other Standards do not specify how to
separate and/or initially measure one or more
parts of the contract, then the entity shall apply
HKFRS 15 to separate and/or initially measure
the part (or parts) of the contract (HKFRS 15.7)
B. Scope
Apply other
Is the contract within HKFRS 15?
No HKFRSs
Yes
For a contract within HKFRS 15, there
are one or more components within
other HKFRSs? No
Yes
Yes Other HKFRSs specify how to separate
and/or initially measure one or more
part if the contract? No
First apply other HKFRSs (the separation
and/or measurement requirements of
other HKFRSs)
• Exclude from transaction price the
amount measured by other HKFRSs as
Apply the requirements in HKFRS 15
above
• Apply HKFRS 15 on the remaining part
7
17/11/2016
C. Recognition and D. Measurement
Step 1: Identify the Contract(s)
Step 5:
Step 3:
Determine
the
transaction
price
satisfied
• Step 1: Identifying the Contract(s)
– A contract is an agreement between two or more parties that creates
enforceable rights and obligations.
– The requirements of HKFRS 15 apply to each contract that has been agreed
upon with a customer and meets specified criteria.
• In some cases, HKFRS 15 requires an entity to combine contracts and
account for them as one contract.
• HKFRS 15 also provides requirements for the accounting for contract
modifications. (HKFRS 15.IN7)
8
17/11/2016
• An entity shall account for a contract with a customer that is
within the scope of HKFRS 15 only when all of the following
criteria (i.e. contract criteria) are met:
a. the parties to the contract have approved the contract (in writing, orally
or in accordance with other customary business practices) and are
committed to perform their respective obligations;
b. the entity can identify each party’s rights regarding the goods or services
to be transferred;
c. the entity can identify the payment terms for
the goods or 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); and
• An entity shall account for a contract with a customer that is
within the scope of HKFRS 15 only when all of the following
criteria (i.e. contract criteria) are met:
e. it is probable that the entity will collect the consideration to which it will
be entitled in exchange for the goods or services that will be transferred
to the customer.
• In evaluating whether collectability of an amount of consideration is
probable, an entity shall consider only the customer’s ability and
intention to pay that amount of consideration when it is due.
• The amount of consideration to which
the entity will be entitled may be less
than the price stated in the contract
if the consideration is variable because
the entity may offer the customer a price
concession (see HKFRS 15.52) (HKFRS 15.9)
9
17/11/2016
Case Can its revenue meet the
《壹週刊》 2015 年 3 月 12 日 contract criteria in HKFRS 15?
《一剎那的財富》
• 《旺角卡門》，電影中張學友飾演的
「烏蠅」有一句說話：「寧願做一日
英雄，都不想做一世烏蠅！」
• 2015年3月漢能薄膜（566）股價急升，
市值超過 3,700 億港元，漢能大股東
李河君成為一剎那的華人首富！
• 2012年和2013年的應收賬週轉日數約
500 日和 470 日
• 漢能 2013年的收入接近全部，是來自
關連公司
《壹週刊》 2015 年 7 月 23 日 contract criteria in HKFRS 15?
《證監會，我撐你！》
• 漢能（566） 2014年收入按年增加接
近兩倍，毛利率57%，溢利率34%，
表現連蘋果公司也要俯首稱巨
• 漢能 2014年的收入仍有六成以上，
是來自關連公司，為何應收帳或仍
表示整年收不到錢？
• 33億港元溢利，205億港元淨資產，
怎可煉成曾超過3,000億港元的市值？
• 2015 年 5 月 20 日上午一小時內，漢
能股價下跌了50％以上，漢能主動
申請停牌
• 2015 年 7 月 15 日，漢能被證監會勒
令停牌
10
17/11/2016
2016 年 4 月 14 日《追究到底》 contract criteria in HKFRS 15?
去年初
• 漢能（566）股價狂舞時，更發出盈喜。
《壹計就明》就提醒，漢能收入主要來
自關連交易，應收賬周轉日逾一年
• 博耳（1685）公佈收入大升 51%，溢利
升 32% ，股價翌日升4%，6月初較業績
公佈前，升逾一倍
• 股價上升多少來自盈喜及增長？
上月底公佈業績
• 漢能逾期未收聯屬公司及核數師保留意
見之數，遠超去年盈喜之數
• 博耳「修正重大錯誤而作出的前期調
整」，仍應收未收兩年收入
• 往事並不如煙，是真是假，監管機構有
責追究到底！
• If a contract with a customer meets the criteria in HKFRS 15.9
(i.e. contract criteria) at contract inception,
– an entity shall not reassess those criteria unless there is an indication of a
significant change in facts and circumstances. (HKFRS 15.13)
• If a contract with a customer does not meet the criteria in HKFRS
15.9 (i.e. contract criteria) ,
– an entity shall continue to assess the contract to determine whether the
criteria in HKFRS 15.9 are subsequently met. (HKFRS 15.14)
11
17/11/2016
Step 2: Identify Performance Obligations
Step 5:
Step 3:
Determine
the
transaction
price
satisfied
• Step 2: Identifying the Performance Obligations in the Contract
– A contract includes promises to transfer goods or services to a customer.
– If those goods or services are distinct, the promises
• are performance obligations and are accounted for separately
– A good or service is distinct if
• the customer can benefit from the good or service on its own or together with
other resources that are readily available to the customer and
• the entity’s promise to transfer the good or service to the customer is separately
identifiable from other promises in the contract. (HKFRS 15.IN7)
12
17/11/2016
• At contract inception, an entity shall
– assess the goods or services promised in a contract with a customer, and
– identify as a performance obligation each promise to transfer to the
customer either:
a. a good or service (or a bundle of goods or services) that is distinct; or
b. a series of distinct goods or services that are substantially the same
and that have the same pattern of transfer to the customer (see
HKFRS 15.23) (HKFRS 15.22)
HKFRS 15 defines performance obligation as:
Performance obligations
A promise in a contract with a customer to transfer to the customer either:
a. a good or service (or a bundle of goods or services) that is distinct; or
b. a series of distinct goods or services that are substantially the same
and that have the same pattern of transfer to the customer.
• A series of distinct goods or services has the same pattern of
transfer to the customer if both of the following criteria are met:
a. each distinct good or service in the series that the entity promises to
transfer to the customer would meet the criteria in HKFRS 15.35 to be a
performance obligation satisfied over time; and
b. in accordance with HKFRS 15.39–40, the same method 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. (HKFRS 15.23)
13
17/11/2016
• Promises in contracts with customers
– A contract with a customer generally explicitly states the goods or services
that an entity promises to transfer to a customer.
– However, the performance obligations identified in a contract with a
customer may not be limited to the goods or services that are explicitly
stated in that contract.
– This is because a contract with a customer may also include promises that
are implied by an entity’s customary business practices, published policies
or specific statements if, at the time of entering into the contract, those
promises create a valid expectation of the customer that the entity will
transfer a good or service to the customer. (HKFRS 15.24)
• Promises in contracts with customers
– Performance obligations do not include activities that an entity must
undertake to fulfil a contract unless those activities transfer a good or
service to a customer.
– For example, a services provider may need to perform various
administrative tasks to set up a contract.
• The performance of those tasks does not transfer a service to the
customer as the tasks are performed.
• Therefore, those setup activities are not a performance obligation.
(HKFRS 15.25)
14
17/11/2016
• A good or service that is promised to a customer is distinct if both
of the following criteria are met:
a. the customer can benefit from the good or service either on its own or
together with other resources that are readily available to the customer
(i.e. the good or service is capable of being distinct); and
b. the entity’s promise to transfer the good or service to the customer is
separately identifiable from other promises in the contract
(i.e. the good or service is distinct within the context of the contract).
(HKFRS 15.27)
• If a promised good or service is not distinct,
– an entity shall combine that good or service with other promised goods or
services until it identifies a bundle of goods or services that is distinct.
• In some cases, that would result in the entity accounting for all the
goods or services promised in a contract as a single performance
obligation. (HKFRS 15.30)
15
17/11/2016
Existing Practice vs HKFRS 15
Incidental Obligations and Sales Incentives (see more in Step 2)
• Some companies may not separately • A company will assess whether the
recognise revenue for the transfer to the promised goods or services arising from
customer of goods or services that some incidental obligations and sales
consider to be sales incentives or incentives are goods or services that are
otherwise incidental or ancillary to the distinct.
other promised goods or services in the • If the goods or services are distinct, the
contract. company will recognise revenue when
• That practice results in a company (or as) each distinct good or service is
recognising all of the transaction price as transferred to the customer.
revenue even though it has remaining
performance obligations to satisfy.
• This sometimes occurs in the
automotive industry when a
manufacturer sells a car along with an
incentive such as maintenance that will
be provided at a later date.
© 2013‐2016 Nelson Consulting Limited Adapted from the IASB’s Project Summary issued in May 2014 31
Case
Resale value guarantee
• Tesla guarantees the resale value of your Model S.
• After three years, you can trade in your Model S for 70% of the original base price plus 60%
of options.
• Not available to vehicles registered outside of HK.
© 2013‐2016 Nelson Consulting Limited Source from http://www.teslamotors.com/en_HK/ 32
16
17/11/2016
Step 3: Determine Transaction Price
Step 5:
Step 3:
Determine
the
transaction
price
satisfied
• Step 3: Determining the Transaction Prices
– The transaction price
• is the amount of consideration in a contract to which an entity expects to be
entitled in exchange for transferring promised goods or services to a customer
• can be a fixed amount of customer consideration, but it may sometimes include
– variable consideration or
– consideration in a form other than cash
• is also adjusted for the effects of the time value of money if the contract includes
a significant financing component and for any consideration payable to the
customer. (HKFRS 15.IN7)
17
17/11/2016
Step 5:
Step 3:
Determine
the
transaction
price
satisfied
• Step 3: Determining the Transaction Prices
– If the consideration is variable, an entity estimates the amount of
consideration to which it will be entitled in exchange for the promised goods
or services.
– The estimated amount of variable consideration will be included in the
transaction price
• only to the extent that it is highly probable that a significant reversal in the
amount of cumulative revenue recognised will not occur when the uncertainty
associated with the variable consideration is subsequently resolved. (HKFRS
15.IN7)
HKFRS 15 defines transaction price as:
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 (for example, some sales taxes).
• To determine the transaction price, an entity shall consider
– the terms of the contract and
– its customary business practices.
• The consideration promised in a contract with a customer may include
– fixed amounts,
– variable amounts, or
– both. (HKFRS 15.47)
18
17/11/2016
• The nature, timing and amount of consideration
promised by a customer affect the estimate of
the transaction price.
• When determining the transaction price, an
entity shall consider the effects of all of the
following:
a. variable consideration (see HKFRS 15.50–55 and 59); Variable Consideration
b. constraining estimates of variable consideration Constraining Estimates
(see HKFRS 15.56–58); of Variable Con.
c. the existence of a significant financing component Significant Financing
in the contract (see HKFRS 15.60–65); Component
d. non‐cash consideration (see HKFRS 15.66–69); and Non‐cash
Consideration
e. consideration payable to a customer
Consideration Payable
(see HKFRS 15.70–72). (HKFRS 15.48) to Customer
• For the purpose of determining the
transaction price, an entity shall assume that
– the goods or services will be transferred to the
customer as promised in accordance with the
existing contract and
– the contract will not be cancelled, renewed or
modified. (HKFRS 15.49)
Variable Consideration
Constraining Estimates
of Variable Con.
Significant Financing
Component
Non‐cash
Consideration
to Customer
19
17/11/2016
• If the consideration promised in a contract includes a variable
amount,
– an entity shall estimate the amount of consideration to which the entity
will be entitled in exchange for transferring the promised goods or
services to a customer. (HKFRS 15.50)
Variable Consideration
• An entity shall estimate an amount of variable consideration by using either
of the following methods, depending on which method the entity expects to
better predict the amount of consideration to which it will be entitled:
a. The expected value — the expected value is the sum of probability‐
weighted amounts in a range of possible consideration amounts.
• An expected value may be an appropriate estimate of the amount of
variable consideration if an entity has a large
no. of contracts with similar characteristics. Variable Consideration
b. The most likely amount — the most likely
amount is the single most likely amount in a Expected Value
range of possible consideration amounts (i.e.
Most Likely
the single most likely outcome of the contract). Amount
• The most likely amount may be an appropriate
estimate of the amount of variable consideration if
the contract has only two possible outcomes (e.g. an entity either
achieves a performance bonus or does not). (HKFRS 15.53)
20
17/11/2016
• An entity shall apply one method consistently throughout the
contract
– when estimating the effect of an uncertainty on an amount of variable
consideration to which the entity will be entitled.
• In addition, an entity shall
– consider all the information (historical, current
and forecast) that is reasonably available to the Variable Consideration
entity and
– identify a reasonable number of possible Expected Value
consideration amounts.
Most Likely
• The information that an entity uses to estimate Amount
the amount of variable consideration would
typically be similar to the information that the
entity’s management uses during the bid‐and‐proposal process and in
establishing prices for promised goods or services. (HKFRS 15.54)
• An entity shall recognise a refund liability if the entity receives
consideration from a customer and expects to refund some or all
of that consideration to the customer.
– A refund liability is measured at the amount of consideration received (or
receivable) for which the entity does not expect to be entitled (i.e.
amounts not included in the transaction price).
– The refund liability (and corresponding change Variable Consideration
in the transaction price and, therefore, the
contract liability) shall be updated at the end
Expected Value
of each reporting period for changes in
circumstances. Most Likely
Amount
• To account for a refund liability relating to
a sale with a right of return, an entity shall
apply the guidance in HKFRS 15.B20–B27.
(HKFRS 15.55)
21
17/11/2016
• An entity shall include in the transaction price
some or all of an amount of variable
consideration estimated in accordance with
HKFRS 15.53
– only to the extent that it is highly probable that a
significant reversal in the amount of cumulative
revenue recognised will not occur when the
uncertainty associated with the variable
consideration is subsequently resolved. (HKFRS Constraining Estimates
15.56) of Variable Con.
• In assessing such highly probable circumstance,
– an entity shall consider both the likelihood and the
magnitude of the revenue reversal.
• In determining the transaction price,
– an entity shall adjust the promised amount of consideration for the effects
of the time value of money
• if the timing of payments agreed to by the parties to the contract (either
explicitly or implicitly) provides the customer or the
entity with a significant benefit of financing the transfer
of goods or services to the customer.
• In those circumstances, the contract contains
a significant financing component.
– A significant financing component may exist
Significant Financing
regardless of whether the promise of financing is Component
• explicitly stated in the contract, or
• implied by the payment terms agreed to by
the parties to the contract. (HKFRS 15.60)
22
17/11/2016
• To determine the transaction price for contracts in which a
customer promises consideration in a form other than cash,
– an entity shall measure the non‐cash consideration (or promise of non‐
cash consideration) at fair value. (HKFRS 15.66)
• If an entity cannot reasonably estimate the fair value of the non‐cash
consideration,
– the entity shall measure the consideration indirectly by reference to
the stand‐alone selling price of the goods or services promised to the
customer (or class of customer) in exchange for the consideration.
(HKFRS 15.67)
Non‐cash
Consideration
Fair Value
• An entity shall account for consideration payable to a customer
– as a reduction of the transaction price and, therefore, of revenue
• unless the payment to the customer is in exchange for a distinct good
or service (as described in HKFRS 15.26–30) that the customer transfers
to the entity.
• If the consideration payable to a customer includes a variable
amount,
– an entity shall estimate the transaction price
(including assessing whether the estimate of
variable consideration is constrained)
in accordance with HKFRS 15.50–58. (HKFRS 15.70)
to Customer
23
17/11/2016
Estimates of Variable Consideration (see more in Step 3)
• Revenue requirements do not include • If the consideration promised by a
detailed guidance for measuring the customer is variable, a company will
amount of revenue that should be estimate it using either the expected
recognised when the consideration is value or the most likely amount,
variable depending on which amount better
predicts the amount of consideration to
which the company will be entitled.
• Some or all of the estimated amount of
variable consideration is included in the
transaction price only to the extent that
it is highly probable that a significant
reversal in the amount of cumulative
revenue recognised will not occur when
the uncertainty associated with the
variable consideration is subsequently
resolved.
Significant Financing Components (see more on Step 3)
• If a customer pays for goods or services • A company is required to consider the
in advance or in arrears, some effects of any significant financing
companies may not consider the effects components in the determination of the
of any financing components in the transaction price (and thus the amount
contract when determining the amount of revenue recognised).
of revenue to be recognised. • This may affect long‐term contracts in
which payment by the customer and
performance by the company occur at
significantly different times.
24
17/11/2016
Step 4: Allocate Transaction Price to PO
Step 5:
Step 3:
Determine
the
transaction
price
satisfied
• Step 4: Allocating the Transaction Price to Performance
Obligations
– An entity typically allocates the transaction price to each performance
obligation on the basis of the relative stand‐alone selling prices of each
distinct good or service promised in the contract.
• If a stand‐alone selling price is not observable, an entity estimates it.
– HKFRS 15 specify when an entity allocates the discount or variable
consideration to one or more, but not all, performance obligations (or
distinct goods or services) in the contract. (HKFRS 15.IN7)
25
17/11/2016
• The objective when allocating the
transaction price is
– for an entity to allocate the transaction price to
Based on Stand‐alone each performance obligation (or distinct good
Selling Price (SASP) or service) in an amount that depicts the
Allocation of a amount of consideration to which the entity
Discount expects to be entitled in exchange for
Allocation of Variable transferring the promised goods or services to
Consideration the customer. (HKFRS 15.73)
4. Allocate Transaction
Price to Performance
Obligations
• To meet the allocation objective, an entity
shall allocate the transaction price to each
performance obligation identified in the
Based on Stand‐alone contract on a relative stand‐alone selling
Selling Price (SASP) price basis in accordance with HKFRS
Allocation of a 15.76–80, except as specified in
Discount
Allocation of Variable – HKFRS 15.81–83 (for allocating discounts) and
Consideration – HKFRS 15.84–86 (for allocating
consideration that includes
4. Allocate Transaction variable amounts). (HKFRS 15.74)
Price to Performance
Obligations
26
17/11/2016
• HKFRS 15.76–86 do not apply
– if a contract has only one performance
obligation.
Based on Stand‐alone – However, HKFRS 15.84–86 may apply
Selling Price (SASP) • if an entity promises to transfer a series of
Allocation of a distinct goods or services identified as a
Discount single performance obligation in accordance
Allocation of Variable with HKFRS 15.22(b) and
Consideration
• the promised consideration
4. Allocate Transaction includes variable amounts.
Price to Performance (HKFRS 15.75)
Obligations
HKFRS 15 defines stand‐alone selling price as:
• The price at which an entity would sell a promised good or service
separately to a customer..
Based on Stand‐alone
Selling Price (SASP)
• To allocate the transaction price to each
performance obligation on a relative
stand‐alone selling price basis, an entity
shall
– determine the stand‐alone selling price at
contract inception of the distinct good or
service underlying each performance obligation
in the contract and
– allocate the transaction price in proportion to
those stand‐alone selling prices. (HKFRS 15.76)
27
17/11/2016
• The best evidence of a stand‐alone selling
price is
– the observable price of a good or service when
Based on Stand‐alone the entity sells that good or service separately
Selling Price (SASP) in similar circumstances and to similar
customers.
• A contractually stated price or a list price for
a good or service may be (but shall not be
presumed to be) the stand‐alone selling price
of that good or service. (HKFRS 15.77)
• If SASP is not directly observable,
– an entity shall estimate the SASP at an amount
that would result in the allocation of the
Based on Stand‐alone transaction price meeting the allocation
Selling Price (SASP) objective in HKFRS 15.73.
• When estimating SASP,
– an entity shall consider all information
(including market conditions, entity‐specific
factors and information about the customer or
class of customer) that is reasonably available
to the entity.
– In doing so, an entity shall
• maximise the use of observable inputs and
• apply estimation methods consistently in
similar circumstances. (HKFRS 15.78)
28
17/11/2016
• Suitable methods for estimating SASP of a
good or service include (not limited to):
a. Adjusted market assessment approach
Based on Stand‐alone b. Expected cost plus a margin approach
Selling Price (SASP)
c. Residual approach
d. Combination of the above
Contingent Revenue Cap (see more in Step 4)
• Some practices for allocating the • HKFRS 15 does not permit the
transaction price limit the amount of transaction price to be allocated to
consideration allocated to a satisfied performance obligations on a basis that
performance obligation to the amount is consistent with the contingent
that is not contingent on the satisfaction revenue cap.
of performance obligations in the future. • Instead, HKFRS 15 requires a company to
• That practice is commonly used to allocate the transaction price—which
account for telecommunications would be any amount that the customer
contracts that bundle the sale of a pays on entering into the contract and
mobile phone with the provision of the monthly payments for the network
network services for a specified period services—to the mobile phone and the
(often for one or two years). network services on the basis of the
relative stand‐alone selling prices of
each item.
29
17/11/2016
No Observable Selling Price (see more in Step 4)
• For some contracts, revenue • If observable prices of the promised
requirements preclude a company from goods or services are not available, a
recognising revenue on the transfer of a company would allocate the transaction
good or service to a customer if there is price on the basis of estimated stand‐
no observable evidence of the stand‐ alone selling prices of those goods or
alone selling prices of each of the goods services.
or services promised in the contract. • The company will recognise revenue as
• This often results in the deferral of each distinct good or service is
revenue recognition because revenue transferred to the customer.
could not be recognised when the first
of the promised goods or services
transfers to the customer.
• This regularly occurs in the software
industry when observable prices are not
available for upgrades and additional
functionality for computer software.
30
17/11/2016
Step 5: Satisfy Performance Obligations
Step 5:
Step 3:
Determine
the
transaction
price
satisfied
• Step 5: Satisfaction of performance obligations
– A an entity recognises revenue when (or as) it satisfies a performance
obligation by transferring a promised good or service to a customer
• which is when the customer obtains control of that good or service.
– The amount of revenue recognised is the amount allocated to the satisfied
performance obligation. (HKFRS 15.IN7)
Step 5:
Step 3:
Determine
the
transaction
price
satisfied
• Step 5: Satisfaction of performance obligations
– A performance obligation may be satisfied
• at a point in time (typically for promises to transfer goods to a customer)
or
• over time (typically for promises to transfer services to a customer).
– For performance obligations satisfied over time, an entity recognises
revenue over time by selecting an appropriate method for measuring the
entity’s progress towards complete satisfaction of that performance
obligation. (HKFRS 15.IN7)
31
17/11/2016
• An entity shall recognise revenue
– when (or as) the entity satisfies a performance obligation by transferring a
promised good or service (i.e. an asset) to a customer.
• An asset is transferred
– when (or as) the customer obtains control of that asset (HKFRS 15.31)
• For each performance obligation identified in
accordance with HKFRS 15.22–30,
– an entity shall determine at contract inception whether it
• satisfies the performance obligation over time
Over Time
(in accordance with HKFRS 15.35–37) or
• satisfies the performance obligation at a point
in time (in accordance with HKFRS 15.38). At a Point in Time
– If an entity does not satisfy a performance
obligation over time, the performance
obligation is satisfied at a point in time.
(HKFRS 15.32)
32
17/11/2016
• Goods and services are assets, even if only momentarily, when
they are received and used (as in the case of many services).
• Control of an asset
– refers to the ability to direct the use of, and obtain
Over Time
substantially all of the remaining benefits from,
the asset.
At a Point in Time
– includes the ability to prevent other entities from
directing the use of, and obtaining the benefits
from, an asset.
• When evaluating whether a customer
obtains control of an asset,
– an entity shall consider any agreement
to repurchase the asset (see HKFRS 15.B64–B76).
(HKFRS 15.33)
Example
• The benefits of an asset are the potential cash flows (inflows or
savings in outflows) that can be obtained directly or indirectly in
many ways, such as by:
a. using the asset to produce goods or provide
Over Time
services (including public services);
b. using the asset to enhance the value of
other assets; At a Point in Time
c. using the asset to settle liabilities or
reduce expenses;
d. selling or exchanging the asset;
e. pledging the asset to secure a loan; and
f. holding the asset. (HKFRS 15.33)
33
17/11/2016
• An entity transfers control of a good or
service over time and, therefore,
satisfies a performance obligation and
recognises revenue over time, if one of
Over Time
the following criteria is met:
a. the customer simultaneously receives and consumes
the benefits provided by the entity’s performance
as the entity performs (see HKFRS 15.B3–B4);
b. the entity’s performance creates or enhances an asset (e.g. work in
progress) that the customer controls as the asset is created or enhanced
(see HKFRS 15.B5); or
c. the entity’s performance does not create an asset with an alternative use
to the entity (see HKFRS 15.36) and the entity has an enforceable right to
payment for performance completed to date (see HKFRS 15.37). (HKFRS
15.35)
Yes Does the customer receive and consume the benefits
provided by the entity as the entity performs?
No
Yes Does the customer control the asset being created or
enhanced by the entity?
No
Does the entity’s performance create an asset with an Yes
alternative use to the entity?
No
Yes Does the entity have an enforceable right to payment for No
performance completed to date?
Performance obligation Performance obligations
satisfied over time satisfied at a point in time
Measuring progress towards complete
satisfaction of that performance
34
17/11/2016
Methods for Measuring Progress Measuring Progress
– Appropriate methods of measuring progress include
output methods and input methods (HKFRS 15.B14–B19
provide guidance)
– In determining the appropriate method for measuring Over Time
progress, an entity shall consider the nature of the
good or service that the entity promised to transfer
to the customer. (HKFRS 15.41)
– When applying a method for measuring progress, an entity shall exclude
from the measure of progress any goods or services for which the entity
does not transfer control to a customer.
– Conversely, an entity shall include in the measure
of progress any goods or services for which the
entity does transfer control to a customer when
satisfying that performance obligation.
(HKFRS 15.42)
• If a performance obligation is not satisfied over time in
accordance with HKFRS 15.35–37, an entity satisfies the
performance obligation at a point in time.
• To determine the point in time at which a customer obtains
control of a promised asset and the entity
satisfies a performance obligation,
At a Point in Time
– the entity shall consider the requirements for
control in HKFRS 15.31–34. (HKFRS 15.38)
35
17/11/2016
• In addition, an entity shall consider indicators of the transfer of
control, which include, but are not limited to, the following:
a. The entity has a present right to payment for the asset
b. The customer has legal title to the asset
c. The entity has transferred physical possession of the asset
d. The customer has the significant risks and
At a Point in Time
rewards of ownership of the asset
e. The customer has accepted the asset
Step 5:
Step 3:
Determine
the
transaction
price
satisfied
• When (or as) a performance obligation is satisfied,
– an entity shall recognise as revenue
• the amount of the transaction price (which excludes
estimates of variable consideration that are constrained in
accordance with HKFRS 15.56–58) that is allocated to that
performance obligation. (HKFRS 15.46)
36
17/11/2016
Timing of Revenue Recognition (see more in Step 5)
• Because of a lack of clear and • A company will be able to recognise
comprehensive guidance, there is some revenue over time only if the criteria
diversity in practice in determining specified in HKFRS 15 are met.
whether a company should recognise • In all other cases, a company will
revenue for some goods or services at a recognise revenue at the point in time
point in time or over time. when the customer obtains control of
• Some companies selling residential real the promised good or service.
estate in multi‐unit developments have
difficulty determining whether the
construction of such assets is
‐ a service that is provided over time
(revenue is recognised over time) or
‐ a good that is transferred to the
customer when construction is
complete (revenue is recognised at
that point in time)
Real‐life Case
Case
• HKFRS 15.B70 states that:
– If an entity has an obligation to repurchase the asset at the
customer’s request (a put option) at a price that is lower than
the original selling price of the asset,
• the entity shall consider at contract inception whether the customer has
a significant economic incentive to exercise that right.
– The customer’s exercising of that right results in the customer
effectively paying the entity consideration for the right to use a
specified asset for a period of time.
– Therefore, if the customer has a significant economic incentive
to exercise that right, the entity shall account for the
agreement as a lease in accordance with IAS 17.
More discussion on Part 2 ……
37
17/11/2016
Real‐life Case
Case
• Tesla (financial statements of 2015):
– We offer resale value guarantees or similar buy‐back terms to all
customers ……
– Although we receive full payment for the vehicle sales price at the time of
delivery, we are required to account for these as operating leases.
– The amount of sale proceeds equal to the residual value guarantee is
deferred until the guarantee expires or is exercised.
– The remaining sale proceeds are deferred and recognized on a straight
line basis over the stated guarantee period.
– The guarantee period expires at the earlier of the end of the guarantee
period or the pay‐off of the initial loan.
– We capitalize the cost of these vehicles to leased vehicles on our
Consolidated Balance Sheets and depreciate their value, less salvage
value, to cost of automotive revenue over the same period.
HKFRS 15 Revenue
www.Facebook.com/NelsonCFA
38
17/11/2016
HKFRS 15 Revenue
Q&A Session
www.Facebook.com/NelsonCFA
39

HKFRS 15 Revenue

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

HKFRS 15 Revenue

Uploaded by

Copyright:

Available Formats

17/11/2016

You might also like