Revenue summary

Objective of IFRS 15

A contract with a customer

 Need to understand what is a contract /how does one define a contract

 Who is a customer

A promise made to a customer for a consideration

A contract (an agreement two or more parties that creates enforceable rights and obligation

- orally
- Written
- Customary

IFRS 15 not applicable

- IFRS 16
- IFRS 19, 10,11, IAS 27 and IAS 28
- Non-monetary exchange that do not have commercial substance ( have value in future cash
flow)

Note
- Contract which are partially within scope of IFRS 15 and within other standards. Separate the
portion and account for each in relation to its applicable standard

Revenue 5 steps
1. Identify the contracts with customers
2. Identify the performance obligations (recognition )
3. Determine the transaction price (measurement )
4. Allocate the transaction price to the performance obligations in the contract (measurement
links with step 2)
5. Recognize revenue when(or as) the entity satisfied the performance obligation (recognition )

Questions
 Appropriate accounting treatment – recognition & measurement (Step 1 to 5)
 Measurement ( step 3, 4 & 2)
 Recognition ( Financial statement step 1)

Step1 : Identifying the contract

Par 9 : All 5 conditions required to be met
1. Approved contract and parties committed to perform their respective obligations
2. The entity can identify each party’s rights regarding the G&S or be transferred
3. The entity can identify the payment terms
4. The contract has commercial substance, and
 5. It is possible that the entity will collect the consideration. Only the customers’ ability and
intension to pay that amount of consideration when it is due are taken into consideration

Consideration received before a contract that does not meet those requirement
- Recoginse as a Deposit Liability initially
Dr Bank
Cr Deposit liability
-
If intension not met subsequent to reassement
Dr: Deposit liability
Cr : Income recived

If conditions met subsequently recognize revenue

Dr : Bank
Cr Revenue

Combination of contracts
- If two or more contracts are entered into at the same time wnd with the same supplier or
related parties of the customer , accounted as if they single contracts if 3 requirements are
met
1. Contacts negotiated as a package with single commercial objective
2. Amount of consideration in one contract depends on the price or performance of the
other contract
3. The G/S that are promised in the contract represents a single performance obligation

Contract modification
 Change in scope and/ or price of the contact
 Adjustments only made for a contract modification when either new enforceable rights and
obligations are created, or exiting ones are changed
 Account for modification as a separate contract to the original contract only if :
 the scope of the contract changes due to the addition of promised goods or services
that are distinct for the purposes of step 2 of the five-step model
 the price of the contract increases by an amount of consideration that reflects the
vendor’s stand-alone selling price of the additional promised goods or services and
any appropriate adjustments to that price to reflect the circumstances of the
particular contract (e.g. a discount to reflect that the vendor did not incur the same
costs as it would do for a new customer).
 If both of these criteria are met, then the contract modification is, for accounting purposes,
a separate contract which is subject to the same five-step model as any other contract.