Question ILLUSTRATIVE EXAMPLES (see separate booklet) APPENDIX Amendments to the guidance on other Standards IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS IFRS Foundation 4. International Financial Reporting Standard 15 Revenue from Contracts with Customers (IFRS 15) is set out in paragraphs 1–129 and Appendices A–D. • IFRS 15 is principles-based, consistent with legacy revenue requirements, EXAMPLE: MODIFICATION OF A CONTRACT FOR GOODS 55 EXAMPLE: MODIFICATION OF A CONTRACT TO CONSTRUCT A BUILDING 56 . Does the customer have a present right to payment for the asset? On 1 January 20X1 Entity A enters into a contract with Customer X to manage his information technology data … In May 2014, IFRS 15 (International Financial Reporting Standards) Revenue from Contracts with Customers was issued. When a contract modification is approved, it creates or changes the enforceable rights and obligations of the parties to the contract. IFRS 15 Revenue from Contracts with Customers does not . IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers and SIC-31 Revenue – Barter Transaction involving Advertising Services. The following decision should be used to determine whether multiple contracts should be combined or not: Question BDO refers to one or more of the independent member firms of BDO International Ltd, a UK company limited by guarantee. IFRS 15 example – sale of a product A company enters into a contract to sell 200 units of a product for £16,000 (£80 each) and will supply 50 units per month over a four month period (control over each unit passes to the customer on delivery). However, sometimes, entity needs to ascertain that whether a contract for the construction of group of assets will be treated as a single contract or each asset in group of assets will be treated as a separate contract; in such circumstances the entity should apply the following: 1. Construction Co’s financial year end is 30 June 2017. Construction Co would have processed the following journal entry as they incurred the construction costs during the year ended 30 June 2017: The journal entries at 30 June 2017 in relation to the revenue recognised is as follows: There would be similar treatment under IAS 11, however, there are more specific requirements under IFRS 15. New sub-sectors, emerging industries, new funding sources and a truly global landscape are shaping industry dynamics. EXAMPLE: MODIFICATION OF A CONTRACT FOR GOODS 55 EXAMPLE: MODIFICATION OF A CONTRACT TO CONSTRUCT A BUILDING 56 . 25. In addition, the guidance extends to cover and affect not only revenue recognition, but also profit recognition. IFRS 15, paragraph B19 notes that with the input method, depending on the timing or pattern of costs incurred, there may not be a direct relationship between an entity’s inputs and the transfer of control of goods or services to a customer. No profit margin is recognised when the elevator is delivered but revenue is recognised to the extent of the costs of the elevator incurred as follows: Profit would be recognised on the delivery of the elevator at 31 December 2018, even though it had not been installed. Transition . It is noted explicitly that when input methods are used, there may not be a direct relationship between the inputs being used, and the transfer of goods or services to a customer. The power of industry experience is perspective - perspective we bring to help you best leverage your own capabilities and resources. The general principle is that revenue is recognised at a point in time. How should Construction Co account for this arrangement as at 30 June 2017? Our approach is agile, practical and reflects the nature of rapid change in the industry. Free IFRS Quizzes IFRS 15 – Revenue from Contracts with Customers Quiz ) , () ) Previous Lesson. A contract is an agreement between 2 parties that creates enforceable rights and obligations (IFRS 15, Appendix A). CLARIFICATIONS TO IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS—APRIL 2016 Amendments to the Illustrative Examples on IFRS 15 Revenue from Contracts with Customers Paragraphs IE45, IE47, IE50–IE51, IE55–IE57, IE61, IE63, IE225–IE227, IE230–IE232, IE237–IE238, IE240–IE245, IE247–IE248, IE275, IE277–IE280, IE286–IE287, How should these be accounted for in the context of IFRS 15? Inline XBRL; ZIP; Example 19: Credit Risk Exposure . The expected cost to construct the land and garage are $400,000 and $64,000 respectively. the cost of the elevator. Consequently, and particularly if an input method is being used for the purposes of revenue recognition, in many cases the vendor would recognise an equal amount of revenue and cost of sales for the elevators, with profit margin only being recognised on the construction and installation services. BDO’s technology specialists have deep experience in helping clients around the globe to navigate the various issues affecting the industry. Each BDO member firm in Australia is a separate legal entity and has no liability for another entity’s acts and omissions. (i think we should use ifrs 15 as it replaces ias 11)… so please answer to question 2&3 if we must use ifrs 15 in exam: 2-if a contract is a normal one without any extra cost(eg:contract price=$20m and cost=$15m) How should we use ifrs 15? Trends are shifting in the real estate and construction industry. The cost of the elevator would be included in Building Co’s calculation of percentage of completion using the input method. 57 . take stock – to pull together, in one place, what we have learned about this new world of revenue recognition. The manufacturing and wholesale sector covers many industries and product lines. understand how certain areas of IFRS 15 ‘Revenuefrom Contracts with Customers’ has been applied, and whether the accounting appeared appropriate in the circumstances. Even the construction itself could be seen as comprising many component services such as site clearance, foundations, procurement, construction of the structure, piping and wiring, etc. IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers and SIC-31 Revenue – Barter Transaction involving Advertising Services. There are separate contracts for each of these two activities. BDO is a specialised automotive service provider assisting franchised dealers, manufacturers and industry associations with a wide range of financial and consulting services. Under IFRS 15.18, contract modification is a change in the scope or price of a contract, or both. © 2020 BDO Australia Ltd. All rights reserved. Identifying the number of performance obligations. For example, if the ship could be easily sold to another customer and/or the construction company’s legal framework did not allow for it to legally enforce payment; then revenue could not be recognised over time under IFRS 15. A customer engages Construction Co to provide construction services to build a house (contract price of $500,000) and a garage (contract price of $50,000). Free IFRS Quizzes IFRS 15 – Revenue from Contracts with Customers Quiz ) , () ) Previous Lesson. 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