PFRS 15

Income increases in economic benefits during accounting period in the form of inflows or enhancements of assets or
decreases of liabilities that result in increases in equity, other than those relating to contributions from equity
participants. Income encompasses both revenue and gains.

Revenue income arising in the course of an entity’s ordinary activities

APPLICABILITY OF PFRS 15

Shall be applied to contracts wherein the counterparty is a customer

Contract an agreement between two or more parties that creates enforceable rights and obligations. A contract can be
written, oral, or implied by an entity’s customary business practice.

Customer 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.

PFRS 15 SHALL NOT BE APPLIED TO THE FOLLOWING

 Lease contracts
 Insurance contracts
 Financial instruments
 Non-monetary exchanges between entities in the same line of business to facilitate sales to customers. For ex
PFRS 15 is not applicable to a contract between 2 oil companies that agree to exchange oil to fulfill customer
demands in different locations on a timely basis.

CORE PRINCIPLE

An entity recognizes 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 of those goods or services.

Steps in the recognition of revenue

Pfrs 15 requires the following steps in recognizing revenue:

1) Identify the contract with the customer

a. The contract must be approved and the contracting parties are committed to it;
b. rights and payment terms are identifiable
c. contract has commercial substance
d. consideration is probable of collection
No revenue is recognized if the contract does not meet the criteria above. Any consideration is
recognized as liability
2) Identify the performance obligations in the contract
Each promise in a contract to transfer a distinct good or service is treated as a separate performance
obligation.

Identifying distinct goods or services

a. customer can benefit from it, either on its own or together with other resources that are readily available to the
customer (e.g., the good or services is regularly sold separately); and

b. the good or service is separately identifiable (i.e., not an input to combined output, does not significantly modify the
other promises, or not highly interrelated with the other promises).
 A good or service that is not distinct shall not be combined with the other promises in the contract.
Combined promises are treated as a single performance obligation.
3) Determine the transaction price
Entity shall determine the transaction price because it is the amount at which revenue will be measured.
Transaction price is the amount of consideration to which an entity expects to be entitiled in exchange
for transferring promised goods or services to a customer, excluding amounts collected on behalf of
third parties (e.g., some sales taxes). The consideration may include fixed amount, variable amounts, or
both.
4) Allocate the transaction price to the performance obligations in the contract
The transaction price shall be allocated to ach performance obligation identified in a contract based on
the relative stand-alone prices of the distinct goods or services promised to be transferred.
The stand-alone selling price is the price at which a promised good or service can be sold separately to a
customer

Estimating the stand-alone selling price

If the stand-alone selling price is not directly observable, the entity shall estimate it using one or a combination of the
following methods:

Adjusted market assessment approach- the entity evaluates the market in which it sells goods or services and
estimates the price that a customer in that market would be willing to pay for those goods or services.
Expected cost plus a margin approach- the entity forecasts its expected costs of satisfying a performance
obligation and then add an appropriate margin for that good or service.
Residual approach- the entity estimates the stand-alone selling price as the total transaction price less the sum
of the observable stand-alone selling prices of other goods or services promised in the contract.

5) Recognize revenue when the entity satisfies a performance obligation

A performance obligation is satisfied when the control over a promised good or service is transferred to
the customer.
Revenue is measured at the amount of the transaction price allocated to the satisfied performance
obligation.

Performance obligations are classified into the following:

1. performance obligation that is satisfied over time

2. performance obligation that is satisfied at a point in time
Performance obligations satisfied over time
For a performance obligation that is satisfied over time, revenue is recognized over time AS the entity
progresses towards the complete satisfaction of the obligation

A performance obligation is satisfied 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 that the customer controls as the asset is created or
enhanced.
c. the entity 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.

Measuring progress towards complete satisfaction of a performance obligation

 For each performance obligation satisfied over time, an entity shall recognize revenue over time by
measuring the progress towards complete satisfaction of that performance obligation.
  Examples of acceptable measurement methods:
1. Output methods (e.g., surveys of work performed)
2. Input methods (e.g., relationship between costs incurred to dated and total expected costs.)

If efforts or inputs are expected evenly throughout the performance period, revenue may be recognized on a
straight-line basis.

COST RECOVERY APPROACH

 If the outcome of a performance obligation cannot be reasonably measured, revenue shall be recognized only to
the extent of costs incurred that are expected to be recovered.

PERFORMANCE OBLIGATIONS THAT IS NOT SATISFIED AT A POINT IN TIME

o A performance obligation that is not satisfied over time is presumed to be satisfied at a point in time.
o For a performance obligation that is satisfied at a point in time, revenue is recognized WHEN the
performance obligation is satisfied.

CONTRACT COSTS

Include the following;

a. Incremental costs of obtaining a contract- recognized as asset if they are recoverable and avoidable. As a practical
expedient, the costs are recognized as expense if their expected amortization period is 1 year or less.

b. Costs to fulfill a contract- if within the scope of PFRS 15, they are recognized as asset if they are: a.) directly related to
a contract, b.) generate or enhance resources, and c.) recoverable.

PRESENTATION

A contract where either party has performed is presented in the statement of financial position as a contract liability,
contract asset or receivable.

o CONTRACT LIBILITY- is an entity’s obligation to transfer goods or services to a customer for which the entity has
received consideration (or the amount is due) from the customer.
o CONTRACT ASSET- is an entity’s right to consideration in exchange for goods or services that the entity has
transferred to a customer when that right is conditioned on something other than the passage of time.
o RECEIVABLE- is an entity’s right to consideration that is unconditional.