IFRS 15 - Revenue

• Revenue


  Income arising in the course of an entity's ordinary activities
• IFRS 15


  Revenue from Contracts with Customers
• IFRS 15 revenue recognition approach

  1. Identify the contract

  2. Identify the separate performance obligations within a contract

  3. Determine the transaction price

  4. Allocate the transaction price to the performance obligations in the contract

  5. Recognise revenue when (or as) a performance obligation is satisfied
• Contract


  An agreement between two parties that creates rights and obligations
• Criteria for a contract to be accounted for under IFRS 15

  • All parties have approved the contract
  • Each party's rights can be identified
  • Payment terms can be identified
  • The contract has commercial substance
  • It is probable that the entity will be paid
• Performance Obligation (PO)


  A promise to transfer a/a series of distinct good or service to a customer
• Criteria for a promised good or service to be a distinct PO

  • The customer can benefit from the good or service on its own or by using resources that are readily available
  • The promise to provide the good or service is separately identifiable from other contractual promises
• If goods or services are not distinct, the reporting company must combine them with other promised goods or services until a bundle of goods or services that is distinct can be identified
• Transaction Price


  The amount of consideration the entity expects in exchange for satisfying a performance obligation
• Factors to consider when determining the transaction price

  • Variable consideration
  • Significant financing components
  • Non-cash consideration
• Variable consideration


  Included in the transaction price only to the extent that it is highly probable that a significant amount will not be reversed when the uncertainty associated with the variable consideration is resolved
• Significant financing component


  The difference between the amount of promised consideration and the cash selling price of the promised goods or services, and the length of time between the transfer of the promised goods or services to the customer and the payment date
• Non-cash consideration


  Measured at fair value, or if that cannot be measured, then measured using the stand-alone selling price of the good or services promised to the customer
• Allocating the transaction price

  1. Transaction price should be allocated to each performance obligation in proportion to stand-alone selling prices

  2. If a stand-alone selling price is not directly observable, it must be estimated

  3. If a customer is offered a discount for purchasing a bundle of goods and services, the discount should be allocated across all performance obligations within the contract in proportion to their stand-alone selling prices
• Recognising revenue


  1. Revenue is recognised when (or as) the entity satisfies a performance obligation by transferring a promised good or service to a customer

  2. A performance obligation can be satisfied at a point in time or over time
• Criteria for a performance obligation to be satisfied at a point in time

  • The control is transferred to the customer, who is then able to direct the use of the asset and obtain substantially all the remaining benefits from it
• Criteria for a performance obligation to be satisfied over time


  • The customer simultaneously receives and consumes the benefits as the performance obligation is satisfied
  • The entity's performance creates or enhances an asset that the customer controls as the asset is created or enhanced
  • The entity's performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date
• Principal


  An entity that provides the specified goods or service itself and holds control over the good or service before it is transferred to the buyer
• Agent


  An entity that arranges for another party to provide the goods or service, and revenue is recognised based on the fee it is entitled to
• Accounting for warranties


  • Normal warranty provided by the company is recorded as per IAS 37
  • If the customer has the option to purchase the warranty separately, then it should be treated as a distinct performance obligation
• Accounting for sales with a right of return

  • The entity should recognize revenue for the transferred products, a refund liability, and an asset in respect of products to be returned
• Accounting for repurchase agreements

  • Under a forward contract or a call option, the customer does not obtain control of the asset because that control is limited by the repurchase option. The contract is accounted for as a lease if the repurchase price is below the original selling price, or a financing arrangement if the repurchase price is equal to or above the original selling price
  • Under a put option, if the customer does not have sufficient economic incentive to exercise the right to request repurchase, the agreement should be treated as if it were a sale with a right of return. If the customer does have sufficient economic incentive, the entity should account for the agreement as a lease in accordance with IFRS 16
  • If the repurchase price is greater than or equal to the original selling price and is above the expected market value of the option, the contract is treated as a financing arrangement
• IFRS 15 vs UK GAAP (FRS 102)

  • IFRS 15 recognises revenue on the basis of control, while FRS 102 recognises revenue on the basis of the transfer of risks and rewards
  • IFRS 15 uses a 5 step model, while FRS 102 relies on reliable measurement and probability of transfer of economic benefits for revenue recognition