Inline XBRL; ZIP; Example 16: Financial assets & … This does not mean that an entity must have an unconditional right to payment at the reporting date but, instead, it must have an enforceable right to demand payment for performance completed to date if the customer were to terminate the contract before completion. See IFRS 15.37;B9-B13;BC142-BC147 for more discussion on this criterion. The advantage of output methods is that they directly measure the value of the goods or services transferred to the customer. Instead, revenue is recognised proportionately to time lapsed. Example: A series of distinct goods or services that are substantially the same. In practice, this most often applies to repetitive services, such as cleaning services or transaction processing (IFRS 15.BC114). A performance obligation is a promise to transfer to the customer a good or service (or a bundle of goods or services) that is distinct (IFRS 15.22). › IFRS 15 – Illustrative disclosures. At the reporting period, the package has already been transported to Berlin. It contracts with a car producer to manufacture 1 million car seats over the next three years. The information provided on this website is for general information and educational purposes only and should not be used as a substitute for professional advice. If the answer is yes, the good/service is distinct. Example: Satisfaction of performance obligation in a transportation service. Example: A series of distinct goods or services that are substantially the same. Le renouvellement du contrat est possible sans coût additionnel. Les normes IFRS sont fondées sur des principes. Additionally, it charges a one-off connection fee. presume that another entity fulfilling the remainder of the performance obligation would not have the benefit of any asset that is presently controlled by the entity and that would remain controlled by the entity if the performance obligation were to transfer to another entity. If a promised good or service is not distinct, it should be combined with other promised goods or services until they become distinct together (‘a bundle’). 43 Paragraph IFRS 15.BC100 notes that the assessment of whether the customer can benefit from the goods or services on its own should be based on the characteristics of the goods or services themselves instead of the way in which the customer may use the goods or services. In other words, the entity is using the goods or services as inputs to produce or deliver the combined output or outputs specified by the customer. Updated September 2019 A closer look at IFRS 15, the revenue recognition standard 2 Overview The largely converged revenue standards, IFRS 15 Revenue from Contracts with Customers and Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers1 (together with IFRS 15, the standards), that were issued in 2014 by the International Accounting Standards Board (IASB Inline XBRL; ZIP; Example 16: Financial assets & financial liabilities subject to offsetting . IE2 Examples 1–4 illustrate the requirements in paragraphs 9–16 of IFRS 15 on identifying the contract. The customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs. Contracts that are outside the scope of IFRS 15 include leases (IFRS 16 Leases or, for entities that have not yet adopted IFRS 16, IAS 17 Leases), insurance contracts (IFRS 17 Insurance Contracts, or for entities that have not yet adopted For example, when a customer places an order to print 10,000 copies of a book, the paper used for printing that book is not a distinct good, although the customer would be able to take that paper with him and print the book in a different place. So this feels like the right time to . IFRS 15.B18 | ASC 606-10-55-20 state: Input methods recognise revenue on the basis of the entity’s efforts or inputs to the satisfaction of a performance obligation (for example, resources consumed, labour hours expended, costs incurred, time elapsed or machine hours used) relative to the total expected inputs to the satisfaction of that performance obligation. Entity A is a company manufacturing car parts. Entity X charges $5 million for the equipment and $0.5 million for the installation. limited practically from readily directing the asset in its completed state for another use (as is the case when assets are significantly customised for the customer). It would not provide meaningful results if the gym tried to assess the number of hours that the customer will use throughout the contract and recognise revenue based on actual/total ratio. Offre premium Tous les articles et les archives du magazine accessibles en ligne, Ne perdez rien de toute l'information financière, Le traitement comptable d’une cession-bail à loyers variables, Recommandations de l’AMF relatives à l’arrêté des comptes 2020 en IFRS. Entity X produces a specialised equipment which is installed at customer’s premises. IFRS 15 Revenue from Contracts with Customers provides a single, principles-based five-step model that should be applied to determine how and when to recognise revenue from contracts with customers. direct labour hours, time elapsed or resources consumed. Output methods are covered in IFRS 15.B15-B17. Use at your own risk. construction contracts). each distinct good or service in the series would meet the criteria to be a. These examples represent how some of the disclosures required by IFRS 13 (in paragraphs 93 and IE60-63) in relation to fair value measurement might be tagged using detailed XBRL tagging. Examples of such activities are setup of a manufacturing process or connecting a customer to a telecommunications network. Instead, it is allocated to other performance obligations identified in the contract (IFRS 15.B48-B50). take stock – to pull together, in one place, what we have learned about this new world of revenue recognition. When there are several performance obligations in a contract, a provision is recognised only when the contract as a whole is onerous. Revenue is recognised when/as performance obligations are satisfied in the amount of transaction price allocated to satisfied performance obligations (IFRS 15.46). It does so, because in concludes that conditions in paragraph IFRS 15.35(c) are met (more on performance obligations satisfied over time below). Mais dans le cas de la parution de la norme IFRS 15, l’enjeu est tel que l’IASB a jugé utile de détailler de nombreux cas de figure («illustrative examples» ou «IE»). Similarly, construction companies do not recognise revenue when they deliver building materials to the construction site if the customer contracted them to construct a building. Contracts can be written, oral or implied by an entity’s customary business practices. Entity A is a company manufacturing car parts. IFRS 15 Revenue from Contracts with Customers; Basis for Conclusions on IFRS 15 Revenue from Contracts with Customers; Illustrative Examples IFRS 15 Revenue from Contracts with Customers; Effective Date of IFRS 15; Clarifications to IFRS 15 Revenue from Contracts with Customers If the customer purchases repurchase agreements (including call and put options) covered in IFRS 15.B64-B76 and in Example 62 accompanying IFRS 15, consignment arrangements (e.g. Ce prix global est alors reconnu en chiffre d’affaires par étalement sur la durée du contrat. At a contract inception, entities need to identify the goods or services promised in that contract. Your essential guide to the revenue disclosures. It is also important that the right to payment is legally enforceable. It does not matter whether the production will be spread evenly over time or not. In addition, the following requirements are illustrated in these examples: (a) the interaction of paragraph 9 of IFRS 15 with paragraphs 47 and 52 of IFRS 15 on estimating variable consideration (Examples 2–3); and For example, entities with material leasing revenue will have to separate leasing revenue recognised under IFRS 16 from revenue from contracts with customers recognised under IFRS 15. Measurement methods include surveys, milestones reached, time elapsed or units delivered. Example 15: Assets measured at Fair Value . IFRS 15 does not have any specific provisions on onerous (loss-making) contracts, therefore these IAS 37 requirements apply. Big Bed enters in a contract with a customer to sell beds for $400 per bed on 1 January 2017. Une entité vend au grand public un service accessible pendant un an, accompagné d’un coût d’installation forfaitaire et non remboursable. Variable consideration is also present if an entity’s right to consideration is contingent on the occurrence of a future event. See paragraphs IFRS 15.B6-B8 and BC134-BC141 for more discussion. 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. IAS 37 is silent on the treatment of variable consideration, which can make a difference in assessing whether a contract is onerous or not. Example. It does so, because in concludes that conditions in paragraph IFRS 15 … IFRScommunity.com is an independent website and it is not affiliated with, endorsed by, or in any other way associated with the IFRS Foundation. A performance obligation can be satisfied (and revenue recognised) at a point in time or over time. Such performance obligations are usually treated as satisfied over time with straight-line revenue recognition. Measurement of progress can be based on the output or the input. La parution d’IFRS 15 en mai 2014 s’accompagne d’un recueil de 63 exemples pour illustrer les conséquences pratiques attendues. See Example 10 Case A, Example 11 Cases B/E and Example 55 and Example 56 Case B accompanying IFRS 15. the expected value. This may be a very useful practical expedient as it effectively applies also to determining the transaction price and allocating it to performance obligations. Another important type of a performance obligation is a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer (IFRS 15.22(b)). IFRS 15 - Application Example in Incremental Costs to Obtain (more details, check www.bdo.co.uk) IAS 2 Inventories, IAS 16 Property, Plant and Equipment or IAS 38 Intangible Assets cover the accounting treatment on costs incurred in fulfilling a contract with a customer. Such an approach is not allowed under IFRS 15 (IFRS 15.BC88-BC90). Paragraph IFRS 15.38 provides additional indicators of the transfer of control which are discussed below. 41 . Questions or comments? All companies are impacted by the disclosure requirements of IFRS 15, the revenue standard. See Examples 13,18 and 25 accompanying IFRS 15 and the example below. For example, real estate companies currently recognize revenue upon the transfer of risks and rewards to customers in accordance with the IFRS Interpretations Committee (IFRIC) 15, which is practically upon completion of the project development and handover of real estate units to customers. when the entity keeps the legal title until all receivables are paid by a customer. Since, there may be … Pour lire la suite de cet article, connectez-vous à votre compte, En cas de problème avec votre compte abonné, merci de contacter abonnement(at)optionfinance.fr. Measuring progress using an input method may be based on e.g. EXAMPLE: REPURCHASE AGREEMENT 43 . Paragraph 10 of IFRS 15: “A contract is an agreement between two or more parties that creates enforceable rights and obligations. A good or service is transferred to a customer when they obtain control of that asset. direct the use of and asset (which includes restricting another entity from using an asset), and. Certainly, the most significant difference to consider is the When the entity has transferred a legal title to a customer under a contract, it is an indicator that the control of the asset has been passed to a customer. Under IFRS 15.18, contract modification is a change in the scope or price of a contract, or both. Over the past five years, we – like you – have wrestled with the many challenges of implementing IFRS 15. A good or service is distinct if both of the following criteria are met (IFRS 15.27): A 2-step approach seems to work best. In making this assessment an entity should (IFRS 15.B4): IASB stated that this criterion for performance obligation satisfied over time is not intended to be applied when an asset (e.g. Découvrez toutes nos offres d'abonnement et accédez à nos articles et dossiers en ligne. if a performance obligation does not meet the criteria of being satisfied over time, it is assumed to be satisfied at a point in time. Consider a hypothetical example where Kinaxis renews (or newly signs) an on-premise agreement in Q1 19 with a customer for a three-year term and a $1 million annual subscription fee. A combined output or outputs might include more than one phase, element or unit (e.g. It contracts with a car producer to manufacture 1 million car seats over the next three years. If the answer is yes, entities move on to point b. and assess whether this good/service is distinct within the context of the contract (again, more discussion on this point below). IFRS – 15 provides two methods for the measurement of progress towards satisfaction of a performance obligation, output and input based approach. Examples may include surveys of work performed, units produced, units delivered etc. IFRS 15 only impacts the related revenue recognition, not any of the commercial terms of the arrangement. For example, a gym membership is an obligation to stand-ready to provide the customer with access to the gym and its equipment. What exactly are repurchase agreements and what is their impact on accounting for revenue under IFRS 15? IFRS 15 is prudent when it comes to recognition of variable consideration, but we don’t have to follow the same approach in assessing whether a contract is onerous. A telecommunications company promises a free smartphone to each customer who subscribes for a premium telecommunications service. Only Entity X is able to install the equipment. Entity A contracts to transport a package from Madrid to Moscow. a mobile phone that needs a provider of telecommunications services). Paragraph IFRS 15.29 lists three most common circumstances in which two or more promises to transfer goods or services to a customer are not separately identifiable (a non-exhaustive list): Non-refundable upfront fees should be assessed against the criteria for identifying a performance obligation which will determine their accounting treatment. You can also check out my IFRS Kit with detailed video tutorials about IFRS 15. Le coût initial («upfront fee») est considéré comme le paiement par avance d’une partie du prix d’une transaction globale. Basis for Conclusions to IFRS 15 and Example 19 include specific discussion on uninstalled materials (IFRS 15.BC170-BC175) and inefficiencies and wasted materials (IFRS 15.BC176-BC178). Such costs cannot be deferred and recognised as assets unless they meet the criteria of recognising costs to fulfil a contract. See Example 11 Cases A/E, Example 12 and Example 56 Case A accompanying IFRS 15. For some goods or services, such as a piece of furniture, it is obvious that a customer will benefit from them on their own. by past business practices or published policies) that create a valid expectation of the customer that the entity will transfer a distinct good or service are also treated as separate performance obligations, even though they may not be enforceable by law (IFRS 15.24, BC87). Post them on our Forum, The good or service is capable of being distinct, The good or service is distinct within the context of the contract, A series of distinct goods or services that are substantially the same, Performance obligations satisfied over time, Criteria for performance obligations to be satisfied over time, Customer simultaneously receives and consumes benefits, Entity’s performance creates or enhances an asset that the customer controls, Asset without an alternative use to the entity and enforceable right to payment, Measuring progress towards complete satisfaction of a performance obligation over time, Inability to measure the progress reliably, Performance obligations satisfied at a point in time, Performance obligations satisfied at a point in time as the default option, Transfer of significant risks and rewards of ownership of the asset, performance obligation satisfied over time, performance obligations satisfied over time, Performance Obligations and Timing of Revenue Recognition, Principal vs Agent, or Reporting Revenue Gross vs Net, Revenue from Licensing of Intellectual Property, Revenue from Customers’ Unexercised Rights (Breakage), Customer Loyalty Programmes and Other Options for Additional Goods or Services, the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (in other words: the good or service is capable of being distinct); and. At first, entities look at point a. and assess whether the good or service is capable of being distinct (more discussion on this point below). 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. [IFRS 15:50] Variable consideration can arise, for example, as a result of discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties or other similar items. In such cases, goods or services that seem to be distinct are in fact only inputs to the combined item. IFRS 15 applies to all contracts with customers, except for those that are within the scope of other IFRSs. L’entité conclut que l’option de renouvellement n’est pas un droit particulier dont le client pourrait se prévaloir en dehors du contrat. This is another criterion that, if met, makes a performance obligation satisfied over time. For example, a telecommunications company may want to consider a ‘free’ mobile phone provided to a customer as a marketing expense as its business model is to provide telecommunications services, not to sell phones. Performance obligation is satisfied over time if one of the criteria given in IFRS 15.35 is met: This criterion is met in routine or recurring services, such as access to the Internet charged on a flat fee basis or cleaning services, but can also apply in more complex contracts. Licences43 . For arrangements with trial/evaluation periods, revenue is not recognised until the customer accepts the asset or trial period ends and customer becomes committed to pay consideration for the asset (IFRS 15.B86). Activities that do not transfer a good or service to a customer are not a performance obligation even though they may be necessary to fulfil a contract (IFRS 15.25). A good or service promised to the customer is not separately identifiable from other promises in the contract when, in substance, the customer contracted for a combined good or service. It is then a matter of deciding when exactly a performance obligation is satisfied, which is the date when a customer obtains control of a promised good or service (‘an asset’) (IFRS 15.38). Bien que d’application obligatoire à partir du 1er janvier 2017, il est fortement conseillé d’engager les travaux d’implémentation sans délai. The definition of control can be split into the following parts as set out in IFRS 15.33 and discussed further by the IASB in IFRS 15.BC120: The assessment of when control has been transferred to a customer should be made from his perspective (IFRS 15.BC121). The most typical application of this criterion is in construction industry, when an asset is created or enhanced on the customer’s land. work-in-progress) is created that is not consumed immediately by the customer (IFRS 15.BC128). The standard was published in May 2014 and is effective from 1 January 2018. Les impacts de la norme, dans son ensemble, pourront être significatifs dans certaines industries, comme les opérateurs téléphoniques ou les SSII. the entity’s performance does not create an asset with an alternative use to the entity due to legal and/or practical restrictions and. Paragraph IFRS 15.B16 offers a practical expedient and allows to recognise revenue as the customer is billed, provided that this corresponds directly with the value to the customer of the entity’s performance completed to date. If a performance obligation is not satisfied over time, it must be treated as satisfied at a point in time (IFRS 15.32). In output based approach, the value transferred to the customer is measured and treated as a basis for revenue recognition. The following decision should be used to determine whether multiple contracts should be combined or not: Example – Combination of contracts . Only one method should be used for measuring progress for a particular performance obligation and also for performance obligations with similar characteristics (IFRS 15.BC161). For example, if the fare was £30 and the commission is £3, under IFRS 15 the £3 pound will be accounted as turnover ad the £27 posted to cost of … If no, the good/service is not distinct. However, the control may have been passed to a customer even without the transfer of legal title, e.g. Paragraphs 28 and 30 have not been amended but have been included for ease of … The equipment and its installation as treated as a single performance obligation as the customer would not be able to benefit from the equipment or installation service on its own. IFRS 15 states also that it is possible to recognise revenue on a straight-line basis if the entity’s efforts or inputs are spread evenly throughout the performance period. This can be especially challenging for performance obligations consisting of several non-distinct goods/services. Control is the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset, or to restrict the access of other entities to those benefits (IFRS 15.31-34). Key findings • Timing of revenue recognition 5 • Variable consideration 9 • Revenue disaggregation 12 • Contract balances 13 • Significant judgements 14 • Costs to obtain or fulfil a contract 16 4. A readily available resource is defined in IFRS 15.28 as a good or service that is sold separately (by the reporting entity or third party) or a resource that the customer has already obtained from the entity (including goods or services that the entity will transfer to the customer under the contract before the good or service in question is transferred) or from other transactions or events. See Example 11 Case D accompanying IFRS 15. A manufacturer contracts with its customer for a production of 100,000 pieces of sporting equipment. When the up-front fees are deemed to be a compensation for set-up costs incurred by the entity, those costs can be recognised as costs to fulfil a contract (assets) (IFRS 15.B51). When a contract execution comes to a point when the entity has the right to a payment, it is an indicator that the control of the asset has been passed to a customer. IFRS 15 will require construction companies to consider whether these contracts should be accounted for separately or as one combined contract. The manufacturer charges $0.5 million of up-front setup costs and $100 for each manufactured piece. Example 15: Assets measured at Fair Value . the entity has a contractual or legally enforceable right to receive reasonable compensation for performance completed to date if the contract were to be terminated before completion for reasons other than the entity’s failure to perform as promised. A performance obligation is treated as satisfied over time under this criterion when both of the following criteria are met: An asset created by an entity’s performance does not have an alternative use to an entity if the entity is either: The assessment of whether an asset has an alternative use to the entity is made at contract inception (IFRS 15.36). IFRS 15 Thematic (September 2020) Financial Reporting Council 2 Page 1. This is a starting point in identifying performance obligations. The setup of manufacturing line is not a distinct service and does not constitute a separate performance obligation as it does not result in a transfer of goods or services to the customer. to a customer of a dealer) for 3 years after the purchase. Such a bundle is then treated as a single performance obligation (IFRS 15.30). Excerpts from IFRS Standards come from the Official Journal of the European Union (© European Union, https://eur-lex.europa.eu). Each car seat is a distinct good, but Entity A treats the whole contract as one performance obligation under paragraph IFRS 15.22(b). the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (in other words: the promise to transfer the good or service is distinct within the context of the contract). If a performance obligation is satisfied over time, revenue is recognised based on the progress towards complete satisfaction of performance obligation. Once the reliable measurement of progress becomes possible, the entity applies output or input methods as described above (IFRS 15.44-45). A good or service which has been delivered may not be distinct if it cannot be used without another good or service that has not yet been delivered. When the entity is unable to measure the progress reliably, revenue is recognised only to the extent of the costs incurred, provided that the entity expects to recover them. In addition to the goods or services explicitly stated in the contract, all implied promises (e.g. Such a promise of free maintenance is a distinct service and constitutes a separate performance obligation for a car manufacturer. obtain substantially all of the remaining benefits from an asset. Le trait d'union entre la communauté du droit des affaires et les entreprises, IFRS 15 reconnaissance du chiffre d’affaires, Option Finance - 07 juillet 2014 - Hugues de Noray. Examples of distinct goods or services are given in IFRS 15.26. restricted contractually from readily directing the asset for another use during the creation or enhancement of that asset or. Parmi ces nombreux exemples, tous dignes d’intérêt, les trois situations suivantes, simples et emblématiques, permettent d’apprécier la portée de certaines réflexions à mettre en œuvre. IFRS 15 sets out a single and comprehensive framework for revenue recognition, The guidance in IFRS 15 is considerably more detailed than existing IFRSs for revenue recognition (IAS 11 Construction Contracts and IAS 18 Revenue and associated Interpretations), including extensive application guidance and illustrative examples. An exception to this rule applies when the entity can objectively determine that the agreed specifications are met, such as weight or size (IFRS 15.B83-B85). Entity A should recognise revenue for the transportation completed to date (i.e. How is this assessment made? Performance obligation satisfied at a point in time is the default option, i.e. The entity provides a significant service of integrating the goods or services with other goods or services promised in the contract into a bundle of goods or services that represent the combined output or outputs for which the customer has contracted. Enforceability of the rights and obligations in a contract is a matter of law. Deleted text is struck through and new text is underlined. Mais dans le cas de la parution de la norme IFRS 15, l’enjeu est tel que l’IASB a jugé utile de détailler de nombreux cas de figure («illustrative examples» ou «IE»). sale of software with significant customisation). 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