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ifrs 15 revenue.pptx

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ifrs 15 revenue.pptx

  1. 1. REVENUE IFRS 15
  2. 2. five step process • IFRS 15 – Revenue recognition: A five step process • An entity recognises revenue by applying the following five steps: • 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
  3. 3. • On 1 December 20X1, Wade receives an order from a customer for a computer as well as 12 months of technical support. Wade delivers the computer (and transfers its legal title) to the customer on the same day. The customer paid $420 on 1 December 20X1. The computer normally sells for $300 and the technical support for $120.
  4. 4. Step 1: Identify the contract • A contract is 'an agreement between two or more parties that creates • enforceable rights and obligations' (IFRS 15, Appendix A). • A contract can be agreed in writing, orally, or through other customary business practices
  5. 5. Step 2: Identifying the separate performance obligations within a contract • Some contracts contain more than one performance obligation. For example: • An entity may enter into a contract with a customer to sell a car, which includes one year’s free servicing and maintenance • An entity might enter into a contract with a customer to provide 5 lectures, as well as to provide a textbook on the first day of the course
  6. 6. Step 3: Determining the transaction price • 'When determining the transaction price, an entity shall consider theeffects of all of the following: • variable consideration • the existence of a significant financing component in the contract • non-cash consideration • consideration payable to a customer'
  7. 7. Step 4: Allocate the transaction price The • The total transaction price should be allocated to each performance obligation in proportion to stand-alone selling prices. • The best evidence of a stand-alone selling price is the observable price of a good or service when the entity sells that good or service separately in similar • circumstances and to similar customers.If a stand- alone selling price is not directly observable, then the entity estimates the stand-alone selling price.
  8. 8. Step 5: Recognise revenue • Revenue is recognised 'when (or as) the entity satisfies a performance obligation by transferring a promised good or service to a customer
  9. 9. Repurchase agreements • A repurchase agreement is where an entity sells an asset but retains a right to repurchase the asset. This is often not recognized as a sale, but as a secured loan against the asset. Indications that this should not be recognized as a sale • may include: • Sale is below fair value • Option to repurchase is below the expected fair value • Entity continues to use the asset • Entity continues to hold the majority of risks and rewards associated with • ownership of the asset • Sale is to a bank or financing company
  10. 10. Bill-and-hold arrangements • For a bill-and-hold arrangement to exist: • The customer must have requested the arrangement • The product must be identified as belonging to the customer • The product must be ready for physical transfer to the customer • The entity cannot have the ability to use the product or sell it to someone else.
  11. 11. Satisfying a performance obligation over time • 'An entity transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognises revenue over time, if one of the following criteria is met: • A the customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs • B the entity’s performance creates or enhances an asset (for example,work in progress) that the customer controls as the asset is created or enhanced, or • C 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'
  12. 12. Contract costs • IFRS 15 says that the following costs must be capitalised: • The incremental costs of obtaining a contract. • The costs of fulfilling a contract if they do not fall within the scope of • another standard (such as IAS 2 Inventories) and the entity expects them • to be recovered. • The capitalised costs will be amortised as revenue is recognised. This means • that they will be expensed to cost of sales as the contract progresses

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