As entities and groups using the international accounting framework leave the old regime behind, let’s look at the more prescriptive new standard. Changes, which include replacing the concept of transfer of ‘risks and rewards’ with ‘control’ and the introduction of ‘performance obligations’ alongside extensive disclosures, are likely to put more pressure on accountants and auditors to closely evaluate client contracts and challenge directors' judgements. However, if certain conditions are met, they can be allocated to one or more separate performance obligations. This is likely to be the case where there are long-term arrangements with multiple performance obligations such that goods or services are delivered and cash payments received throughout the arrangement. For this, we need Summaries of IAS and IFRS to … FR F7. ACCA P2 IFRS 15 Revenue from Contracts with Customers (2) Free lectures for the ACCA P2 ACCA BT F1 MA F2 FA F3 LW F4 Eng PM F5 TX F6 UK FR F7 AA F8 FM F9 SBL SBR INT SBR UK AFM P4 APM P5 ATX P6 UK AAA P7 INT AAA P7 UK. Variable consideration should be estimated as either the expected value or the most likely amount. IFRS 15 Revenue from Contracts with Customers is published by the International Accounting Standards Board (IASB). Revenue Recognition - IFRS 15 - introduction 29 / 41 Question 5a i - June 2017 Sample You are a manager at Thyme & Co, a firm of Chartered Certified Accountants. Discounts and variable consideration will typically be allocated proportionately to all of the performance obligations in the contract. From 1 January 2018 all companies applying IFRS must adopt IFRS 15. This follows the accruals concept, matching costs incurred to revenue generated on the contract. In this case servicing and warranties are performance obligations that are distinct and revenue relating to them needs to be recognised separately from the goods or services promised on the contract to which they relate. Step two requires the identification of the separate performance obligations in the contract. It’s ACCA IFRS 15 technical resource, an illustrative example. IFRS 15 requires a series of distinct goods or services that are substantially the same with the same pattern of transfer, to be regarded as a single performance obligation. This new standard revolutionises the way that companies look at their revenue and can impact on the timing and amount of revenue that is recognised. Free sign up Sign In. ACCA BT F1 MA F2 FA F3 LW F4 Eng PM F5 TX F6 UK FR F7 AA F8 FM F9 SBL SBR INT SBR UK AFM P4 APM P5 ATX P6 UK AAA P7 INT AAA P7 UK. How should a promised good or service be identified? Several accounting pronouncements, including IAS 18 Revenue, have been superseded by the new IFRS 15 Revenue from Contracts with Customers. ACCA IFRS 15 Revenue from contracts with customers - YouTube The global body for professional accountants, Can't find your location/region listed? IFRS 15, Revenue from Contracts with Customers 3 IFRS 15, Revenue from Contracts with Customers Table of Contents Title of Paper Page(s) Accounting for Airline’s Brand and Customer Lists 4-5 Accounting for Contract Costs - Commissions and Selling Costs 6-7 Accounting for Passenger Taxes & Related Fees 8 Ancillary Services 9-13 Change Fees 14-17 Revenue Recognition - IFRS 15 - 5 steps from past papers in ACCA FR (F7). Cert. the asset is manufactured to specific specifications or delivery time, meaning that from the point of commencement of asset creation, it is clear the asset is for a specific customer, the entity cannot practically or contractually sell the asset to a different customer as it would be practically and contractually prohibitive (for example would require a costly rework, selling at a reduced price, or if customer can prohibit redirection), no such practical or contractual limitations would apply if the entity production is that of identical assets in bulk, and those assets are interchangeable. The residual approach is different from the residual method that is used currently by some entities, such as software companies. IFRS 15 will require their separation. From January 2018, IAS 18 will be replaced by IFRS 15. ACCA CIMA CAT DipIFR Search. Contact information for your local office, Virtual classroom support for learning partners. Accounting for non-current assets. Contract can have a written and non-written form or be implied (contract may not be limited to goods or services explicitly mentioned in a contract, but also include those expected to be delivered due to business practices or statements made), Should be approved by parties, and have a commercial basis, Should create enforceable rights and obligations between parties, Should have a consideration established taking into account ability and intention to pay, Could result in retrospective or prospective adjustments to an existing contract, creation of a new contract alongside the old contract, or a termination of the original contract and creation of a new contract. Contract – An agreement between two or more parties that creates enforceable rights and obligations. If it is not appropriate to include all of the variable consideration in the transaction price, the entity should assess whether it should include part of the variable consideration. An entity satisfies a performance obligation by transferring control of a promised good or service to the customer, which could occur over time or at a point in time. In other cases, it could be difficult to determine whether a significant financing component exists. IFRS 15 Revenue from Contracts with Customers — Your Questions Answered. If an entity anticipates that it may ultimately accept an amount lower than that initially promised in the contract due to, for example, past experience of discounts given, then revenue would be estimated at the lower amount with the collectability of that lower amount being assessed. The five-step model applies to revenue earned from a contract with a customer with limited exceptions, regardless of the type of revenue transaction or the industry. What is the meaning of IFRS 15? Experience in forming professional judgement on the practical application of IFRS; In-depth training on the new revenue and leasing standards (IFRS 15 and IFRS 16) with industry-specific illustrations; An overview of the differences between IFRS and Ind AS *On successful completion of the examination conducted by the ACCA independently. Each party’s rights in relation to the goods or services have to be capable of identification. Identification of contract. ACCA CIMA CAT DipIFR Search. Objective: The objective of IFRS 15 is to establish the principles that an entity shall apply to report 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. The views expressed are those of the author and do not necessarily reflect the views of UNCTAD. The vendor’s performance creates an asset, when: Capitalisation of costs associated with a sale contract (for example bidding costs, sales commission). If an entity does not satisfy its performance obligation over time, it satisfies it at a point in time and revenue will be recognised when control is passed at that point in time. Please visit our global website instead, Can't find your location listed? Acowtancy. When a contract contains more than one distinct performance obligation, an entity allocates the transaction price to each distinct performance obligation on the basis of the standalone selling price. Step one in the five-step model requires the identification of the contract … Services or construction Contracts expected value or the most likely amount represents the most amount. Meaning of IFRS 15 revenue from Contracts with Customers — your Questions Answered arises as a consequence the... An asset that the customer is often referred to as ‘ unbundling ’, and made. 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