03/05/2016

IFRS 15 - Revenue from

Contracts with customers  Supersedes IAS 18 and IAS 11

Related SIC and IFRIC

 Effective 1 Jan 2018 Mandatory.

 Applies to all contracts with customers except for:

 IAS 17- Lease contracts

Presented  IFRS 4 – Insurance contracts

By  IFRS relating to Financial instruments

Mr S.Ramparsad

5 STEP MODEL

STEP 1  The Contract has commercial Substance.

 Identify the contract with a customer agreement between 2 or  It is probable that an entity will collect the consideration

more parties creating enforceable rights + obligation written or (evaluate customer’s entity and intention to pay).

oral Contract Modification

ATTRIBUTES  Change in the Scope, or price, or both Must be approved by

 Parties have approved the contract and are committed to the parties.

perform. Accounting

 Each party’s rights to goods/services can be identified.  Based on character and price of additional goods/services.

 The payment terms for goods/services can be identified .

STEP 2 - Identify the performance

obligation in the contract.

 PO can be both explicit and implicit (based on practices

Performance obligation Promise in a contract with a customer to
and policies)
transfer to the customer either:
 If no transfer to customer - Implied business
Goods/Service or Series of distinct goods/services  No PO (e.g Advice or setup) Customary services
bundle that is distinct that are substantially the same guarantees provided
and have same pattern of
transfer.

e.g Monthly cleaning services

:

= single performance obligation (not small

individual performance obligation)

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STEP 3- Determine the transaction price

 Transaction price - amount of consideration to which  Existence of significant financing component %

the entity expects to be entitled in exchange for  Non-cash consideration : @ FV
transferring promised goods/services to a customer  Consideration payable to a customer : Vouchers
excluding the amounts collected on behalf of third
parties.

 How to determine the TP?

 Variable consideration (discount/debates/bonuses)

 Constraining estimates in variable consideration

STEP 4-Allocate the transaction price to the

performance obligations

 Allocation objective to allocate the transaction price to
each performance obligation in an amount that depicts the
amount of consideration for transferring promised
goods/services .
 How to allocate a transaction price?
Do in relative stand-alone selling price except for:
 Allowing discounts
 Allocating consideration with variable amounts.
 Stand-alone selling price = the price at which the entity
would sell promised goods or service separately to the
customer (at contract inception)
1. Take observable selling prices.
2. If observable selling price not available then make
estimate (expected price + margin)

STEP 5-Recognise revenue when (or as) an

entity satisfies a PO
Contract Cost
 A performance obligation is satisfied when a promise good or
Costs to obtain a contract Costs to fulfill a contract
service is transferred to a customer.
Sales commission, legal fees, If not within ISA 2/16/38
 This happens when the control over goods or service is
Bonuses to employees Recognise as an asset
transferred.
Capitalise + Ammortise Capitalise if
 When a customer receives control he has the sole possession of
- Costs relate directly to contract
the right to use the goods for the rest of its economic life of the
- Costs generate/enhance resources
goods.
used in satisfying performance
 How can a performance obligation be satisfied? obligations in the future
Overtime At the point in time
 Recognise revenue gradually - Costs are expected to be recovered
over the contract period

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 Summary (COPAR)
 A enters into a 12 months Mauritius Telecom for a
 Contract Indentification mobile phone.

 Obligation identified
 Terms of plan are as follows:
 Price for transaction • A’s monthly fixed fee is $100
• A received a free handset (marketing expense) at the
 Allocation of transaction price to obligation
inception of the plan
 Recognise Revenue
 MT sells the same handsets for $300 and same
monthly repayment plans without handset for $80/m
as under IAS 18
Dr Cash 100 each month
Cr Revenue 100

:
IFRS 15 Stand-alone % Actual
1. C A (1) Receives free handset Price
(2) Monthly payment $100 Handset $300 300/1260 23.8 * 1200 $286
2. O MT (1) Deliver free handset
(2) Provide network service Service $960 960/1260 76.2 * 1200 $914
3. P 100*12=1200
handset= 0 $1,260 100% 1200
$1200
(Contract price)
Stand alone %
4. A Handset $300 300/1260 = 23.8%
Service $960 960/1260 = 76.2%

Step 5: Recognise Revenue

1. When handset is delivered
Dr Contract Asset $286
(New terminology ) as no invoice
is issued to the customer
Cr Revenue $286

2. Recognise service income

Dr Receivables $100
Cr Contract Asset (286/24) $24
Cr Revenue (914/12months) $76
When cash is received
Dr Cash $100
Cr Receivables $100