SCOPE IFRS 15 applies to all contracts with customers, except the following: a. Hi Silvia, Let’s say that ManyBits’ normal charge for the support services is 10% of the package price, no matter what the “package” is – whether some ready-made license or customized software. 0000015488 00000 n Hi Sreekumar, if it is that simple, then I would say the treatment does not change. My assessment is that the aforementioned are outof scope under IFRS 15 . Dear Silvia, is it possible to account penalty from contract for delay of work submitting by IFRS 15 against revenue account, i.e. pdf Download pdf (250.8 KB) Hello Silvia, if an advance payment is received from customer & d transfer of the goods & services wil b due after one year, definitely Cash is debited, what are the other entries? Will it be seen as advance payment with financing and you should calc interest for up to 7 years? S. Thank you so much for your article. would you have a hint where to find such examples (books, articles…)? 30 May 2018 Manufacturers and wholesalers sometimes pay retailers a fee to have their products placed on a retailer’s shelves, or to place the products in a more prominent area. The accounting model summary and presentation are part of our wider effort to help insurers and others understand the requirements of IFRS 17. Telecom industry is typical for dealing with huge number of clients, typified contracts and various multiple offerings (e.g. In this case, telecom operators must allocate total contract price between the revenue from the sale of handset and sale of monthly plan. The only thing is that you should really trace multiple deliveries of one order – in this case, you should recognize revenue partially when each delivery is made. 0000060124 00000 n Forward University takes control over the computers at delivery. Please could you illustrate with an example. Amr. 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). Hi silviya, For construction company accounting, under IFRS15, Will the Percentage of Completion sheet change. Let’s measure the progress towards the completion of both individual performance obligations as of 31 December 20X1: As a result, revenue recognized from this contract in the year 20X1 is: Total revenue from the same contract under IFRS 15: CU 15 000. Note: contract price is not necessarily the same as transaction price, but let’s not complicate it now. So, basically allocating total price to two different types of products. Also, you need to look at the individual POs, not at the contract as a whole. Ball PC, computer manufacturer, enters into contract with Forward University to deliver 300 computers for total price of CU 600 000 (CU 2 000 per computer). S. Hi Silvia, Should revenue be recognised when the goods passes the ship’s rail or upon reaching the buyers port? Rashed, if you deliver the 2 dishes at the same time, then the accounting treatment is just as you wrote. If the specific contract does not meet this criterion (and also the other two), then the revenue is recognized at the point of time; that is, when an asset is delivered to customer. In this newsletter we would like to introduce to you the key changes stemming from the new standard. 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. Completion: Upon the completion of the construction, the legal ownership to apartments is transferred to clients and they pay the remaining amount of CU 40 000 each. Made my life easier. 0000059469 00000 n Then many accountants and CFOs realized that they would need much more time for making transition and they should have started months before they actually did. 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. The contract with client B specifies that. Refund of taxes paid is governed by IAS 12, for example (depending on what the refund is). Secondly, Do we capitalize the tool asset ? Therefore, under IAS 18, ManyBits’ revenue from this particular contract in the year 20X1 is 29% (stage of completion) x CU 55 000 (total contract price) = CU 15 950. 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. Dear Rick, Miss Fairuz, 1.How should a company account for Gift Voucher revenue? So once loads are done with proof of documents sent to the client we raise Debtors (Debit Debtor and Credit the receivable pool). The new standard applies to years commencing on or after 1 January 2018. Well, currently, it’s kind of difficult to do the study on real companies, because really, no one has accepted it so far (or maybe just few of them). That was an error at uploading the post, I made a correction. We are also preparing the start of IFRS15 and we as machine builders are now splitting the machine from the installation. what will be the journal entry if i offer one dish today and one voucher for free dish in the future time. Have a couple of queries in connection to cost of acquiring a customer (lets say, direct sales commissions). The objective of IFRS 15 is to establish the principles that an entity should 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. Hi Sylvia, CU 50 000 (CU 55 000/(100+10)*100) for software development or customization service, and. hello mam your example is very good for learning for ifrs .that is a big gun to learn anything in the ifrs.thanks. 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). 0000047477 00000 n S. hi silvia , please send me article about what is the difference between revenues before and after ifrs 15 and which is better ? In which case IFRS 15 is not applicable to us? report "Top 7 IFRS Mistakes" + free IFRS mini-course. 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. What would be my accouting entry for this invoice? Hi Silvia, thanks a lot for this article whiwh indeed clarifies a lot of the compexity IFRS 15 is bringing along. 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. Each contract needs to be considered separately and it can happen that 2 companies doing the same thing will account for the same thing slightly differently just due to slight differences in their contractual terms with customers. Under IAS 18, many telecom operators provided free handsets to customers and treated them as “marketing costs”, or costs to obtain a client. 1) Well, you do not recognize revenue until you satisfy a performance obligation (whatever that is). Further contractual terms specify that: If the client B defaults on the contract before its completion (in other words, does not make payments in line with the schedule), RE Construct has the right for all contractual price if RE Construct decides to complete the contract. But – it’s up to YOU to analyze, make a plan and implement carefully. Let’s say that ManyBits calculates the stage of completion based on costs incurred for fulfilling the contract. For one of my clients, a software developing company, your example nr 4 is very recognizable. Can you please clarify which IFRS standard will be applicable to account for revenue from sources other than customers from 2018 onward – For example – Refund of taxes excess paid (for which govt. Moreover, the applicable date of this standard will be postponed by 1 year. However, IFRS 15 requires capitalizing them and recognizing them in profit or loss in line with revenue recognition. 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 in no time. For some companies, the impact of the new rules for revenue recognition will be minimal and they will simply continue recognizing revenue just as before. My goal here was NOT to give you the full solution, because it is simply impossible without knowing your specific information. As a result, this shall be treated as a long-term payable, at its fair value. 0000032106 00000 n There’s a broad range of what can be manufactured and what contracts manufacturers enter into. There is no one solution applicable for all. Should we consider the transfer of control point to be when the goods are handed over to the courier company or when the goods are actually delivered to the end user. And exactly this timing can impact your taxes, dividends, financial rations and everything. 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- … thank you for your amazing and clear articles, may I ask you if there is an article explain the transportation costs issue, I experienced that some companies put this expenses as a deduction from sales and some others deal with it as S&D expenses, and also the fixed rebate to customer that not related to variable sales(Target) its absolute number per year whether sales is 1 dollar or million dollar. My Company uses IAS 18 and IAS 11 extensively as almost all contracts are long-term aerospace & defence projects. 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. 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. Jane, you should recognize it at the expected amount to receive. I don’t know why you try to determine whether the contracts are “unique”, but let me remind you that the contract or product cannot have “alternative use” or cannot be offered to other customers not only due to its “physical uniqueness” but also due to contractual restrictions. I understand that 100 computers have been delivered already, hence only 400 computers are yet to deliver (i.e. In conclusion, why we need to use IFRS 15 instead of IAS 18 and IAS 11? 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). &S�Z�Pd�On@5jL>@Z�������Z���yY1H00ftan8x��@n����;j&�5O�hg��(����1�Ł�@� KJ�ǖ��\$'u˱V�(3�2��L� Property developers and construction companies are typical for their contracts with customers of a long-term nature. We are Pump manufactured co.We will supply and do supervision services if there are any problem arises.For service based contracts How do we have to recognize the revenue,could you please advise.Project duration will be between 3-9 months. thank you for the comments. RE Construct will keep ONLY the progress payments in the case of client’s default and they may not cover entity’s cost for work completed to date. Only slight change in the provisions of the specific contract may trigger the necessity to recognize revenue at the point of time rather than over time – or vice versa. it depends on what it is. 2) You may if this is material. Objectives of today 24 April 2019 3 # 1 Increase awareness and encourage engagement 2 Understand key elements of the IFRS 17 exposure draft 4 Highlight areas of uncertainty, difficulty and areas of focus 3 Create a common language to enable discussions 5 Encourage discussions around potential challenges for you No other specific terms in the contract with client A. is it right treatment for above mentioned case? In the case of client A, the revenue would be recognized at the point of time and revenue from contract B over time. Therefore, the main challenge will be to split bundled offers into individual performance obligations and allocate the transaction price. IFRS 15 strictly defines the “financing component” and requires accounting for such a component separately from revenue. Is the account name under IFRS15 still use “Receipt in advance” or “Contract liability”? I have one question related to machine sales and progress invoicing based on the following milestones: The contract A would make it that way under IAS 11, but not under IFRS 15 as it does not meet all criteria. the customer pays us for the tool itself and also the products made from the tool If the period of construction is five years, the entity need not wait until the fifth year to recognize revenue, and instead revenue may be recognized based on the level of work completed for each year, provided that IFRS 15 criteria are met. Thanks for the writing and detailing IFRS 15. What will be the pattern of expensing these costs in P/L? Hi Henk, 0000014726 00000 n Milestone: 1 year prior planned completion, RE Construct will deliver progress reports to clients and clients need to pay CU 50 000 each. Thank You! Telecom and individual performance obligations: please refer here. Our company is doing the convergence to IFRS, as required by regulator from 1-1-2017.We didn’t apply IFRS 15 and therefore for lease we will adopt the old standard. I focused on some other aspects in this particular example, but OK, let’s take a look here. Also, the specific calculation will strongly depend on what you have in your own contracts and how your own calculations, systems and estimates work. All the best! 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. I was searching for examples from the IT Industry, e.g. It means that the second criterion is not met. That means, the “delivery” of the DVD and the license are treated as one PO. report “Top 7 IFRS Mistakes” RE Construct enters into 2 contracts with 2 different clients (A and B). As a result, the contract modification is NOT a separate contract, but it is bundled with the original contract. Under IFRS 15, these payments are not treated as a payment for a separate service and are deducted directly from revenue. Hi Rama, 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 in no time. DC-Outsourcing, SD, IaaS, etc. S. Always enjoy reading your articles, they help me as I have to educate staff at my company on IFRS. The biggest areas of impact are probably: Different sectors or industries are affected in many different ways along the 5-step model. After the first delivery is made, Forward University and Ball PC amend the contract. Even when this would be prevented (by writing specifically in the contract), RE Construct has NO enforceable right to payment for performance completed to date. Further challenges in telecom industry are: Here, it will be necessary to assess whether such a change shall be accounted for retrospectively (one-off adjustment) or prospectively (as a “catch-up” adjustment to future revenues), or even as for a separate contract. The comparison of the revenue profiles for contract A and contract B under IFRS 15 is in the following table: Timing of revenues matters due to your tax payments, dividends, financial rations, etc. Why is the revenue for handset is recognised over time (based on progress) while the revenue for network services is recognised at a point in time (upon completion). Dear Juhi, IFRS 15 for the software industry At a glance It has long been understood that the software industry would be one of the industries more significantly affected by the adoption of IFRS 15. Revenue for 100 computers delivered before contract modification: Revenue for 300 computers delivered after contract modification: Upon the signature of a contract, clients pay deposit of CU 10 000 each. Payments against this delivery will be on agreed payment terms. Apartments have a similar size and proportions – however, they can be customized to clients’ needs. IAS 18 requires recognizing revenue from similar services using the stage of completion including post-delivery services. Hi Anna, Well, here, nothing much to say. In another word, why they change? building with highly customized specification). Five-Step Model Framework. Thanks for your atention Silvia. 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. Shouldn’t it be the other way round? Hi Sylvia Hello, It was adopted in 2014 and became effective in January 2018. h�b```b`0ca`c``�� �� @1v�0�E��E��-Qe�6fk��l?��9p���»��ü�)�a��Sg�[���*��.��p�H��V��B�"r�AGN We signed agreement with government (50) years to rent a land @ annual rent of $(803.000). So traditionally we book revenue once the loads for the clients are uploaded and debit a receivable pool. Just wanted to confirm on the example provided, specially these two paragraphs: A. However, per “B” above, it says that of the 400 computers, 100 computers are under contract amendments while i am expecting that 200 computers are under the additional contract as per “A” above. 0000037507 00000 n I also wrote this article for you to give you a few IFRS 15 examples and hints – all with the purpose to warn you. Please check your inbox to confirm your subscription. The reason is that RE Construct builds an apartment that can be easily sold or transferred to another client in case of default. The example does not say that, but you need to examine it. 0000061014 00000 n You’re abolutely right in respect of starting soon enough not be unhappily surprised at the first year-end of implementation. Thank you! The insured is the buyer - this article compares the accounting under IAS 18 and IFRS 15 on a simple example. 0000001076 00000 n I am currently just a student and have the limit knowledge about real situation in firm. Thank you Often the bookings is bundled with other entertainment services ( e.g massage , sports activities etc), How do we account for breakage ( account cancellation etc). 70% upon shipment (say in month 2); and finally 0000031946 00000 n This 254-page guide is intended to assist preparers and users of financial state­ments to un­der­stand the impact of IFRS 15 and includes a high-level executive summary of the new re­quire­ments, followed by a specific focus on the important issues and choices available for … They help me develop my response to challenges my students face.keep it up! All current IFRICs related to revenue recognition interpret IAS 18 and they will cease when IFRS 15 will be effective. 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. Im fully agree with your statement that better start early than the actual date. Have a nice day! NEW: Online Workshops – US GAAP, IFRS and other. How are telecom operators going to do that? 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. delivery of license) and some of them over time (e.g. 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. 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. Discount-DR-100 Revenue from handset = at the point of time; revenue from network service = over time. What are your views? 0000037602 00000 n I am benefiting byclearing my doubts and confusions. So what’s the total revenue recognized in 20X1 during which 400 computers were delivered? IFRS 15 requires this allocation to be based on the stand-alone selling price of each performance obligation and includes detailed requirements on how any discounts or variable consideration should be treated in the allocation (see 8.3 and 8.5, respectively). 0000014770 00000 n 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 If you deliver the 2 dishes at the point of time ( e.g materials. Not to give you one example dealing with Huge number of clients, contracts! Payment terms my company uses IAS 18 requires recognizing revenue from network =... 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