IFRS 15 - REVENUE FROM CONTRACTS WITH

CUSTOMERS
STEP 1: IDENTIFY THE CONTRACT
 Agreement b/w parties creating enforceable rights & obligations (matter of law).
 Written, oral, or implied by entity’s customary business practices.
 No contract, if each party has an enforceable right to termination without compensating the other.

1.1. Criteria: ALL should be met:

a) approved (writing, oral or as per customary business practices) & committed to perform;
b) party’s rights regarding the G/S to be transferred can be identified;
c) payment terms for the G/S to be transferred can be identified;
d) commercial substance (not donation) (risk, timing or amount of entity’s FCF expected to change, not that the entity
continues to receive the same amount); &
e) probable collection of consideration (consider customer’s ability & intention to pay).

1.2. Consideration received in advance

 LIABILITY, if consideration/advance received but criteria unmet. Continually reassess if all conditions are met.
 Record as revenue only when either of the following events has occurred:
 no remaining obligations to transfer G/S + Consideration received (substantial or all) + Non-refundable; OR
 contract terminated & the consideration received is non-refundable.

2.1. Combination
=> contracts entered into at or near the same time with same customer (or customer’s RPs), account as a single
contract if one or more of the following criteria are met:
 contracts negotiated as a package with a single commercial objective;
 Price dependence, for e.g.,
 consideration for one depends on the price/performance of the other contract (linked);
 charging less for one & compensate with another PO
 G/S promised (or some G/S promised in each of the contracts) are a single PO.

Examples
 Construction with Raw materials & Design  Consultancy & Training
 Software License with Installation  Advertising & Media Placement
 Manufacturing & shipping  Medical device sale & Training
 Event Planning & Catering  Web development & hosting
2.2. Modifications (change in enforceable R&O (scope/price) if approved, creates new or changes existing e-R&O.
 Account for as a separate contract if, & only if:
 The contract scope changes due to the addition of distinct G/S, &
Example:
i) Contract for software CU 1,000. Later, customer asks for a separate training module. If training module can be
sold separately (distinct), & added to the contract, it's considered a separate contract.
ii) Supply of 1,000 units for CU 100. After supply of 500, client asks for 500 more at CU 95.

 The change in price reflects SA SP of distinct G/S.

Example: If SA-SP for training is CU 300, & price increases by approx CU 300 for the addition of training module.
.
2.2.1. DISTINCT, but NOT REFLECT SA-SP = Termination of existing & creation of new contract.
 Consideration to be allocated to the remaining performance relating to G/S is equal to
 Unearned Revenue under Previous Arrangement PLUS Additional Revenue from Modification

2.2.2. NOT DISTINCT

 Account for modification as if it were a part of the existing contract & forms part of a single PO that is partially
satisfied at the date of modification.
 Adjustment (increase or reduction) to revenue of the existing contract at the date of modification.

Contract modifications not accounted for as a separate contract are accounted for as either:
i) Replacement of the original contract with a new contract (if the remaining G/S under the original contract are
distinct from those already transferred to the customer). Example

Software Customization: A software company initially sells a standard software to a client. Later, client requests
extensive customization, including unique features & integrations, essentially transforming the software into a
specialized design tool. Now, the original contract is replaced with a new contract for the customized software.
Building Renovation: Construction firm, contracts to renovate an office. Client later asks to significantly expand
the scope by requesting additional floors to be renovated in the same building. Given the substantial changes, the
original contract for a single-floor renovation is replaced with a new contract for multiple-floor renovations
Mobile Phone upgrade from same contractor

ii) Continuation of the original contract (if the remaining G/S under the original contract are distinct from those already
transferred to the customer, & the performance obligation is partially satisfied at modification date).
Interior Furnishing: Furniture manufacturer contracts to supply office furniture to client. Client later asks
adjustments to furniture’s color & fabric. These changes are incorporated into existing contract as they do not alter
the fundamental nature of the project.
Marketing Campaign Modifications: Marketing agency contracts to run a marketing campaign for a product.
During campaign, client asks to change audience & message, requiring adjustments to the campaign materials.
Agency accommodates these changes within the original contract, continuing the campaign's execution.
Extending cable/consulting service subscription

iii) Mixture of (i) & (ii) (if elements of both exist).

Telecom Services Expansion: Telco offers bundled services, (net, phone, & TV). Customer subscribes. Later
requests more phone lines, which are distinct with SA-SP. While the original bundled services continue, the addition
of phone lines creates a distinct component & a new contract for phone services.
Home Construction Project: Construction company contracts to build a custom home. During construction, client
asks to expand the scope by adding a detached garage. Original contract for the home remains intact, but the garage
addition is treated as a separate contract due to its distinct nature & standalone pricing.

Modification to existing contract is treated prospectively & is called Cumulative Catch-up. Example: Change in
payment terms, scope, price, duration of completion, delivery date, penalty clause, right of return, etc.
STEP 2: IDENTIFY PERFORMANCE OBLIGATIONS
 Normally specified in contract.
 Written | Verbal | Explicit | Implied
- by an entity’s customary business practices,
- published policies or
- specific statements
that create a valid customer expectation that G/S will be transferred under the contract.
 At inception, assess the G/S promised in contract & identify each PO of promise to transfer to the customer either:
a G/S (individually or bundled) that is distinct (single PO); or
- a series of distinct G/S over time substantially the same & that have the same pattern of transfer to the customer. (monthly
consultancy/bookkeeping, cleaning, newspaper/food delivery)
 Mgmt. determines measure of progress of PO.
 Activities of the entity that do not result in a transfer of G/S to the customer (e.g. certain internal administrative ‘set-up activities’)
are not PO & do not give rise to revenue.

Distinct/Separate G/S (even if distinct otherwise, should also be so within the context of the contract)
If both criteria are met:
a) Customer can benefit from it either
 on its own or
 together with other resources readily available to him (which can be acquired from the entity or other parties)
i.e., G/S is capable of being distinct; &
Example: If entity normally sells G/S separately
- Laptop with Warranty
- Phone with Case (case can’t be used separately)

 When can a customer benefit from the G/S

- if can be used, consumed, sold for an amount > scrap value or otherwise held in a way that generates economic benefits.
- If G/S is regularly sold separately, which indicates that customers generally can benefit from the it on its own or in
conjunction with other available resources.

b) Entity’s promise to transfer the G/S is separately identifiable from other promises in the contract (ie G/S is distinct within the
context of the contract).
Explanation: G/S should stand alone & provide value to the customer within the framework of a particular contract. In other
words, even if G/S is generally distinct in normal business practice, it may not be considered distinct within a specific contract if
it cannot function independently or does not provide value by itself in that contract. This means that the entity must assess
whether the nature of its promise is to transfer the individual G/S or to provide a combined item or items to the customer. It
requires an assessment of how the promised G/S are presented in the contract, the customer's expectations, & the entity's
customary business practices. Entities should exercise judgment & consider all relevant factors in making this assessment.
Evaluating their separability & considering how they are presented in the contract. This assessment is crucial for correctly
recognizing revenue.

Example: Software & Customer Gym membership &

Support/Installation/Training Training
Mobile & Data Plan Car sale & Warranty
Furniture & Assembly
Impact on Revenue Recognition:
 Distinct within the context of a contract: typically recognized as revenue when on transfer
 Not distinct: They are combined into SPO, & revenue recognition is based on the satisfaction of that combined PO.

Not distinct G/S

Indicating factors, but are not limited to, the following:
 entity provides a significant service of integrating the G/S with other G/S promised in the contract into a bundle of G/S that represent
the combined output.
Examples
- Company dealing with home entertainment system (TV, speakers, gaming consoles, etc.,)
- SW suite Implementation: Co. sells SW with capability to do accounting, CRM, MIS. Can be sold separately.
- Industrial machine setup integrating with customer’s eco-system (will use mech setup, wiring, programming, etc.,) (could affect timing of
recognition)
- Integrating Event planning with Catering
- Smart Home installation (Camera, chimes, thermos, lights) Co. installs, configures & integrates as a bundle
 the service of integrating G/S into a bundle adds substantial value to the customer & may influence how revenue is recognized within
the contract. The specific terms of the contract & whether the integration service is a distinct PO will determine the revenue
recognition methodology.

 one or more of the G/S significantly modifies or customizes, one or more of the other G/S promised in the contract. (customization is
a separate PO which changes the base G/S which is a separate PO)
Example:
- Customized Software Development: The development of the ERP system is a combination of various G/S, including software
design, coding, & implementation. The modifications & customizations significantly change the standard software & are a
distinct performance obligation within the contract
- Personalized Jewelry Manufacturing: Customization is a distinct PO
- Tailored Clothing Production:
- Vehicle Upfitting Services:

 the G/S are highly interdependent or highly interrelated (cancelling one doesn’t affect other promised G/S)
Example:
- Customized Hardware/Asset & specialized installation
- Software with License (if SW can’t function without it)
- Software with Updates (if SW can’t function without it)
- Construction with material, architectural services, engineering & site clearance
What to do in this case?
- Entity must combine that G/S with other promised G/S until it identifies a bundle of G/S that is distinct.
- In some cases, this would result in the entity accounting for all the G/S promised in a contract as a single performance obligation.
STEP 3: DETERMINING THE TRANSACTION PRICE
 Transaction Price: consideration (fixed, variable, or both) which an entity expects to be entitled in exchange for transferring
promised G/S, excluding amounts collected on behalf of third parties (e.g., taxes).
 Consider the terms of the contract & its customary business practices to determine the TP.
 The nature, timing & amount of consideration promised by a customer affect the estimate of the TP.

To determine TP, consider the effects of all of the following:

- variable consideration;
- constraining estimates of variable consideration;
- the existence of a significant financing component in the contract;
- non-cash consideration; &
- consideration payable to a customer (e.g. reduction in TP due to coupon or vouchers).

 Consider all relevant facts & circumstances in assessing whether a contract contains a FC & if it is significant to the contract,
including both of the following:
- the difference between the amount of promised consideration & the cash SP of the promised G/S;
- the combined effect of both of the following:
o the expected length of time between when the entity transfers the promised G/S to the customer & when the customer
pays for those G/S; &
o the prevailing interest rates in the relevant market.

 A significant FC does NOT exist when

- Difference between time of transfer of control & payment is less than 12 months
- Timing of the transfer of control of the G/S is at the customer’s discretion
- Consideration, or substantial part thereof, is variable with the amount or timing based on (non)occurrence of factors (future
events) substantially outside of the control of the parties
- Difference between consideration & cash SP arises for other non-financing reasons (i.e. performance protection i.e., failing
all/some of obligations under the contract).

 A significant FC does exist when

- Sale & repurchase agreement that is expected to happen
- More than 1 year of credit period
- Seller’s Perspective: Credit period > Industrial practice. Creates Deferred Income & Finance Income

Discount rate to be used

 Must reflect credit characteristics of the party receiving the financing & any collateral / security provided.
 TP is not affected by customer’s credit risk (bad debts) but adjusted for discounts
 Use seller’s incremental rate of borrowing

Presentation
 Present the effects of financing (interest revenue / expense) separately from revenue from contracts in SOCI.
 Interest revenue / expense is recognized only to the extent that a contract asset (or receivable) or a contract liability is recognised in
accounting for a contract with a customer.

i. Non-cash consideration
 Measure the non-cash consideration at FV. If not measurable, use SA SP of goods sold by entity.
 If a customer contributes goods (e.g., materials, equipment or labor) to facilitate an entity’s fulfilment of the contract, entity shall
assess whether it obtains control of those contributed goods. If so, the entity shall account for the contributed G/S as non-cash
consideration received from the customer.
If Payable in Shares Financial Asset (inv. In shares) Dr.
Revenue Cr.

ii. Consideration payable to customer

 Includes credit items (coupon/voucher, cash backs, discounts, etc.,) that can be applied against amounts owed to the entity.
 Account for it as a reduction of the TP &, therefore, of revenue.
 Recognise the reduction of revenue when (or as) the later of either of the following events occurs:
i. the entity recognises revenue for the transfer of the related G/S to the customer; &
ii. the entity pays or promises to pay the consideration (even if the payment is conditional on a future event). That promise
might be implied by the entity’s customary business practices.
 Accounted for as a reduction in the TP, unless payment is for a G/S received from the customer in which case no adjustment is
made – except where:
- The consideration paid > FV of G/S received (the difference is set against the TP)
- The FV of the G/S cannot be reliably determined (full amount taken against the TP).

Q. 1 year contract to sell for Rs 15m but seller pays 1.5m (10%) initially so buyer may make adjustments to the shop.
1 Jan 20X8 Consideration paid to customer 1,500,000
 Bank 1,500,000
30 Jun 20X8 Bank/Receivable 6,000,000
Revenue 90% 5,400,000
Consideration paid to customer 600,000
10%
31 Dec 20X8 Bank/Receivable 9,000,000
Revenue 90% 8,100,000
Consideration paid to customer 900,000
10%

iii. Settlement/Cash discounts:

a) Seller’s perspective
Expecte Avail Initial Treatment Subsequent Treatment
d s
X X Record revenue for full amount No action
X P Record revenue for full amount Reduce revenue with discount. Debit Revenue / Discount
allowed
P P Record revenue net of discount No action
P X Record revenue net of discount Record additional amount as Revenue

b) Buyer’s perspective: Such discount is reduced from cost of asset & subsequently reduces asset’s recorded value.

iv. VARIABLE CONSIDERATION

 TP should include VC if it is highly probable that a significant reverse of cumulative revenue will not occur.
 VC should be included provided that it is highly probable that it will be received.
 If consideration includes a variable amount (discounts, refunds, price concession, performance bonus, penalty etc.), estimate the
amount of consideration to which the entity will be entitled on transfer of G/S.

Estimate, depending on which method the entity expects to better predict the amount of consideration to which it will be entitled,
VC by using either
i. EXPECTED VALUE METHOD (Probability-weighted exp. Value) e.g., reviewing past, similar contracts to assess the
likelihood of receiving the consideration (for large number of similar contracts); or
{contract of 1,000 with 100 penalty for not completing on time. 40% completing on time & 60% of delay.
900,000 is fixed & 100,000 Is variable.
TP is Rs. 940,000 (900,000 + (100,000 X 60%)} OR
{(1,000,000 X 40% + 100,000 X 60%) = 940,000}

ii. SINGLE MOST LIKELY AMOUNT METHOD e.g., the amount within a range. There are only two possible outcomes
(i.e. where there are few amounts to consider)

Factors to consider
 Consideration can also vary if an entity’s entitlement to the consideration is contingent on the (non)-occurrence of a future event
or factors outside the control of either party (supply, weather, obsolescence, etc.,).
 Uncertainty about amount isn’t expected to be resolved over a long period of time
 Experience/evidence with similar types is limited or has limited predictive value
 Offering broad range of concessions/changing terms
 Contract has large no. of & broad range of possible considerations

v. Constraining estimates of variable consideration

VC is only recognised to the extent it is highly probable that a subsequent change in its estimate would not result in a significant
reversal (maybe over 30%, or a matter of materiality or judgment) of cumulative revenue recognized, when the uncertainty
associated with the variable consideration is subsequently resolved

 SALE ON VARIABLE DISCOUNT

Reduce the normal discount percentage from total discount percentage relating specifically to the contract in consideration
Discount voucher is a separate PO.

Contract to sell 500 units @ 10 each. 25% discount on future purchases upto 2,000 within 20 days. Withing 20 days, customer
purcahses total Rs. 4,000 & seller expects 90% discount voucher will be redeemed.

Sale 5,000

STEP 4: ALLOCATING TP TO PO
 Allocate to distinct POs in proportion to their relative SA-SP underlying each PO
  Use Observable SA-SP: Prices of G/S when/if sold separately

Approaches for Estimating SA-SP if not observable

i) Adjusted market assessment approach
- Price charged for G/S sold to similar customers under similar circumstances
- Competitor pricing adjusted for factors such as customer segment, market share, distribution channel, cost structure, market
position, expected profit margin
ii) Expected cost plus a margin approach: (Forecast expected costs & apply profit margin to offer a price)
Consider: - entity’s specific market factors
- both direct & indirect cost of G/S, then apply appropriate profit margin
- Margin on similar products, market data, Industry SP AVG, market condition, profit objective based on B&F
iii) Residual approach (i.e. residual after observable SA-SP of other PO have been deducted). Criteria is:
- Used when SA SP is not yet established as the product is new OR entity sells broad range of G/S to broad range of customers @
broad range of prices (eg., mobile phones) OR when SA-SP is highly variable or uncertain
- Applied only after first allocating related discounts to Pos, G/S
- Deduct from TP the sum of estimated SA SP of other G/S in contract to estimate of SA G/S. (limited circumstances). Example:
Contract for 1,000, SA-SP of A=500, B=300 C=?. C is allocated 200 as balance.

Exceptions to Allocation
 Allocation of discounts (discussed later)
 Allocation of VC (VC that is promised in a contract may be attributable to the entire contract or a specific part of the contract.
An entity should allocate TP accordingly).

Allocating a Discount =Discount = Sum of the SA-SP (of each PO) > consideration payable.
Allocated on proportionate basis, unless there is observable evidence that the discount relates to one or more specific PO(s) after
meeting all of the following criteria:
 G/S (or bundle thereof) in the PO are regularly sold on a stand-alone basis, & at a discount
 Discount is substantially the same in amount to the discount that would be given on a stand-alone basis

Allocating variable consideration: VC is allocated entirely to a PO (or a distinct G/S within a PO), if both:
 Terms of the VC relate specifically to satisfying the PO (or transferring the distinct G/S within the PO)
 Allocation of VC is consistent with the principle that the TP is allocated based on what the entity expects to receive for
satisfying the PO (or transferring the distinct G/S within the PO)

Other Considerations
 TP > Sum of consideration = Assess if any other PO exists
 Non-refundable upfront fees (activation, joining, set-up, etc) Assess if related to a separate PO. No, allocate TP to PO ID’d.

Includes additional fees charged at (or near) the inception of the contract. Treatment dependents on whether the fee relates to the
transfer of G/S (i.e. a PO):
 If Yes: Revenue (as or when transferred)
 If No: Advance payment. Revenue recognition period may in some cases be longer than the contractual period if the customer
has a right to, & is reasonably expected to, extend/renew the contract.
STEP 5: RECOGNIZING REVENUE AS PERFORMANCE OBLIGATION IS
PERFORMED
G/S are assets, even if only momentarily, when they are received & used (as in the case of many services).

For each PO identified, entity shall determine at contract inception whether it satisfies the PO:
 over time; or
 at a point in time

Indicators of transfer of control

 Revenue is recognized when PO is satisfied i.e., when entity transfers G/S
 An asset is transferred when (or as) the customer obtains control of that asset.
- ability to direct the use of, & obtain substantially all of the remaining benefits from, the asset.
- ability to prevent other entities from directing the use of, & obtaining the benefits from, an asset.

Factors when assessing ToC: Not all factors need to be fulfilled, Judge if factors collectively indicate so. Use customer’s perspective.
 Entity has present right to payment for the asset
 Entity has physically transferred the asset
 Customer has legal title of the asset
 Customer has significant risks & rewards of ownership
 Customer acceptance of the asset

PO Satisfied Over Time:

Criteria Example
Customer simultaneously receives & consumes benefits Routine/Recurring services (cleaning or SW debug services,
provided by the entity’s performance as the entity performs. or teaching, training
If another entity would not need to substantially re-perform the
work already performed to satisfy the PO.
Entity’s performance creates or enhances an asset that the Providing interior designing & painting services at a
customer controls as the asset is created or enhanced (e.g. a customer’s premises.
WIP asset) could be tangible or intangible.; or
Entity’s performance doesn’t create an asset with an - Customized machine with contract preventing
alternative use to the entity & the entity has an enforceable direct/transfer to another customer.
right to payment for performance completed to date. - Customer having no right to terminate the contract unless
the entity fails to perform its obligations.
Consider nature of asset being created & entity’s right to be - Significant cost will need to be incurred to alter it to make
paid for work to date it saleable to another customer.
- Consultancy report for specialized nature assignments

Alternate use
 Assessment requires judgment & consideration of all facts & circumstances.
 An asset doesn’t have an alternate use if entity can’t practically / contractually redirect the asset to another customer, such as:
- Significant economic loss, i.e. through rework, or reduced sale price (practical)
- Enforceable rights held by the customer to prohibit redirection of the asset (contractual).
 Whether or not the asset is largely interchangeable with other assets produced by the entity should also be considered in
determining whether practical or contractual limitations occur.

Enforceable right to payment

 Consider both the specific contractual terms & any applicable laws or regulations.
 Entity must be entitled to compensation that approximates the SP of the G/S transferred to date (other than due to its own failure to
perform as promised).
 Profit margin does not need to equal the profit margin expected if the contract was fulfilled as promised. For example, it could be a
proportion of the expected profit margin that reflects performance to date.
 Payment only covering cost/loss is not considered a right to payment.

METHODS OF MEASURING PROGRESS

 Output methods:
- units produced / delivered,
- contract milestones,
- survey of work performed.
- appraisal of results achieved
- time lapsed
 Input methods: (exclude costs not representing seller’s performance)
- costs incurred,
- labour hours expended,
- machine hours worked
- resources consumed
- time elapsed
 Other methods
- Practical expedient right to invoice : If right to consideration is an amount that corresponds directly with values transferred to
customer to date. Market prices or SA-SP or Other evidence can be used to know the amount if it corresponds with the invoiced
value.
- Time-based method: When a PO is satisfied over a period of time OR a stand-ready obligation to perform over-time
- Straight-line recognition: If services are available throughout the time or at customer’s discretion. E.g., gym, retained
consultant/lawyer, streaming subscription

Recognizing revenue at a point in time: If the criteria for recognizing revenue over time are not met. Recognise at the point in time at
which the entity transfers control of the asset to the customer. Factors listed above

If Unable to Measure Progress: In some circumstances (e.g., in the early stages of a contract), an entity may not be able to reasonably
measure the outcome of a PO, but the entity expects to recover the costs incurred. Recognise revenue only to the extent of the costs
incurred until such time that it can reasonably measure the outcome of the PO.
CONTRACT COSTS

Incremental cost of obtaining contract

 Costs that if not incurred would not result in getting the contract (e.g., sales commission)
 Only recognize when entity expects recovery
 Costs that would regardless be incurred, should not be capitalized unless they can be recovered from the customer

Cost to fulfil a contract

If not within the scope of another IFRS, recognize as an asset only if they meet ALL following criteria
 Are specifically identifiable & directly relate to the contract (e.g. D. labor, D. materials, OH allocations of directly related cost,
explicitly on-charged costs, other unavoidable costs (e.g. sub-contractors)
 Create (or enhance) resources of the entity that will be used to satisfy PO(s) in the future, &
 Are expected to be recovered

Costs to be Expensed
 If the amortization period of the asset that the entity would otherwise would have recognized is =< 1 year
 General & administrative expenses (unless explicitly chargeable to customer)
 Wastage, scrap & other (unanticipated) costs not incorporated into pricing the contract
 Costs related to (or can’t be distinguished from) past POs.

Amortization & impairment of contract assets

 Contract Asset & Receivable Asset are subject to impairment review
 Cost Capitalized: Amortization on a systematic basis consistent with the pattern of transfer of the G/S to which the asset relates
 Update the amortization to reflect a significant change in timing of transfer to customer (change in estimate)
 Imp. Loss to the extent that CA > Net Incremental benefit (remaining exp. Benefits less remaining cost to be incurred)
 Imp. Loss can be reversed
COMMON TYPES OF TRANSACTIONS
i. Principal VS Agent Indicators
- Entity is primarily responsible for fulfilling promise
- Entity has inventory risk
- Entity has discretion n establishing price

ii. Layaway Sales

- Sales on installment basis
- Record as revenue if:
a) History shows recovery
b) Significant deposit received
c) Goods are on hand; and
d) Ready for delivery

iii. Consignment Arrangements: If 3rd party (ultimate buyer) does not take control of it (sale is not made)
- NO revenue recorded
- NO COS recorded
- Inventory remains in the books

iv. Bill & Hold Arrangements: Determine if control is transferred by considering the following;
- Reason must be substantive
- Product must be separately identifiable belong to the customer
- Ready for physical delivery can’t have ability to sue r transfer
- Must have been kept at customer’s request
 Holding is treated as a separate PO

v. Warranties
 Standard/Assurance Warranty (IAS 37):
- Nature of tasks (warranty that it will function properly)
- Customer has no option to purchase it separately
- Required by law
- Length
- Complies with agreed-upon specifications
 Additional/Service type warranty (IFRS 15):

vi. Sales with Right to Return

 Record
- Revenue for expected sales and not for sales expected to be returned
- Refund liability (for expected returns)
- Asset (and corresponding adjustments to COS) for right to recovery on settling liability
 If seller uncertain about return then record Refund Liability until uncertainty removed.

vii. Sale and Repurchase: Not a sale but a loan/financing arrangement

A. Obligation to repurchase (forward)
B. Right to repurchase (call)
C. Must repurchase if customer requests (put)

A or B, customer doesn’t obtain control. Account for

- IFRS 16 if RP < SP
- IFRS 9 if RP=> SP. Record asset & corresponding liability

C, consider if customer will exercise option.

- Record cash as loan, continue to record asset & calculate depreciation normally.
- If entity does not buy it back, credit the asset & related accounts.

If RP<SP=outright sale (customer won’t sell for lower price)

If RP<SP (record under IFRS 16)
If RP=>SP & > Exp. Market value of the option at the date of repurchase, treat as loan & continue to record asset, as client would be
interested in selling it for higher price than the MV.