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 Revenue from Contracts
with Customers
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Learning Objectives
Revenue from Contracts
with Customers
• State the five steps in the recognition of revenue.

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• Describe how performance obligations are identified in a contract.
• Describe how the transaction price is determined and how it is allocated to the
performance obligations.4 5 6 X
• State the timing of revenue recognition and its measurement.

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• State the presentation of contracts with customers in the statement of financial
position

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 Revenue from Contracts
with Customers
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Income vs. Revenue
Revenue from Contracts
with Customers
• The Conceptual Framework provides the following definitions:
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• Income – increases in economic benefits during the accounting period in
the form of inflows or enhancements of assets or decreases of liabilities
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that result in increases in equity, other than those relating to contributions

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from equity participants. Income encompasses both revenue and gains.
• Revenue – income arising in the course of an entity’s ordinary activities.
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 Revenue from Contracts
with Customers
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 Revenue from Contracts
• PFRS 15 supersedes the following standards:
• PAS 18 Revenue;
with Customers
• PAS 11OFF 7Contracts;8
Construction 9 ÷
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• IFRIC 13 Customer Loyalty Programmes;
X
• IFRIC 15 Agreements for the Construction of Real Estate;

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• IFRIC 18 Transfers of Assets from Customers; and
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• SIC-31 Revenue - Barter Transactions Involving Advertising Services.
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 Revenue from Contracts
with Customers
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Applicability
Revenueof from Contracts
PFRS
PFRS 15 shall be
15with Customers
applied to contracts wherein the
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counterparty is a customer.
• OFF 9 ÷more parties
Contract – An agreement between two or
that creates enforceable rights and obligations. A
contract can be 5 oral, or6 impliedXby an entity’s
4 written,
customary business practice.
CE – A1party that
• Customer 3
2 has contracted +with an entity
to obtain goods or services that are an output of the
ON
entity’s ordinary = for consideration.
0 activities. in exchange -
Applicability
Revenueof from Contracts
PFRS 15 shall notwith Customers
PFRS 15 be applied to the following:
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• Lease contracts (PAS 17 Leases);
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Insurance contracts (PFRS 4 Insurance Contracts);
• Financial instruments; and
• Non-monetary4exchanges5 between6 entitiesX in the same
line of business to facilitate sales to customers. For
CE PFRS
example, 3
1 15 is2not applicable +
to a contract
between two oil companies that agree to exchange oil to
customer0 demands
fulfil ON =
. in different -
locations on a
timely basis.
 Revenue from Contracts
with Customers
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CORE PRINCIPLES
Revenue from Contracts
• An entity
with Customers
recognizes revenue to depict the transfer of
promised goods or services to customers÷
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that reflects 4 5 6 to which
the consideration X the entity
expects to be entitled in exchange for those goods or
CE
services.
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 Revenue from Contracts
with Customers
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Steps inRevenue
the recognition
from Contractsof
with
theCustomers
revenue
PFRS 15 requires following steps in recognizing
revenue:
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Step 1: Identify the contract with the customer
• Step 2: Identify the performance obligations in the
contract 4 5 6 X
• Step 3: Determine the transaction price
• StepCE 1
4: Allocate the 3
2 transaction + to the
price
performance obligations in the contract
• StepON 0 revenue
5: Recognize . = (or as)
when - the entity
satisfies a performance obligation
 Revenue from Contracts
with Customers
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4 5 6 X

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Step 1: Identify
Revenue the fromcontract
Contracts with the
with
Requirements before Customers
customer
a contract with a customer is
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accounted for under PFRS 15:
9 ÷
a. The contract must be approved and the contracting
parties are committed to it;
4 terms
b. rights and payment 6
5 are identifiable;
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c. The contract has commercial substance; and
CE 1 is probable
d. The consideration 2 3 collection.
of +
= is recognized
No revenue is recognized if the contract does not meet the
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criteria above. Any .
0consideration received - as
liability.
 Revenue
Step 2: Identify thefrom Contracts obligations
performance
with
Each promise in ain
Customers
the to
contract contract
transfer a distinct good or
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service is treated as a separate performance obligation.

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dentifying distinct
Revenue fromgoods or services
Contracts
with Customers
A good or service is distinct if:

÷
(a)the customer can benefit from it, either on its own or
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together with other resources that are readily available to the
customer (e.g., the good or service is regularly sold separately);
and
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(b)the good or service is separately identifiable (i.e., not an
input to a combined output, does not significantly modify the
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other promises, or not highly interrelated with the other
promises).
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A good or service that is not distinct shall be combined with the
other promises in the contract. Combined promises are treated as a
single performance obligation.
Step 3: Determine the transaction
Revenue from Contracts
with
• The entity shall Customers
price
determine the transaction price
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measured. 7 8 9 ÷
because this is the amount at which revenue will be

• Transaction4 6 of consideration
price is5“the amount X to
which an entity expects to be entitled in exchange for
1
CE promised
transferring goods or3
2 + a customer,
services to
excluding amounts collected on behalf of third parties
(e.g.,ON
some sales =
0 taxes).”.The consideration- may include
fixed amounts, variable amounts, or both.
Step 4: AllocateRevenuethe
from transaction
Contracts price to
the performance
with Customers obligations
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The transaction 9 to each÷ performance
7 shall 8be allocated
obligation identified in a contract based on the relative stand-

transferred.
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alone prices of the distinct goods or services promised to be

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The stand-alone selling price is the price at which a promised good
or service can be sold separately to a customer.
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EstimatingRevenue
the stand-alone selling price
from Contracts
with Customers
If the stand-alone selling price is not directly observable, the entity shall

÷
estimate it using one or a combination of the following methods:
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• Adjusted market assessment approach – the entity evaluates the
market in which it sells goods or services and estimates the price that a

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customer in that market would be willing to pay for those goods or services.
• Expected cost plus a margin approach – the X entity forecasts its
expected costs of satisfying a performance obligation and then add an

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appropriate margin for that good or service.
3 +
• Residual approach – the entity estimates the stand-alone selling price as
the total transaction price less the sum of the observable stand-alone
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selling prices of other goods or services promised in the contract.
Step 5: Recognize
Revenue from revenueContractswhen (or as)
the entity satisfies
with Customers a performance
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A performance 8satisfied9when the÷control over
7obligation
is
a promised good or service is transferred to the customer.
4 at5the amount
Revenue is measured 6 of theX transaction
price allocated to the satisfied performance obligation.
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Performance obligations are classified into the following:
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1. Performance obligation that is satisfied over time
2. Performance obligation that is satisfied at a point in time
Performance Revenue obligations
from Contracts satisfied over
For a performance obligation that is satisfied over time, revenue is recognized
with
over time AS the entity time
Customers
progresses towards the complete satisfaction of the

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obligation.
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A performance obligation is satisfied over time if one of the following criteria is
met:
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a. The customer simultaneously receives and consumes the Xbenefits provided
by the entity’s performance as the entity performs.

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controls as the asset is created or enhanced. +
b. The entity’s performance creates or enhances an asset that the customer

c. The entity’s performance does not create an asset with an alternative use to

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the entity and the entity has an enforceable right to payment for
performance completed to date.
 Measuring progress
Revenue fromtowards
Contractscomplete
satisfaction ofwith a performance
Customers obligation
For eachOFF 7
performance 8
obligation 9
satisfied ÷
over time,
recognize revenue over time by measuring the progress
an entity shall

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towards complete satisfaction of that performance obligation.
Examples of acceptable measurement methods: X
1. Output methods (e.g., surveys of work performed)
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2. Input methods (e.g., relationship between costs incurred to
date and total expected costs)

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If efforts or inputs are expended evenly throughout the
performance period, revenue may be recognized on a straight-
line basis.
 Revenue from Contracts
with Customers
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 Cost-recovery Approach
Revenue from Contracts
• If the outcome of a performance obligation cannot be
with Customers
reasonably measured, revenue shall be recognized only
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to the extent of 8
7 costs incurred 9 ÷
that are expected to be
recovered.
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Performance obligations
Revenue from Contracts satisfied at a
• A performance point
with inthattime
Customers
obligation is not satisfied over time is
OFFto be7satisfied8at a point9in time.÷
presumed
• For a performance obligation that is satisfied at a point
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in time, revenue is recognized WHEN the performance
1
CE is satisfied.
obligation 2 3 +
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 Contract
Revenue from costs
Contracts
Contract costs include the following:
with Customers
(a)Incremental costs of obtaining a contract – recognized
as asset 8
7 are recoverable
OFFif they ÷
9 and avoidable. As a
practical expedient, the costs are recognized as expense
5 period
4 amortization
if their expected 6 is 1 yearX or less.
(b)Costs to fulfill a contract –if within the scope of PFRS
15, they
CE are
1
recognized2 as asset3if they
+
are: (a) directly
related to a contract, (b) generate or enhance resources,

0
and (c) recoverable.
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 RevenuePresentation
from Contracts
A contract where either party has performed is presented in the
with
statement of financial Customers
position as a contract liability, contract asset
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or receivable.
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Contract liability – is an entity’s obligation to transfer goods or

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services to a customer for which the entity has received
4 X
consideration (or the amount is due) from the customer.
Contract asset – is an entity’s right to consideration in exchange
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for goods or services that the entity has transferred to a customer
when that right is conditioned on something other than the passage
of time.
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Receivable – is an entity’s right to consideration that is
unconditional.
 ADDITIONAL
Revenue fromCONCEPTS
Contracts
Concepts related to Step 2 (Identifying the performance
obligations) with Customers
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A warranty that provides the customer service in addition to assurance that
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the product complies with agreed-upon specifications is a performance
obligation. A warranty required by law is not a performance obligation.

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An option granted to a customer to acquire additional goodsXor services is a
performance obligation if it gives the customer a material right.

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Non-refundable upfront fee is a performance obligation only if it relates to
the transfer of goods or services. It is not a performance obligation if it relates

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to administrative tasks to set up a contract. In the latter case, the non-
refundable upfront fee is treated as a prepayment and recognized as revenue
only when the related goods or services are transferred to the customer.
 ADDITIONAL
Revenue fromCONCEPTS
Contracts
Concepts related to Step 3 (Determining the transaction
price) with Customers
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Discounts are allocated to all of the performance obligations,
unless it is clear that the discount relates only to some, but not all,

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of those obligations.
4
In a sale with right of return, the entity does X not recognize
revenue from goods that are expected to be returned. An asset
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(and corresponding adjustment to cost of sales) is recognized for
the entity’s right to recover products from the customer on settling
the refund liability.
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 ADDITIONAL
Revenue fromCONCEPTS
Contracts
Concepts related to Step 3 (Determining the transaction
price) with Customers
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Discounts are allocated to all of the performance obligations,
unless it is clear that the discount relates only to some, but not all,

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of those obligations.
4
In a sale with right of return, the entity does X not recognize
revenue from goods that are expected to be returned. An asset
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(and corresponding adjustment to cost of sales) is recognized for
the entity’s right to recover products from the customer on settling
the refund liability.
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 ADDITIONAL
Revenue fromCONCEPTS
Contracts
Concepts related to Step 3 (Determining the transaction price) -
continuation with Customers
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A non-cash consideration is ÷ at:
9measured
a. fair value; or
5 at the
b. if fair value is4not available, 6 sellingX price of the
good or service promised to be transferred to the
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customer. 2 3 +
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 OPEN FORUM

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 Thank you!!!!!!!!!

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