IFRS 15 | Revenue from Contracts with Customers

1

Objective

The objective is to establish principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer.

2

Core Principle

The core principle is that an entity shall recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

3

Application

An entity considers terms of the contract and all relevant facts and circumstances. The standard is applied consistently to contracts with similar characteristics and in similar circumstances.

4

Portfolio Approach

As a practical expedient, the standard may be applied to a portfolio of contracts with similar characteristics if the entity reasonably expects the financial statement effects would not differ materially from applying it to individual contracts.

5

Scope

The standard applies to all contracts with customers except leases (IFRS 16), insurance contracts (IFRS 17), financial instruments and other rights/obligations within the scope of IFRS 9, IFRS 10, IFRS 11, IAS 27, and IAS 28, and non-monetary exchanges between entities in the same line of business to facilitate sales.

6

Customer Definition

A customer is a party that has contracted with an entity to obtain goods or services that are an output of the entity's ordinary activities in exchange for consideration.

9

Contract Criteria

A contract is accounted for under IFRS 15 only if: the parties have approved it; rights regarding goods/services can be identified; payment terms can be identified; it has commercial substance; and it is probable the entity will collect the consideration.

10

Contract Definition

A contract is an agreement creating enforceable rights and obligations. Enforceability is a matter of law. Contracts can be written, oral, or implied by customary business practices.

12

Non-existent Contract

A contract does not exist if each party has the unilateral enforceable right to terminate a wholly unperformed contract without compensating the other party.

15

Consideration Received

If a contract does not meet the criteria in paragraph 9 and consideration is received, revenue is recognised only when the entity has no remaining obligations and consideration is non-refundable, or the contract is terminated and consideration is non-refundable.

17

Combination

Contracts entered into at or near the same time with the same customer are combined if negotiated as a package with a single commercial objective, consideration in one depends on the other, or goods/services promised are a single performance obligation.

18

Modifications

A contract modification is a change in scope or price (or both) approved by the parties. It exists when parties approve a modification that creates or changes enforceable rights and obligations.

20

Separate Contract

A modification is accounted for as a separate contract if the scope increases because of distinct goods/services and the price increases by an amount reflecting their stand-alone selling prices (adjusted for contract circumstances).

21

Other Modifications

If not a separate contract, the modification is accounted for by terminating the old and creating a new contract (if remaining goods are distinct) or as part of the existing contract (if remaining goods are not distinct, typically using a cumulative catch-up adjustment).

22

Performance Obligations

At inception, the entity assesses goods or services promised and identifies as a performance obligation each promise to transfer a good or service (or bundle) that is distinct, or a series of distinct goods or services that are substantially the same and have the same pattern of transfer.

26

Distinct Goods

Promised goods or services may include sale of produced goods, resale of purchased goods, resale of rights, performing tasks, standing ready to provide service, arranging for another party to transfer goods, granting rights to future goods, constructing assets, granting licences, and granting options.

27

Distinct Criteria

A good or service is distinct if the customer can benefit from it on its own or with readily available resources, and the entity's promise to transfer it is separately identifiable from other promises in the contract.

29

Separately Identifiable

Factors indicating promises are not separately identifiable include: the entity provides a significant integration service; the good or service significantly modifies or customises another good or service; or the goods or services are highly interdependent or interrelated.

31

Satisfaction

Revenue is recognised when (or as) the entity satisfies a performance obligation by transferring a promised good or service (asset) to a customer. An asset is transferred when the customer obtains control.

33

Control

Control is the ability to direct the use of, and obtain substantially all remaining benefits from, the asset. Benefits include potential cash flows (inflows or savings).

35

Over Time

A performance obligation is satisfied over time if: the customer simultaneously receives and consumes benefits as performed; the performance creates/enhances an asset the customer controls; or the performance does not create an asset with alternative use and the entity has an enforceable right to payment for performance completed.

38

Point in Time

If not satisfied over time, it is satisfied at a point in time. Indicators of control transfer include present right to payment, legal title, physical possession, significant risks and rewards of ownership, and customer acceptance.

39

Measuring Progress

For obligations satisfied over time, revenue is recognised by measuring progress towards complete satisfaction. Methods include output methods and input methods.

47

Transaction Price

The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services, excluding amounts collected on behalf of third parties.

50

Variable Consideration

If consideration includes a variable amount, the entity estimates the amount to which it will be entitled. Variability arises from discounts, rebates, refunds, credits, incentives, bonuses, penalties, etc.

53

Estimation Methods

Variable consideration is estimated using either the expected value (sum of probability-weighted amounts) or the most likely amount (single most likely outcome), depending on which better predicts the amount.

56

Constraint

Variable consideration is included in the transaction price only to the extent that it is highly probable that a significant reversal in cumulative revenue recognised will not occur when the uncertainty is resolved.

60

Financing Component

The transaction price is adjusted for the time value of money if the timing of payments provides the customer or entity with a significant benefit of financing.

63

Practical Expedient

An entity need not adjust for a significant financing component if the period between transfer of the good/service and payment is one year or less.

66

Non-cash Consideration

Non-cash consideration is measured at fair value. If not reasonably estimable, it is measured indirectly by reference to the stand-alone selling price of the goods or services promised.

70

Payable to Customer

Consideration payable to a customer is accounted for as a reduction of the transaction price unless it is in exchange for a distinct good or service received from the customer.

73

Allocation

The transaction price is allocated to each performance obligation (or distinct good/service) in an amount depicting the consideration to which the entity expects to be entitled in exchange for transferring it.

74

Allocation Basis

Allocation is generally based on relative stand-alone selling prices determined at contract inception.

76

Stand-alone Selling Price

The price at which an entity would sell a promised good or service separately to a customer. The best evidence is the observable price of a good or service sold separately in similar circumstances.

79

Estimation of Price

If not directly observable, the stand-alone selling price is estimated. Methods include adjusted market assessment, expected cost plus a margin, and residual approach (only under specific criteria).

81

Discounts

A discount is allocated proportionately to all performance obligations unless observable evidence suggests it relates to only one or more specific obligations.

87

Price Changes

Subsequent changes in the transaction price are allocated to performance obligations on the same basis as at contract inception. Amounts allocated to satisfied obligations are recognised as revenue (or reduction) in the period of change.

91

Incremental Costs

Incremental costs of obtaining a contract are recognised as an asset if the entity expects to recover them. These are costs that would not have been incurred if the contract had not been obtained.

94

Expense Expedient

As a practical expedient, incremental costs of obtaining a contract may be expensed if the amortisation period of the asset would be one year or less.

95

Costs to Fulfil

Costs to fulfil a contract are recognised as an asset if they relate directly to a contract (or anticipated contract), generate or enhance resources used in satisfying performance obligations, and are expected to be recovered, provided they are not within the scope of another standard.

99

Amortisation

An asset recognised from contract costs is amortised on a systematic basis consistent with the transfer to the customer of the goods or services to which the asset relates.

105

Presentation

When a party has performed, the contract is presented as a contract asset or contract liability depending on the relationship between performance and payment. Unconditional rights to consideration are presented separately as receivables.

110

Disclosure Objective

The objective is to disclose sufficient information to enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

113

Revenue Disaggregation

An entity shall disaggregate revenue recognised from contracts with customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

116

Contract Balances

Disclosures include opening and closing balances of receivables, contract assets and contract liabilities, revenue recognised from opening contract liabilities, and revenue from performance obligations satisfied in previous periods.

119

Performance Info

Disclosures include description of typical timing of satisfaction, significant payment terms, nature of goods/services, obligations for returns/refunds, and warranties.

120

Remaining Performance

An entity discloses the aggregate transaction price allocated to unsatisfied performance obligations and an explanation of when it expects to recognise that amount as revenue.

123

Judgements

An entity discloses significant judgements and changes in judgements made in applying the standard, particularly regarding timing of satisfaction of performance obligations and determination/allocation of transaction price.

124

Defined Terms

• contract: An agreement between two or more parties that creates enforceable rights and obligations.
• contract asset: An entity's right to consideration in exchange 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 (for example, the entity's future performance).
• contract liability: An entity's obligation to transfer goods or services to a customer for which the entity has received consideration (or the amount is due) from the customer.
• customer: A party that has contracted with an entity to obtain goods or services that are an output of the entity's ordinary activities in exchange for consideration.
• income: Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in an increase in equity, other than those relating to contributions from equity participants.
• performance obligation: A promise in a contract with a customer to transfer to the customer either: (a) a good or service (or a bundle of goods or services) that is distinct; or (b) a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer.
• revenue: Income arising in the course of an entity's ordinary activities.
• stand-alone selling price: The price at which an entity would sell a promised good or service separately to a customer.
• transaction price: The amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.