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). 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. Such a bundle is then treated as a single performance obligation (IFRS 15.30). 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. 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). 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. Input methods are covered in IFRS 15.B18-B19. direct the use of and asset (which includes restricting another entity from using an asset), and. IFRS 15 applies to all contracts with customers, except for those that are within the scope of other IFRSs. Reporting revenue under IFRS 15 is now one of the ordinary activities of companies in the 100+ countries that use IFRS Standards. 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. to a customer of a dealer) for 3 years after the purchase. work-in-progress) is created that is not consumed immediately by the customer (IFRS 15.BC128). Variable consideration can be included in projected cash inflow based on e.g. For official information concerning IFRS Standards, visit IFRS.org. 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. direct labour hours, time elapsed or resources consumed. Leur expression conceptuelle déroute parfois l’utilisateur des comptes. Use at your own risk. 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). 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. Once the reliable measurement of progress becomes possible, the entity applies output or input methods as described above (IFRS 15.44-45). In such cases, goods or services that seem to be distinct are in fact only inputs to the combined item. Since, there may be … 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. construction contracts). Les normes IFRS sont fondées sur des principes. sale of software with significant customisation). See more discussion on the control of an asset by a customer. In addition to the goods or services explicitly stated in the contract, all implied promises (e.g. 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. Bien que d’application obligatoire à partir du 1er janvier 2017, il est fortement conseillé d’engager les travaux d’implémentation sans délai. 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 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. 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. 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. 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. Each of the goods or services is significantly affected by one or more of the other goods or services in the contract (they are highly interdependent or highly interrelated). 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. Examples may include surveys of work performed, units produced, units delivered etc. Over the past five years, we – like you – have wrestled with the many challenges of implementing 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 good or service is distinct if both of the following criteria are met (IFRS 15.27): A 2-step approach seems to work best. Such a promise of free maintenance is a distinct service and constitutes a separate performance obligation for a car manufacturer. When the application of this criterion is not straightforward, it is crucial to focus on assessing whether another entity would need to substantially re-perform the work that the entity has completed to date if that other entity were to fulfil the remaining performance obligation. This may be described as a change order, a variation, or an amendment. All companies are impacted by the disclosure requirements of IFRS 15, the revenue standard. IFRS 15 will require construction companies to consider whether these contracts should be accounted for separately or as one combined contract. Connection fee 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. 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 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). How is this assessment made? 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. Example: A series of distinct goods or services that are substantially the same. Output methods are covered in IFRS 15.B15-B17. 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). Only Entity X is able to install the equipment. Sometimes a customer can benefit from the good or service only by using them with other readily available resources (e.g. 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. 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. 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. 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). IFRS 15 prescribers the 5-step model for the revenue recognition. Contents IFRS 15 Revenue from Contracts with Customers Illustrative Examples IE1 Identifying the contract IE2 - IE17Contract modifications IE18 - IE43Identifying performance obligations IE44 - IE65A A series of distinct goods or services is treated as one performance obligation when both of the following criteria are met (IFRS 15.23): See Examples 7, 13, 25 accompanying IFRS 15 and the examples below. Such costs cannot be deferred and recognised as assets unless they meet the criteria of recognising costs to fulfil a contract. Home | COVID-19 | Better communication | Business combinations | Financial instruments | Insurance | Leases | Revenue | Sustainability reporting. Le renouvellement du contrat est possible sans coût additionnel. [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. The following decision should be used to determine whether multiple contracts should be combined or not: Example – Combination of contracts . At the reporting period, the package has already been transported to Berlin. Leur expression conceptuelle déroute parfois l’utilisateur des comptes. If no, the good/service is not distinct. [IFRS 15:51] 43 If the customer purchases 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. Example – Volume discount incentive This is an adaptation from IFRS 15, Illustrative examples, Example 24. See Examples 13,18 and 25 accompanying IFRS 15 and the example below. See Example 11 Case D accompanying IFRS 15. Contracts can be written, oral or implied by an entity’s customary business practices. 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. IFRS 15 only impacts the related revenue recognition, not any of the commercial terms of the arrangement. IFRS 16 – baux commerciaux 3-6-9 : quelle durée de location retenir ? Les impacts de la norme, dans son ensemble, pourront être significatifs dans certaines industries, comme les opérateurs téléphoniques ou les SSII. › IFRS 15 – Illustrative disclosures. Paragraph IFRS 15.38 provides additional indicators of the transfer of control which are discussed below. Licences43 . Entity A contracts to transport a package from Madrid to Moscow. Découvrez toutes nos offres d'abonnement et accédez à nos articles et dossiers en ligne. 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). 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). Measuring progress using an input method may be based on e.g. repurchase agreements (including call and put options) covered in IFRS 15.B64-B76 and in Example 62 accompanying IFRS 15, consignment arrangements (e.g. IFRS 15 requires that revenue and impairment losses arising from contracts with customers to be disclosed separately from items not arising from contracts with customers. See paragraphs IFRS 15.B6-B8 and BC134-BC141 for more discussion. Entity A is a company manufacturing car parts. 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. Excerpts from IFRS Standards come from the Official Journal of the European Union (© European Union, https://eur-lex.europa.eu). There seems to be very specific guidance in IFRS 15 related to licences and the initial starting point is to determine whether a licence is distinct. 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»). It is also important that the right to payment is legally enforceable. At a contract inception, entities need to identify the goods or services promised in that contract. Examples of such activities are setup of a manufacturing process or connecting a customer to a telecommunications network. Output methods are based on direct measurement of the value to the customer of the goods or services transferred to date relative to the remaining goods or services promised under the contract. A good or service is transferred to a customer when they obtain control of that asset. 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»). The substance of some performance obligations is to stand-ready to serve the customer and not to deliver the underlying goods/services. A performance obligation can be satisfied (and revenue recognised) at a point in time or over time. Under IFRS 15.18, contract modification is a change in the scope or price of a contract, or both. 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. Such an approach is not allowed under IFRS 15 (IFRS 15.BC88-BC90). 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