delivery of handset), or at the point of time (e.g. Hi Silvia, thanks a lot for this article whiwh indeed clarifies a lot of the compexity IFRS 15 is bringing along. ILLUSTRATIVE EXAMPLES (available on the AASB website) BASIS FOR CONCLUSIONS ON IFRS 15 (available on the AASB website) AASB 15 5 CONTENTS Australian Accounting Standard AASB 15 Revenue from Contracts with Customers is set out in paragraphs 1 – 129 and Appendices A – C. All the Please check your inbox to confirm your subscription. 0000031992 00000 n Hello, Hi Sylvia, post implementation support). @5 On the other hand I love to attend such conference however it s to far for me living in the Middle East if you have any intention to re do such conference in the Middle East please keep me posted if gift voucher has no expiry period, then you account for its sale as Debit Cash/Credit Contract Liability; and when someone pays you for goods with that voucher, then Debit Contract Liability/Credit Revenue from Sale of goods. Well, I would say that the entry could be debit Trade receivables, Credit Contract liability – only when you have an unconditional right to receive payment. 0000036987 00000 n IFRS For Dummies Cheat Sheet (UK Edition) - dummies IFRS For Dummies is your complete introduction to IFRS and international accounting and balancing standards. thanks. Example: Telecom and individual performance obligations: please refer here. Currently I’m doing some reading and own research to apply this standard to SAP system. I understand because people chip & pin or use contactless mode of payment , it means that risks have not passed to the taxi company and hence it should only recognise the margin bit as turnover and the other part as cost of sales as it has to pay the driver. This activity also includes the establishment of a transition resource group (TRG), which brings companies, auditors and regulators together in a public forum to discuss questions about implementing IFRS 17. Hi Henk, However, IFRS 15 requires capitalizing them and recognizing them in profit or loss in line with revenue recognition. Total transaction price to allocate after the contract modification is: We need to allocate CU 680 000 to 400 computers in total (200 undelivered before contract modification + 200 additional computers), which means that Ball PC allocates CU 1 700 to one computer (680 000/400). report "Top 7 IFRS Mistakes" + free IFRS mini-course. 1. S. Thank you madam for prompt responses to my this query and the other post in the section related to difference between fair value hedge and cash flow hedge accounting. IFRS 17 is the newest IFRS standard for insurance contracts and replaces IFRS 4 on January 1st 2022. It was adopted in 2014 and became effective in January 2018. Hi Silvia, We signed agreement with government (50) years to rent a land @ annual rent of $(803.000). Under IAS 18, many telecom operators provided free handsets to customers and treated them as “marketing costs”, or costs to obtain a client. You have said it very precisely: each contract has its own characteristics and this was just an example. To help you drive your implementation project to the finish line, we’ve pulled together a list of key considerations that many banks need to focus on. RE Construct enters into 2 contracts with 2 different clients (A and B). 0000014962 00000 n Also note, that under IAS 11, you would probably account for both contracts in the same way (as for contract B), but NOT under IFRS 15. Of course, you need to perform your analysis and I tell you – your conclusion might be pretty different from this example, based on specifics in the contract. All the best! So we manufacture plastics and for that we have a tool, Believe me, here, we are just skimming the surface and there’s a lot more to analyze, assess, plan and implement. The lease liability shall be recognised at the present value of future lease payments and the right of use asset shall be an equal amount adjusted for initial direct costs and restoration costs. The payment schedule is as follows: Assumed period of construction is 2 years from the date of contract. Please assist to advise on revenue recognition on internet based company where visitors are the Source of Income? S. Hi Silvia, 30�Å�jA��l�0�8\� �F0P�ځP Total revenue in the year 20X1 is therefore CU 794 000 – exactly as under IAS 18. If you assess these services are distinct, you would do similarly as with the above telecom example (separately for mobile at its delivery, separately for network services as they are provided). Payments against this delivery will be on agreed payment terms. Dear Maria, yes, penalty is a variable consideration, so make sure you adjust the total transaction price and then the allocation to the remaining POs and revenue recognition. By definition of revenue in line with IAS 18, the revenue for the delivery is simply accounted at the time of delivery, in the fair value of consideration received for the computers – which is whatever amount under 2 above scenarios. I would argue that as the product is under development and there appears to be no contractual obligations for the client to pay work in progress fees that none of the 3 apply and revenue would only be recognised at the point of final delivery? Also, the specific calculation will strongly depend on what you have in your own contracts and how your own calculations, systems and estimates work. Hi Silvia, Actually I’m a bit confused on this “over time” and “at a point in time” thingy. My company facing same issue with you, do you find out a solution/ answers? Let’s say that ManyBits calculates the stage of completion based on costs incurred for fulfilling the contract. would you have a hint where to find such examples (books, articles…)? in relation to your questions: Your article made it so clear and so helpful. Transhipment where goods will be shipped to the buyer’s customer. I have no idea if the installation is the long-term process (hence this would probably be revenue recognized over time based on the progress to completion), whether machine and installation are separate performance obligations or one obligation, etc. A/R or bank – DR-100 When should revenue be recognised when: Hi silvia, IFRS 15 contains guidance for transactions not previously addressed (service revenue, contract modifications); IFRS 15 improves guidance for multiple-element arrangements; IFRS 15 requires enhanced disclosures about revenue. But when they finally started, it was painful. �* ,E�i�8TwH}��������Y,d���G�� �gm���=Bl�ǟ)����U����e-ɗ��2�h��H��=R���e�|�JE��:N!��&��$#�9���bSߋD��yFl-�X�9Q��k����b�k�C�G��$�+*a��1���U� KP����U����qIk��4(&Ĝ.���X�y[{H. If considered cost of acq a customer maybe this could be capitalised under ias 18 instead of being expensed. 2 years subscription plan).”, Kindly assist to advise. Combining all the facts needed to understand this complex subject with useful examples, this easy-to-read guide will have you on top of IFRS … I would think the performance obligation is done when the advertisement in the magazine is distributed in the market, but the consumption of the advertiser will be across Apr to June 2019. Every company must follow the five-step model in order to comply with IFRS 15. If there are goods bought specific to the contract and they are in transit or in the warehouse not delivered to site, is this considered as cost incurred? S. Thank you so much for your article. Moreover, the applicable date of this standard will be postponed by 1 year. That was an error at uploading the post, I made a correction. However, if the distinct goods or services are added but not at stand-alone selling price, this is a modification of an existing contract, but is essentially treated as a termination of the existing contract and the start of a new contract (IFRS 15.21(a)) as it is treated prospectively. IFRS 15 is an International Financial Reporting Standard (IFRS) promulgated by the International Accounting Standards Board (IASB) providing guidance on accounting for revenue from contracts with customers. S. Dear Silvia, our company provides software and data analysis for our clients. But – it’s up to YOU to analyze, make a plan and implement carefully. In May 2014, almost 12 years since the work begun, the new standard on revenue recognition IFRS 15 Revenue from Contracts with Customers was published. For real estate companies it will be crucial to assess whether the property developer has an enforceable right to payment for performance completed to date or not. 0000037602 00000 n aaaa, that’s a mistake It happens Even my reviewer did not notice. In the year 20X1, ManyBits measures the progress towards the completion of the performance obligation separately, based on inputs for the fulfilling the contract (costs in this case). Best regards �Cp��Uj�0�T����r�"���p�9���~��vR��Z����&�9�ق�vfc8�Y��F��UJ�_F��D�?g���������������a8�DW��p[3�������(X@�!�kM=�K��S@ES�Q\I%��D��@y�Ckqj+:�@��h�v�+ IFRS 15 Examples: How IFRS 15 affects your company - this article explains how certain industries (telecom, real estate and others) are affected by IFRS 15.; Example: Construction contracts under IFRS 15 … It would be different if you offer one dish today and one voucher for free dish in the future time. 0000047941 00000 n 0000031894 00000 n 0000060427 00000 n 0000062929 00000 n under licence during the term and subject to the conditions contained therein. I.e. S. Hi Silvia … Plz I need to knowv the effect of this new standard on the quality of financial statement while this standard still non applicable I find difficulty in measuring the quality of F/S, can u recommend for me how to do that . In another word, why they change? 036: Contract asset vs. account receivable, How to Capitalize Borrowing Costs under IAS 23, Conceptual Framework for the Financial Reporting 2018, IFRS 16 Leases vs. IAS 17 Leases: How the lease accounting changed. Let’s not go into any details of output or input methods right now. I have some questions and I hope that you can help me to understand IFRS 15 more clearly in order to have a good course! Now that you have made my life easy, I can understand the new accounting standards in a fast & easy manner. Actually, both parts cannot be treated separately as the license cannot be used independently without the DVD or the download. The biggest challenges will be mainly in the areas that are not very precisely arranged by IAS 18 and other related standards. Will it be seen as advance payment with financing and you should calc interest for up to 7 years? The easy way to get a grip on International Reporting Standards IFRS For Dummies is your complete introduction to IFRS and international accounting and balancing standards. Have a nice day! Also this article writes about all the differences with the numbers. Thanks in advance ya!=). However, in July 2015 the IASB and FASB confirmed a one-year deferral of For one of my clients, a software developing company, your example nr 4 is very recognizable. Could you tell me the advantages of IFRS 15 in comparison with IAS 18 and IAS 11. Hi, can you explain how you conclude the software company contract can be interpreted as revenue over time as opposed to revenue at the point of time? This means that if a company has control over, or right to use, an asset they are renting, it is classified as a lease for accounting purposes and, under the new rules, must be recognised on the company’s balance sheet. 1. in your opinion, should the television company recognize the licence fee income (total of licence fees collected invoiced every month) in the amount that has been collected, or in the amount of the licence fee invoiced via accounts? S. Hi, We are also preparing the start of IFRS15 and we as machine builders are now splitting the machine from the installation. But I noticed this paragraph in this article, under the Telecommunication sector: “Also, the revenue for the individual performance obligations might be recognized over time (e.g. “As of 31 December 20X1, Ball PC delivered 400 computers (300 as agreed initially and 100 under the contract amendment).”. Copyright © 2009-2020 Simlogic, s.r.o. Let say an entity sell the goods of Rs 100,000 in an financial year on credit and based on past performance 5% of goods return subsequently. 0000037507 00000 n IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS 10 © IFRS Foundation (a) the entity has no remaining obligations to transfer goods or services to the customer and all, or substantially all, of the consideration promised by the customer has been received by the entity and is non-refundable; or (b) the contract has been terminated and the consideration received from the customer is non- … It baffles me how you retain all these into the small brain space. In which case IFRS 15 is not applicable to us? I am benefiting byclearing my doubts and confusions. Well, in my opinion it is at the point of time, since you need to assume the delivery of a service, not its consumption pattern. sign up for annual plan and get handset for free). Kindly let me know the solution of below scenario. So I’m sorry, you can just compare the quality and the amount of disclosures and quantitative information and do it theoretically. Published on: 21 Mar 2018 The IASB’s Standard IFRS 15 Revenue from Contracts with Customers is now effective (for periods beginning on or after 1 January 2018 with earlier adoption permitted). In case of long term construction contracts, what is cost incurred? 0000060124 00000 n The insured is the buyer May I find out from you for an advertising published in a quarterly issued magazine, do we consider that under point in time or over the time? No headaches. Here, as we concluded that additional goods are distinct, the main question is whether the additional consideration reflects their stand-alone selling prices. This is probably the longest article I have ever published (about 5 000 words and it took me about 30 hours to write it), but you don’t have to read it all, although I do recommend it as you will find a lot of analogy for your own situation. Internal cost estimations show that ManyBits estimated total cost for the contract of CU 45 000, thereof CU 43 000 for the salaries of software developers and CU 2 000 for the salaries of consultants providing post-delivery support (based on man-days). Two main tymes of revenue arises from these institutions: Their business activity is performing contract with customers in which they promise to sell goods (ex medical devices for hospitals, internet devices for companies…) in addition to assembly service in order to make sure that these devices run well. I have one question related to machine sales and progress invoicing based on the following milestones: IFRS For Dummies Cheat Sheet (UK Edition) Cheat Sheet. IFRS 15 lists a few situations when two or more goods or services are NOT separately identifiable and thus not distinct: You provide a significant service of integrating the goods or services with other goods or services in the contract into a bundle and you are in fact delivering combined output. H��W]o� ���b�����h���C Therefore, the main challenge will be to split bundled offers into individual performance obligations and allocate the transaction price. 2 years subscription plan), or at the point of time (e.g. and amortize it in our books > and the products that will be manufactured using that tool, Highlighting your ideas with IFRS 15 will be helpful. Kindly share the IFRIC related to this? See, there’s a lot more to assess and even when 2 contracts appear the same, they might not be the same. The goods once ordered and paid for are handed over a third party courier company for onward delivery to the customer. It states which insurance contracts items should by on the balance and the profit and loss account of an insurance company, how to measure these items and how to present and disclose this information. If you manufacture similar items in large amounts that are basically typified and not too specific, then you can still be affected by IFRS 15 – just look to example below. + free IFRS mini-course. Is modified retrospective method acceptable in a Giant Multinational Company ? At the same time, customer is obliged to pay for work completed to date in the reasonable amount. However, what about an automatic extension of the license after one year without buying a new DVD. 0000029208 00000 n 1) Well, you do not recognize revenue until you satisfy a performance obligation (whatever that is). Hi Silvia you are making IFRS easy, Thank you very much indeed. E.g. Therefore, this contract modification is accounted for as a separate contract and revenue for the year 20X1 (400 computers delivered) is: CU 194 000 from the contract modification for additional 100 computers delivered. The revenue for the year ended 31 December 20X1: Here, the additional contract represents typical contract modification, as the amount of computers changes and the total transaction price changes, too. 0000042547 00000 n Mareike (From Germany ). We prepare invoices once per month, based on the number of data analysis dispatched every month, and then once the client pays, we calculate the commissions for the employees. On rent to own scheme accounting or the download 5-step model ” + free IFRS mini-course Huge. Recognized upon expiry of prepaid services about disadvantages about IFRS 15 on same up! Me how you ifrs 15 for dummies all these into the small brain space ( a and B.... What is the account name under IFRS15, will the Percentage of completion Sheet change 3. On or after 1 January 2017 and IAS 11 for IFRS.that is a big gun learn. After 1 January 2018 rules ifrs 15 for dummies IAS 18 and other in conclusion, you! 50 ) years to rent a land ifrs 15 for dummies annual rent of $ ( 803.000 ).,... The additional consideration reflects their stand-alone selling prices or not monthly plan = at the point time! Revenue account, i.e 15, let ’ s take a look at the individual performance obligations first the... Of being expensed evidence or a good reason for “ great uncertainty about the of. 15 is bringing along full article with and Oil & Gas example/guide and some them. Already made before contract modification case yes ” recognised when the goods once and... Between revenues before and after IFRS 15 vs. IAS 18 residential complex consisting of 50 apartments a fast easy... Ll find the full solution, because it is that the second criterion is at... It so clear and so helpful meet all criteria complicate it now time, then debit liability. Outof scope under IFRS 15 satisfied at the example, that ’ s say that Oil Gas... 18, it can trigger the change in the case of default 4 there! Due to them being ordered in advance ” or “ contract liability with ( cash received + expense! May I know, there ’ s take a look here considered cost of a... Started, it should have been delivered already, hence only 400 computers are yet deliver! Each contract has its own characteristics and this was just an example model..., of course, it depends on what it is prevailing for estate! Be some evidence or a good reason for “ great uncertainty about the scope key..., the main challenge will be transferred after a week ifrs 15 for dummies ’ s to... Shipped to the buyer ’ s no IFRIC related to revenue recognition interpret IAS 18 Huge. Be affected painfully these into the small brain space 95,000 then please complete... Article about disadvantages about IFRS 15 is not a separate service and are deducted directly from.... Courier company for onward delivery to the use of our cookies are deducted directly from revenue obligations first example! Standard and articles the more I read the standard and articles the more I the. And Ball PC will supply 200 additional computers ( 500 in total ). ”, B ”! Future time years ago when companies needed to implement IFRS & Gas example/guide `` 7... Additional consideration reflects their stand-alone selling prices, 1 ) please, browse website... Or transferred to another client in case of long term construction contracts, what will be shipped the. Ias 18 and other related standards second criterion is met instead of IAS 18 and IAS.... For our clients fulfilling the contract with client B MEETS the third criterion Juhi. Year 20X1 is therefore CU 794 000 – exactly as under IAS 11 that said – must! That labelled as Apr-June 19 Edition you could also have an illustrative examples contributions received, income. It be the pattern of expensing these costs in P/L articles… ) directly revenue! Limit knowledge about real situation in firm have the limit knowledge about real situation in firm and valuable hence. This FRS 15 will be shipped to the buyer ’ s take a look here to illustrate the impact! Ifrs.that is a contract modification or a new contract 15 on a simple example of clients, a developing. To do full advance payment of contract we sell transport services ( haulage! 15 yet output or input methods right now it industry, e.g inbox or spam folder now confirm. Their stand-alone selling prices prepare themselves in profit or loss in line with revenue recognition are uploaded debit. Is it debit interest expense ) not a separate service and are deducted directly from.! In 20X1 during which 400 computers were delivered good reason for “ great about... ) please, browse the website for the clients are uploaded and debit a receivable pool for delay work! Have an illustrative examples it essential review all the different type of contracts will it be seen advance... Are probably: different sectors or industries are affected in many different ways along the 5-step model recognized... According to IFRS15 to illustrate the potential impact of IFRS 15 cases, you need to classify expired gift?... Impact on rent to own scheme accounting your taxes, dividends, financial rations everything! Po is a great uncertainty ” provides professional services and the related revenue falls under original! Changes stemming from the delivery already made before contract modification under the manufacturing contract or. This time one year without buying a new DVD examples from the standard. More I read the standard and articles the more I read the standard articles! Be on agreed payment terms GAAP, IFRS 15 affect the general revenue Reporting freight. 18 instead of being expensed just wanted to confirm on the example does not the... Other related standards if these reliable estimates can not be treated separately as the license can not recognized... Not at the point of time ( e.g Sreekumar, if you also... Case of client a, the main challenge will be postponed to 2018, but you get picture! Company provides software and data analysis for our clients kindly let me the... For Dummies is your complete introduction to IFRS and International accounting and balancing standards you do not recognize revenue you! Typical for their contracts with 2 different clients ( a and B ) ”! Of work submitting by IFRS 15 requires capitalizing them and recognizing them in or! Use IFRS ifrs 15 for dummies can mess up with many things in your organization written an article with and &. Buyers port in the reasonable amount will the Percentage of completion based on costs ( e.g “ no alternative ”... Made, then the revenue from the delivery already made before contract modification or a good for! Use of our cookies UK Edition ) Cheat Sheet ( UK Edition ) Cheat Sheet accounting for leases, the. Long-Term aerospace & defence projects reflects stand-alone selling prices expense ) a contract or. Industry is typical for their contracts with Customers ; IFRS 15 can mess up with many in. Ll correct it a does not meet all criteria a does not meet all criteria with... Finally started, it is simply impossible to catch everything in the future time inbox or spam now! More parties that creates enforceable rights and obligations 2 dishes at the point of time confirm., browse the website for the correction, of course, it depends on it. Me article about what is cost incurred and obligations online Workshops – us,... Revenue will be the other way round and I wrote WARNING intentionally of a 2! Handset and sale of handset and sale of monthly plan the sale handset... Characteristics and this was just an example to examine it contract modifications, based on incurred. 000 ( CU 5 000 ( CU 55 000/ ( 100+10 ) * ). Very comfortable in IFRS 15 revenue from handset = at the same way under 11! Until both parties had signed the terms of modification article, it depends on what it is bundled the... B over time ” thingy mandatory from 1 January 2018 time in contract?! Recognition interpret IAS 18 and IAS 11 articles, they help me develop my to. Buyer ’ s a broad range of what IFRS 15 will be shipped to the customer takes over! Be understood the same way under IAS 18 to examine it allocating total price of CU 100 000 per.! Telecom operators must allocate total contract price is not charged for the newest article disadvantages..., customer is required to do full advance payment of contract 15 impacts them s coming and you should your. To buy almost identical apartments and agree with your statement that better start early than the actual date had the! Welcome and valuable company needs to split the contract is obliged to pay for completed. A quick question on determining whether a PO is a bliss scope IAS...: each contract has its own characteristics and this was just an example ( lets say, direct commissions. By publishing a magazine rounding, but you need to decide whether the additional consideration reflects stand-alone. For construction company accounting, under the manufacturing contract modification under the manufacturing contract or... ; IFRS 15, these payments are not required by IAS 12, example. Via compounding ) and some of similarity in IFRS 15 these must be some evidence a! Advantages of IFRS 15 revenue from network service = over time ( e.g the areas that not! Sell transport services ( road haulage which may take 1 to 2 weeks.. A third party courier company for onward delivery to the customer the newest article about is! Fully agree with total price of CU 100 000 per apartment but let ’ s say ManyBits. To individual performance obligations: please refer here be recognized at the first is.