IFRS 15- REVENUE RECOGNITION

1. The contract has COMMERCIAL SUBSTANCE

2. The Entity can identify the PAYMENT TERMS
3. The parties to the contract have APPROVED the Contract
4. The entity can identify each party's RIGHTS regarding goods or services to be rendered
5. It is PROBABLE that the entity will collect the consideration to which it will be entitled

CONTRACTS DOES NOT EXIST IF

BOTH OF THE FOLLOWING ARE TRUE
1. Contract is UNPERFORMED
2. Both seller and the buyer can TERMINATE the contract WITHOUT PENALTY

STEP 1: IDENTIFY THE CONTRACT

1. Performance of either party may give rise to a CONTRACT ASSET OR LIABILITY

CONTRACT ASSET CONTRACT LIABILITY

❌ Buyer : No payment or performance ✔️ Buyer : With Payment
✔️Seller : already performs ❌ Seller : No performance

illustrative problem
AUGUST 1, 2028 - NO ENTRY

SEPT. 30,2028
Contract asset/ AR 80,000
Sales 80,000
#
COGS 65,000
Inventory 65,000

OCT. 31, 2028

Cash 80,000
Contract Asset 80,000
#

AUGUST 1, 2028 - NO ENTRY

SEPT. 30,2028

Cash 80,000
Contract Liability/ def rev. 80,000
#

OCT. 31, 2028

Contract Liability/ Def. Rev 80,000

sales 80,000
#
COGS 65,000
Inventory 65,000
 CONTRACT ASSET VS RECEIVABLE

CONTRACT ASSET RECEIVABLE

is the entity's right to consideration the entity's right to consideration
in exchange for goods or services that is UNCONDITIONAL
transferred to a customer -
CONDITIONAL

JANUARY 1, 2028 - NO ENTRY

FEBRUARY 12, 2028

contract asset 50,000
Sales 50,000

JULY 31, 2028

Accounts receivable 100,000
Sales 50,000
Contract Asset 50,000

Sept. 8,2028
Cash 100,000
Accounts receivable 100,000

CONTRACT MODIFICATION TWO SCENARIOS IN CONTRACT

is the change in the scope or price (or MODIFICATION
both) of a contract that is approved
by the parties to the contract 1. Creates New Contract
change order 2. Modifies the Existing contract
variation
amendment
RECOGNITION OF NEW CONTRACT
There will be 2 contract
1. The scope of the contract increases because of the addition of promised good or
services THAT ARE DISTINCT
The customer can benefit from good or service
The entity's promise to trnsfer the good or service to the
customer is SEPARATELY IDENTIFIABLE from other promises
in the contract
1. The proce of the contract increases by an amount of consideration that reflects the
entity's standalone selling prices of the additional promised goods or services and any
appropriate ADJUSTMENTS TO THE PRICE

ORIGINAL PERFOMANCE ( 20,000 * 200) 4,000,000

OBLIGTION

ADDITIONAL PO ( 10,000 * 180) 1,800,000

TOTAL REVENUE AFTER
MODIFICATION 5, 800,000 (1)

to satisfy original contract

50,000 * 200 = 1,000,000 (2)
to satisfy new PO
50,000 * 180 = 900,000 (3)

MODIFICATION OF THE EXISTING CONTRACT

There will be 1 contract
An entity shall account for the existing contract modification as if it were part of the existing
contract if the remaining goods or services are NOT DISTINCT

ORIGINAL PERFOMANCE ( 20,000 * 200) 4,000,000

OBLIGTION

ADDITIONAL PO ( 10,000 * 180) 1,800,000

TOTAL REVENUE AFTER
MODIFICATION 5, 800,000 (1)

Revenue (After contract modification)

Blended price = Total performance obligation

5,800,000
30,000
= 193

Revenue = 5,000 * 193

= 965,000 (2)
 STEP 2 : IDENTIFY THE SEPARATE PERFORMANCE OBLI
PERFORMANCE OBLIGATION
A promise in a contract to provide a product or service to a customer
DISTINCT - separate performance obligation
NOT DISTINCT- combine the performance obligation

ANSWER: 1 ANSWER: 2

STEP 3 : IDENTIFY THE TRANSACTION PRICE

TRANSACTION PRICE
Amount of consideration to which an entity expects to be entitled in exchange for
transferring promised goods or services to a customer.

when determining the TRANSACTION PRICE, an entity

shall consider the effects of the folowing:
Variable consideration
Existence of a significant financing component
Noncash Considerations
Consideration payable to a customer

VARIABLE CONSIDERATION
Occurs when part of the Contract Price depends on the OUTCOME OF A FUTURE EVENT
THE ENTITY SHALL ESTIMATE THE AMOUNT OF VARIABLE CONSIDERATION

METHODS OF ESTIMATING VARIABLE CONSIDERATION

EXPECTED VALUE APPROACH MOST LIKELY APPROACH

Appropriate if an entity has a Appropriate if the contract has
LARGE number of contracts with ONLY TWO possible Outcomes
similar characteristics

sum of all possible possible amount which

transaction transaction
= amounts multiplied to price = has has the highest
price their corresponding
chance of occurence
probability
 EXPECTED VALUE APPROACH

POS amount 1 (50k +30k) 80,0000* 70% = 56,000

POS amount 2 (50k + 0 ) 50,0000 * 30% = 15,000
TRANSACTION PRICE 71,000
MOST LIKELY APPROACH
TRANSACTION PRICE 80,000

EXPECTED VALUE APPROACH

POS amount 1 (100k + 50k) 150 M* 60% = 90 M

POS amount 2 [100k + (50M * 90 %) 145 M* 30% = 43.5 M
POS amount 3 [100k + (50M * 80 %) 140 M* 10% = 14 M
TP 147.5 M

MOST LIKELY APPROACH

TTP 150 M

EXISTENCE OF SIGNIFICANT
FINANCING COMPONENT
the entity should consider the time value of money
the vaule of money few years ago is not the same few years ago,
and the value of money today is not the same few years from now

PAYMENT IS MORE THAN ONE YEAR

TRANSACTION PRICE (order of priority)

1. Cash Price Equivalent

2. PV of Future NCIFs

SALES 300,000
COGS (200,000)
GP 100,000

SALES ( 500,000 * .683) 341, 500

COGS (200,000)
GP 141,500
NON CASH CONSIDERATION

transaction FV of the NON CASH

price = consideration received

CONSIDERATION PAYABLE
TO A CUSTOMER

Consideration payable to customer for payment of distinct goods or services from

customers shall be accounted in the same way that it accounts for other purchases
from supplier.
Unless, consideration payable to the customer is higher that the Fair value of goods or
services, or the fair value cannot be reasonably estimated.

SELLER BUYER
also a SUPPLIER

consideration paid to a customer

(if we buy to a customer)

CONSIDERATION PAID vs FAIR VALUE

= difference , is accounted as REDUCTION
OF TRANSACTION PRICE

= NO PROBLEM

FV ( cannot be fairly estimated) = ZERO , the total of consideration paid to the

customer is treated as REDUCTION OF THE TP
STEP 4 : ALLOCATE TRANSACTION PRICE TO THE
SEPARATE PERFORMANCE OBLIGATION

Does not apply with SINGLE PERFORMACE OBLIGATION

Allocation basis - relative Fair value or stand alone seling price of each performance
obligation
If the stand-alone selling price is not directly observable, an entity shal estimate the
stand alone selling price.

TRANSACTION PRICE RELATIVE FV/ STAND ALONE SP ALLOCATE

PO 1 White Board 1,522,500 1,065,750
PO 2 Installation
PO 3 Training
P1,522,500 435,000
217,500
304,500
152,250
2,175,000 1,522,500
RELATIVE * TP / TOTAL RFV

METHODS OF ESTIMATING STAND ALONE SELLING PRICE

ADJUSTED MARKET COST PLUS A RESIDUAL APPROACH

ASSESSMENT APPROACH MARGIN APPROACH
can only be used if stand
We consider the prices Cost + Mark up alone sp/ RFV is
of Competitors HIGHLY UNCERTAIN

RELATIVE FV/
TRANSACTION ALLOCATE
STAND ALONE SP
PRICE
const
100 m
130 M 36, 585,366
Main 21 M 25,609,756
Operate 31M 37, 804,878
82 M 100 M

RELATIVE * TP / TOTAL RFV

 ALLOCATE
RELATIVE FV/
TRANSACTION ALLOCATE
STAND ALONE SP
PRICE
const const 30,000,000

100 m
130 M 34, 722, 222
Main Main 21,000,000
21 M 24, 305, 556
Operate Operate 49,000,000
35. 4M 40,972,222
100 M
86.4 M 100 M

SASP = 29.5 M * 120%

= 35, 400,000

RELATIVE * TP / TOTAL RFV

STEP 5 : RECOGNIZE REVENUE WHEN EACH

PERFORMANCEOBLIGATION IS SATISFIED
WAYS ON SATISFYING A PERFORMANCE OBLIGATION

SATISFACTION SATISFACTION
OVER THE PERIOD OF TIME AT A POINT IN TIME
obligation DOES NOT END after After delivering the good or rendering
rending of service the service , the entity will NO

LONGER HAVE OBLIGATION

STEP 1 : IDENTIFY THE CONTRACT

between Globe and Rain

STEP 2 : IDENTIFY THE SEPARATE PERFORMANCE OBLI

PO 1: Handset
PO 2: Network Service

STEP 3 : IDENTIFY THE TRANSACTION PRICE

Monthly Payment ( 2499 * 24 months) 59,976

cashout 46,800
Transaction Price 106, 776

STEP 4 : Allocate the Transaction price to the separate

performance obligation
Transaction Price RFV Allocate
82,990
PO 1: Handset
PO 2: Network Service 106,776 35,568
74, 743
32,033
118,558 106,776

1482 * 24 month
STEP 5 : Recognize Revenue when each Performance
Obligation is Satisfied

PO 1: Handset ( at a point in time) 74, 743 = recognize 74, 743

PO 2: Network Service (over the period of time) 32, 033 / 24 months = 1335 per month * 10 13, 350
Transaction Revenue 88, 093