IFRS 15-Revenue from Contracts with Customers (Summary)
Summary of IFRS 15-Revenue from Contracts with Customers
IFRS 15 has replaced the previous IFRS on revenue recognition, IAS 18 Revenue and IAS 11 Construction Contracts.
IFRS 15 is effective for annual reporting periods beginning on or after 1 January 2018, with earlier application permitted.
IFRS 15 establishes the principles that an entity applies when reporting information about the nature, amount, timing and uncertainty of revenue and cash flows from a contract with a customer. Applying IFRS 15, an entity recognises revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
To recognise revenue under IFRS 15, an entity applies the following five steps:
- identify the contract(s) with a customer.
- identify the performance obligations in the contract. Performance obligations are promises in a contract to transfer to a customer goods or services that are distinct.
- determine the 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 to a customer. If the consideration promised in a contract includes a variable amount, an entity must estimate the amount of consideration to which it expects to be entitled in exchange for transferring the promised goods or services to a customer.
- allocate the transaction price to each performance obligation on the basis of the relative stand-alone selling prices of each distinct good or service promised in the contract.
- recognise revenue when a performance obligation is satisfied by transferring a promised good or service to a customer (which is when the customer obtains control of that good or service). A performance obligation may be satisfied at a point in time (typically for promises to transfer goods to a customer) or over time (typically for promises to transfer services to a customer). For a performance obligation satisfied over time, an entity would select an appropriate measure of progress to determine how much revenue should be recognised as the performance obligation is satisfied.
Recognition of revenue
Once control of goods or services transfers to the customer, the performance obligation is satisfied and revenue is recognised. This may occur at a single point in time, or over a period of time.
If a performance obligation is satisfied at a single point in time, we should consider the following in assessing the transfer of control:
ΰΉ Present right to payment for the asset
ΰΉ Transferred legal title to the asset
ΰΉ Transferred physical possession of the asset
ΰΉ Transferred the risks and rewards of ownership to the customer
ΰΉ Customer has accepted the asset.
If a performance obligation is transferred over time, the completion of the performance obligation is measured using either of the following methods:
ΰΉ Output methodΒ :Β revenue is recognised based upon the value to the customer, i.e. work certified.
Output method = Work certified to date / Total contract revenue
ΰΉ Input method :Β revenue is recognised based upon the amounts the entity has used, i.e. costs incurred or labour hours.
Input method (cost based) = Costs to date / Total estimated costs
As contracts that span more than one accounting period progress, the company is creating an asset for the
customer that needs to be recognised in the statement of financial position. The amount to be recognised is
as follows:
$ | ||
Costs incurred to date | X | |
Recognised profits | X | |
Recognised losses | (X) | |
Receivables (amounts invoiced) | Β (X) | |
Contract asset/(liability) | X/(X) |
Source:
- Phnom Penh HR
- ifrs . org/issued-standards/list-of-standards/ifrs-15-revenue-from-contracts-with-customers/
- OpenTuition, F7