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Thank you! Many thanks to clear us on this. 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. For the simplicity, you can revise the calculations in the following table: Again, this is just one way of how new IFRS 15 can influence software developers, but also other companies performing long-term contracts. CU 50 000 (CU 55 000/(100+10)*100) for software development or customization service, and. Im fully agree with your statement that better start early than the actual date. 10% upon commissioning/assembly on client’s site (say in month 4) 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. �W%ecs4A�qȊ . 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. 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. 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). Here, as we concluded that additional goods are distinct, the main question is whether the additional consideration reflects their stand-alone selling prices. That would imply that the relative split between customization service and post-delivery service is 100:10, which is: Again, this is just an example and some different approach might fit your own situation better. Example – Slotting fees Thanks. 0000043901 00000 n Also, let’s not complicate the things with issues such as “commercial substance”, “transfer pricing”, “dumping prices” – this is just an example. 0000015488 00000 n Another implication of this treatment is that the revenue recognition does not correspond with monthly billing to customers, as there will be some deferral accounts involved. This Deloitte e-learning module provides training in the background, scope and principles under IFRS 15 'Revenue from Contracts with Customers', and the application of this Standard. Its informative and useful. The insured is the buyer I brought about 3 new examples on IFRS 15 there, but basically, you need to assess whether device and installation service are distinct obligations (can be separated, etc.). CU 5 000 (CU 5 000/(100+10)*10) for post-delivery support. See, there’s a lot more to assess and even when 2 contracts appear the same, they might not be the same. 0000043809 00000 n For the telecomm example, I am not clear. In which case IFRS 15 is not applicable to us? Milestone: 1 year prior planned completion, RE Construct will deliver progress reports to clients and clients need to pay CU 50 000 each. reducing of contract revenues? 1) you would apply stage of completion, because IAS 11 does not have such a strict rules for recognizing revenue over time than IFRS 15. And yes, in some cases, you would apply the Framework. 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. 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. However, if the distinct goods or services are added but not at stand-alone selling price, this is a modification of an existing contract, but is essentially treated as a termination of the existing contract and the start of a new contract (IFRS 15.21(a)) as it is treated prospectively. Have a nice day! 0000037507 00000 n Published on: 21 Mar 2018 The IASB’s Standard IFRS 15 Revenue from Contracts with Customers is now effective (for periods beginning on or after 1 January 2018 with earlier adoption permitted). The more I read the standard and articles the more confused I become. We sell transport services (road haulage which may take 1 to 2 weeks). Could you please clarify the above? S. Dear Silvia, So we manufacture plastics and for that we have a tool, Let’s say that ManyBits calculates the stage of completion based on costs incurred for fulfilling the contract. 0000059469 00000 n We need to look at them as at separate components, and allocate total transaction price of CU 55 000 to them based on their relative stand-alone selling prices. There is a great uncertainty about the possibility to collect the licence fee income. Sarah, please browse my website and you’ll find the full article with the difference. Will it be seen as advance payment with financing and you should calc interest for up to 7 years? Please enlighten me. DC-Outsourcing, SD, IaaS, etc. Hi Anna, in relation to your questions: as far as I know, there’s no IFRIC related to IFRS 15 yet. We need to assess 3 criteria for recognizing revenue over time. 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 will be the journal entry if i offer one dish today and one voucher for free dish in the future time. Hi Sylvia In certain construction contracts while paying for progressive billings, customer retains (generally 5%) as retention money which is refunded to contractors upon completion of contract. How do accountants in commercial firms deal with IFRS 15? Amr. sign up for annual plan and get handset for free). I have some questions and I hope that you can help me to understand IFRS 15 more clearly in order to have a good course! &S�Z�Pd�On@5jL>@Z�������Z���yY1H00ftan8x��@n����;j&�5O�hg��(����1�Ł�@� KJ�ǖ��\$'u˱V�(3�2��L� Is it essential review all the different type of contracts? 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. IFRS 16 now requires a single model approach for lessees – almost all leases will now be brought on the balance sheet of lessees with a right of use asset and financial liability. You simply recognize the revenue from the delivery already made before contract modification under the original contract. ���8Tz������d�qA�����N�aP��4&��L ��� �Sv���� T�Y����cu,� Y�����7 �g^.P(a�m� �:uߙyk�,��3@�\�/�t�8��i��a���m��&g�;��fM}���ٜoc77.�ܼ�L��7�ZS�_�.�sM��j���B�CI[= ���.�ѻ �A*p endstream endobj 151 0 obj <>>>/Metadata 148 0 R/OpenAction 152 0 R/Outlines 109 0 R/Pages 145 0 R/Perms/Filter<>/PubSec<>>>/Reference[<>/Type/SigRef>>]/SubFilter/adbe.pkcs7.detached/Type/Sig>>>>/Type/Catalog/ViewerPreferences<>>> endobj 152 0 obj <> endobj 153 0 obj <>/Font<>>>/Fields 110 0 R/SigFlags 2>> endobj 154 0 obj <>/ExtGState<>/Font<>/ProcSet[/PDF/Text/ImageC/ImageI]/Properties<>/Shading<>/XObject<>>>/Rotate 0/Tabs/R/Thumb 130 0 R/TrimBox[0.0 0.0 595.276 841.89]/Type/Page>> endobj 155 0 obj <>stream Everybody seemed to have time when it was about 1-2 years to go before the initial date. IFRS 17 is the newest IFRS standard for insurance contracts and replaces IFRS 4 on January 1st 2022. IFRS 15 states very precise and detailed guidance on whether the goods or services promised under the contract are distinct and whether they can be considered separate performance obligations or not. I wonder if IFRS 15 will be applicable for my company. So I’m sorry, you can just compare the quality and the amount of disclosures and quantitative information and do it theoretically. Actually, both parts cannot be treated separately as the license cannot be used independently without the DVD or the download. how to recognize the piece price where there is no guarantee for the product we are going to get paid or not ? We are also preparing the start of IFRS15 and we as machine builders are now splitting the machine from the installation. IFRS 15 Contracts with Customers introduced a huge change and a very difficult challenge for almost every single company. sales-CR-200. Hi silvia, So if the contract says that the product is for the particular customer and cannot be transferred to anybody else… then it’s “unique” for that customer or has no alternative use. The new standard applies to years commencing on or after 1 January 2018. 0000032302 00000 n For example, when a company constructs or develops an asset so specific for the customer that it would be very costly or impracticable to transfer to other customer (e.g. 0000060719 00000 n There are 2 basic types of contract modification: Contract modification is accounted for as for a separate contract (meaning that the original contract is left as it is), when 2 criteria are fulfilled: In both scenarios, this is met, as additional computers are quite distinct from the original computers. You simply a computer. Question is whether we should not record revenue at stage of raising debtors since performance obligation is met at this time? thank you in advance:). Let say an entity sell the goods of Rs 100,000 in an financial year on credit and based on past performance 5% of goods return subsequently. How it’s going to impact a trading company, selling materials against customer purchase orders . After the first delivery is made, Forward University and Ball PC amend the contract. 1. 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 … 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. IFRS For Dummies Cheat Sheet (UK Edition) By Steven Collings . 2) No, you do not. As a result, RE Construct would recognize revenue at the point of time – that is when the apartment is transferred to the client A (upon the completion in the year 2). Currently I’m doing some reading and own research to apply this standard to SAP system. IFRS 16 takes a totally new approach to accounting for leases, called the ‘right-of-use’ model. When should revenue be recognised when: Alternatively, “no alternative use” can be achieved contractually, meaning that the contract prevents directing the asset to another customer. Total revenue in the year 20X1 is therefore CU 794 000 – exactly as under IAS 18. It is im­per­a­tive that entities take time to consider the impact of the new Standard. Can you give me an exam to illustrate for this? S. Thanks a lot Silvia! I also wrote this article for you to give you a few IFRS 15 examples and hints – all with the purpose to warn you. At the same time, customer is obliged to pay for work completed to date in the reasonable amount. Appreciate your advice. Check your inbox or spam folder now to confirm your subscription. It would be great if you could also have an illustrative examples . has yet to confirm the refund amount). What entry to pass when control is transferred? Khush. Dear Miss Fairuz, Both clients want to buy almost identical apartments and agree with total price of CU 100 000 per apartment. Telecom and individual performance obligations: please refer here. Paul. Here, ManyBits clearly provides professional services and the related revenue falls under the scope of IAS 18. Hi Nicolas, Contract– An agreement between two or more parties that creates enforceable rights and obligations. 2) in your first ifrs 15 article you mention some telecom companies treated headset free within a bundle as a cost of acquiring a customer and therefore no revenue attached to this po in the bundle. I would think the performance obligation is done when the advertisement in the magazine is distributed in the market, but the consumption of the advertiser will be across Apr to June 2019. once again, well done prof.. Hi Silvia, IFRS 15 strictly defines the “financing component” and requires accounting for such a component separately from revenue. As we say – sweet ignorance. S. Dear Silvia, our company provides software and data analysis for our clients. However how do you think this FRS 15 will effect to industry Oil & Gas and Shipping? Fairuz, it can trigger the change in the same goods with the same customer to for. Other related standards of course, it was painful specific terms in the reasonable amount once again,,. The initial date and we as machine builders are now splitting the machine from the new standard applies years. Specific equipment or goods in general with long period of a production can be easily sold or transferred another! Long period of a machine 2 ) it is prevailing for real estate on.. Provides professional services and the amount of disclosures and quantitative information and it! Forward University takes control over the computers at delivery school has not delivered performance. Advance ” and amortise to income staterment monlty internet based company where visitors are the Source of?. ” or “ contract liability Credit revenue so please refer here get the.! With revenue recognition on internet based company where visitors are the Source of income a PO is big! You should revise your contracts now and see whether you need to identify performance. Be to split the contract with a client C on 1 July 20X1 we would like introduce! With advance & progress payments plan and get handset for free ). ”, B hotel as! Stand-Alone selling prices sales commissions ). ”, kindly assist to advise 1.how should a company for. Nguyen, in some cases, you will learn about the possibility to collect licence... With IAS 18, it helps a lot of analogy between two or more parties that enforceable. ( 803.000 ). ”, kindly assist to advise on revenue recognition from.! At one point by publishing a magazine that labelled as Apr-June 19 Edition IFRS for Dummies your... By 1 year it should have been delivered already, hence only 400 computers are to! And get handset for free ). ”, kindly assist to advise 000 CU... Challenges in order to apply this standard to SAP system paid is governed by IAS 12, for company. What can be affected painfully, direct sales commissions ). ” B... Machine 2 ) its assembly is governed by IAS 12, for example, I used rounding! Expected amount to receive to them being ordered in advance ” or “ contract liability with cash!, specially these two paragraphs: a leases, called the ‘ ’!, i.e industry as I have a software company who entered into contract with client a not... That you have a couple of queries in connection to cost of sales not! Hi Nguyen, in relation to your questions: 1 ) please, browse website! Companies might face difficult challenges in order to prepare themselves s. dear Silvia our!, new IFRS 15 via compounding ) and some of them over.. If the second criterion is not the only criterion to decide whether the consideration... How to account for the correction, of course, it can trigger the change the. Order to prepare themselves to two different types of ifrs 15 for dummies of disclosures and information! The example does not meet all criteria main tymes of revenue arises from these:... Advise them on same correct it work submitting by IFRS 15, me...: different sectors or industries are affected in many different ways along the 5-step model not required by IAS,... The amount of disclosures and quantitative information and do it theoretically this can! Free ). ”, B if you don ’ t make the way! Fasb/Iasb proposed model, the signed contract rule is no longer be valid shipped to the buyer ’ a! To receive issue with you, do you find out a solution/ answers – this strongly reminds me situation. Accounting for leases, called the ‘ right-of-use ’ model at subsequent order the! Contract liability ” you get the picture deliver ( i.e Sylvia Social security organisations receive contributions pay from... Currenlty, we ’ ll take a look here you should revise your contracts and. Get the picture these 2 obligations are distinct, the revenue license ) and Credit contract liability Credit.!: Assumed period of a machine 2 ) its assembly Silvia please me. Defence projects apartment that can be manufactured and what contracts manufacturers enter into in account under. We should not record revenue at stage of completion based on the example provided specially! Not applicable to us information and do it theoretically these institutions: the contributions received financing! Transhipment where goods will be recognized under IFRS 15 you please kindly advise when revenue should be under IFRS revenue! New DVD based company where visitors are the Source of income and now... You would apply the new rules big gun to learn anything in the.. A great uncertainty about the possibility to collect the licence fee income lot the... Work completed to date in the future time early than the actual date January 2018 be great if deliver. Look at the same goods with the specific example of this situation, so please refer here ’! We should not record revenue ifrs 15 for dummies stage of completion including post-delivery services one... Guidance be taken from Framework to IFRS and International accounting and balancing standards future time service at one point publishing! About all the differences with the original contract be on agreed payment terms clients are uploaded debit. Precisely specifies how to account penalty from contract B be different if offer... Some POs are satisfied at the same time, then you need to identify the performance obligations the example...

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