BASIC CONCEPTS OF IFRS 15

Illustrative 1: Christian enters into a contract with Victory Christian Fellowship to install a music system together
with its software. On January 1, 2028, Victory pays Christian an upfront fixed fee of P 50,000 for six months of
featured access. Victory also will pay Christian a bonus of P 30,000 if Victory can use the music system anytime
without experiencing technical difficulty during the six-month period. Ivana estimates a 70% chance that it will
achieve the usage target and receive the P 30,000 bonus.

Required:
1. How much is the expected value of the contract price at inception?
2. How much is the most likely amount of the contract price?

Illustrative 2: Pepper enters into a contract with a customer to build a 50-storey building for P 100,000,000, with
a performance bonus of P 50,000,000 that will be paid based on the timing of completion. The amount of the
performance bonus decreases by 10% per week for every week beyond the agreed-upon completion date. The
contract requirements are similar to contracts that Ivana has performed previously, and management believes that
there is a 60% probability that the contract will be completed by the agreed-upon completion date, a 30% chance
that it will be completed one week late, and only a 10% probability that it will be completed two weeks late.

Required:
1. Determine the expected value of the contract price.
2. Determine the most likely value of the contract price.

Illustrative 3: On February 14, 2028, Rodiel Co. sold merchandise to Ivana for P 60,000 and received P 60,000
for that sale on March 14, 2028. On March 7, 2028, Rodiel made a P 10,000 payment to Ivana for advertising
services that have a fair value of P 7,500.

Required:
1. How much revenue should Rodiel Co. record for the merchandise sold to Ivana?
2. How much revenue should Rodiel Co. record for the merchandise sold to Ivana if the fair value of
the advertising services cannot be reasonably estimated?
Illustrative 4: Rain, Inc. is a manufacturer of automated whiteboard used in the conduct of CPA Review. Rain,
Inc. has the following arrangement with Ivana CPA Review Center:
• Ivana purchases the automated whiteboard from Rain at a price of P 1,522,500 and prefer Rain to do the
Installation and Training and Rain agreed on such arrangements.
• The price of the installation service is estimated to have a fair value of P 435,000.
• The fair value of the training sessions is estimated at P 217,500.
• Ivana is obligated to pay Rain, Inc the P 1,522,500 contract price upon the delivery and installation of the
automated whiteboard.
• Rain delivers the automated whiteboard on September 1, 2028 and completes the installation on November
1, 2028. Training related to the automated whiteboard starts after the installation and lasts for 5 months.
The automated whiteboard has a useful life of 15 years.
• Cost of the automated whiteboard is P 23,765,000.

Required: Allocate the transaction price to the different performance obligations.

Illustrative 5: Globe Telecom, Inc., a telecommunications operator, entered into a contract with Persian on March
1, 2027. In line with the contract, Persian subscribes for Globe Telecom’s monthly plan for 24 months and in
return Persian receives a free Apple 256 GB Iphone 12 Pro Max handset from Globe Telecom. Persian is also
entitled for monthly network services such as 150 GB of data, unlimited all-net text, unlimited calls to Globe/TM,
and 150 minutes all-net calls. Persian will pay a monthly fee of P 2,499 and a cash out of P 46,800 upon signing
of the contract. Persian gets the handset immediately after contract signing.

Globe Telecoms normally sells monthly plans for P 1,482 per month without handset. The market value of the
Iphone 12 Pro Max is P 82,990.

Required: Assuming the Globe Telecom ask you to apply IFRS 15 with its transaction with Persian. Apply
the 5 steps process to recognize revenue and determine the revenue for the year 2027.
THEORIES
1. The first step in the process for revenue recognition is to
a. Determine the transaction price
b. Identify the contract with customer
c. Allocate the transaction price to the separate performance obligations
d. Identify the separate performance obligations in the contract

2. A contract
a. Must be in writing to be enforceable
b. Is enforceable if each party can unilaterally terminate the contract
c. Is an agreement that creates enforceable rights and obligations
d. Does not need to have commercial substance

3. Revenue from a contract with a customer

a. Is recognized when the customer received the rights to the consideration
b. Is recognized even if the contract is still wholly unperformed
c. Can be recognized even when a contract is still pending
d. Cannot be recognized until a contract exists

4. A company must account for a contract modification as a new contract if

a. Goods or services are interdependent on each other
b. The promised goods or services are distinct
c. The company has the right to receive consideration equal to standalone price
d. Goods or services are distinct and company has right to receive the standalone price

5. The transaction price

a. Excludes discounts, volume rebates, coupons and free products, or services
b. Is the amount of consideration that a company expects to receive from a customer
c. Excludes time value of money if the contract involves a significant financing component
d. Does not consider noncash consideration such as donations, gifts, equipment or labor

6. If a contract involves a significant financing component

a. The time value of money is used to determine the fair value of the transaction
b. The time value of money is not required to determine transaction price, if the payment is more than a year
c. The transaction amount should be based on a current sales price of goods or services
d. Interest is not accrued as a result of the financing component

7. Noncash consideration should be

a. Recognized on the basis of fair value of what is given up
b. Recognized on the basis of original cost paid by customer
c. Recognized on the basis of fair value of what is received
d. Recognized on the basis of fair value of equivalent goods or services

8. The transaction price for multiple performance obligations should be allocated

a. Based on selling price from the company’s competitors
b. Based on what the company could sell the goods for on a standalone basis
c. Based on forecasted cost of satisfying performance obligation
d. Based on total transaction price less residual value