Or it is not the case since the assets are legally not ours but for the clients and hence they have claim for this from initial loading into the trucks. “After the first delivery is made, Forward University and Ball PC amend the contract. There is no one solution applicable for all. Currently we take the revenu of the machine the INCO term is fulfilled and the installation revenu, mostly done by our own engineers, after the machine is in production. Sarah, please browse my website and you’ll find the full article with the difference. Best, S. Hi Silvia, In addition, the company provides a license. I read your article about IFRS 15 and I would like to know how it can be applied to a taxi company where customers pay by credit card. CU 50 000 (CU 55 000/(100+10)*100) for software development or customization service, and. If this is the case, the revenue is recognised over time even when there’s no enforceable right to payment for the performance up to date. Its informative and useful. Please Keep it up. I have questions regarding incoterm CIF. Question is whether we should not record revenue at stage of raising debtors since performance obligation is met at this time? S. Very informative . So I’m sorry, you can just compare the quality and the amount of disclosures and quantitative information and do it theoretically. Alternatively, “no alternative use” can be achieved contractually, meaning that the contract prevents directing the asset to another customer. Example: Telecom and individual performance obligations: please refer here. Hi Sylvia, your efforts are commendable. Thanks. In this case, telecom operators must allocate total contract price between the revenue from the sale of handset and sale of monthly plan. As opposed to existing guidance, IFRS 15 gives you much less room for your own accounting decisions and specifies a lot more things. I just have a quick question: For contract modifications: if the modification adds distinct goods and services at the stand-alone selling price, it is accounted for as a new separate contract. Other difficulties arise in areas common for every industry: dealing with contract modifications, how to account for contract costs (e.g. I was searching for examples from the IT Industry, e.g. and amortize it in our books > and the products that will be manufactured using that tool, Highlighting your ideas with IFRS 15 will be helpful. Will it be seen as advance payment with financing and you should calc interest for up to 7 years? Thank you for explaining, I am still unclear for few things as I would like to give an example of manufacturing company where I work. Inline XBRL; ZIP; Example 16: Financial assets & financial liabilities subject to offsetting 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. Thank you As a result, the timing of revenue recognition changes, because under IFRS 15, the revenue is recognized earlier than under IAS 18. 70% upon shipment (say in month 2); and finally You have mentioned in your example “We need to allocate CU 680 000 to 400 computers in total (200 undelivered before contract modification + 200 additional computers), which means that Ball PC allocates CU 1 700 to one computer (680 000/400).” Copyright © 2009-2020 Simlogic, s.r.o. Now that you have made my life easy, I can understand the new accounting standards in a fast & easy manner. Letâs 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. Moreover, the applicable date of this standard will be postponed by 1 year. If considered cost of acq a customer maybe this could be capitalised under ias 18 instead of being expensed. So once loads are done with proof of documents sent to the client we raise Debtors (Debit Debtor and Credit the receivable pool). Par Hugues de Noray, associé, Advolis Audit et Conseil. That was an error at uploading the post, I made a correction. Internal cost estimations show that ManyBits estimated total cost for the contract of CU 45 000, thereof CU 43 000 for the salaries of software developers and CU 2 000 for the salaries of consultants providing post-delivery support (based on man-days). Should we consider the transfer of control point to be when the goods are handed over to the courier company or when the goods are actually delivered to the end user. Les normes IFRS sont fondées sur des principes. Everybody seemed to have time when it was about 1-2 years to go before the initial date. aaaa, that’s a mistake ð It happens ð Even my reviewer did not notice. Kindly let me know the solution of below scenario. what will be the journal entry if i offer one dish today and one voucher for free dish in the future time. No headaches. No other specific terms in the contract with client A. You calculate % of completion based on costs (input method selected), and revenue as % on total revenues = transaction price. S. Hi Silvia … Plz I need to knowv the effect of this new standard on the quality of financial statement while this standard still non applicable I find difficulty in measuring the quality of F/S, can u recommend for me how to do that ð. you need to identify the performance obligations first. If yes, then you need to split the revenue based on their relative stand-alone selling prices and recognize revenue for a machine when you deliver it and the revenue for the installation when you install the machine. The revenue for the year ended 31 December 20X1: Here, the additional contract represents typical contract modification, as the amount of computers changes and the total transaction price changes, too. How should a … 2) You may if this is material. Hi Silvia 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. for example, guarantee of the selling goods should be under IFRS 15. Analyzed sectors can face different challenges too. Big Bed enters in a contract with a customer to sell beds for $400 per bed on 1 January 2017. All the best! 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. Instead, I wanted you to be aware that you might need in fact much more time for making all the preparatory work and implementing IFRS 15 than you imagined. Hi Silvia you are making IFRS easy, Thank you very much indeed. 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. Thank you, Paul ð Good luck with your clients – IFRS 15 is a great consulting scope, I believe. It is simply impossible to catch everything in the article ð I am confused in if my company uses cost-plus (input) method in recognizing revenue, will I have to re-assess the “cost” as in considering the sales discount amount as part of the cost, or I just recognize the sales discount as a contra-account booking against the revenue figure? It is fair to say most (aircraft, missiles, etc) are rather unique to the Customer and payment is largely upfront with advance & progress payments. If the revenue is to be recognized over time, how should the company, Do you incur certain costs for obtaining the contract, like, Additional goods and services in the modification must be, Amount of consideration expected for the additional goods/services must. Services; Audit and Assurance; Financial statement audit. IFRS 15 also includes guidance related to contract costs. Under IFRS 15.18, contract modification is a change in the scope or price of a contract, or both. Both clients want to buy almost identical apartments and agree with total price of CU 100 000 per apartment. Hi Lee, 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. Bien que d’application obligatoire à partir du 1er janvier 2017, il est fortement conseillé d’engager les travaux d’implémentation sans délai. Please share this article with your friends and make them aware of whatâs coming. Which of the 3 criteria were a “yes”? Just think it out carefully! Then many accountants and CFOs realized that they would need much more time for making transition and they should have started months before they actually did. post implementation support). hello mam your example is very good for learning for ifrs .that is a big gun to learn anything in the ifrs.thanks. Please enlighten me. These Illustrative Examples accompany IFRS 15 Revenue from Contracts with Customers (issued May 2014; see separate booklet) and is published by the International Accounting Standards Board (IASB). No, thereâs no mistake â I wrote WARNING intentionally. What I understood that we calculate revenue based on the 45% of total cost not transaction price .. Dalia, In the year 20X1, ManyBits measures the progress towards the completion of the performance obligation separately, based on inputs for the fulfilling the contract (costs in this case). To illustrate the potential impact of IFRS 15, let me give you one example dealing with contract modification. La parution d’IFRS 15 en mai 2014 s’accompagne d’un recueil de 63 exemples pour illustrer les conséquences pratiques attendues. The biggest challenge is to decide whether the company should recognize revenue over time (spread during individual years of construction) or at the point of time (one-time at the completion of a contract). Of course, you need to perform your analysis and I tell you â your conclusion might be pretty different from this example, based on specifics in the contract. When a contract modification is approved, it creates or changes the enforceable rights and obligations of the parties to the contract. S. You are simply wonderful. once again, well done prof.. Hi Silvia, Why is the revenue for handset is recognised over time (based on progress) while the revenue for network services is recognised at a point in time (upon completion). + free IFRS mini-course. 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. 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. RE Construct has the right to retain the payments from any client in the situation when that client defaults on the contract before its completion. Thank you! S. Good day. You simply cannot report under invalid rules, that’s why. The reason is that RE Construct cannot direct the constructed asset for the alternative use, because the contract with client B does not permit transfer of the apartment to another client. So, basically allocating total price to two different types of products. I have already written an article with the specific example of this situation, so please refer here. Paragraphs … Have a couple of queries in connection to cost of acquiring a customer (lets say, direct sales commissions). Just want to clarify followings. If the above criteria are not fulfilled (or one of them is not met), then the contract modification is not a separate contract and the accounting depends on further analysis. I also wrote this article for you to give you a few IFRS 15 examples and hints â all with the purpose to warn you. “As of 31 December 20X1, Ball PC delivered 400 computers (300 as agreed initially and 100 under the contract amendment).”. So this feels like the right time to . That means, the “delivery” of the DVD and the license are treated as one PO. Executive summary 3 2. Will guidance be taken from Framework to IFRS or is there any specific standard? Incremental costs of obtaining a contract (for example, a sales commission) should be recognised as an asset if they are expected to be recovered. Hi silvia, The biggest challenges will be mainly in the areas that are not very precisely arranged by IAS 18 and other related standards. In another word, why they change? 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! Les contrôles comptables Sapin 2 : une lumière au bout du tunnel, L’application de l’amendement à la norme IFRS 16 relatif aux allégements de loyers liés à la Covid-19 dans les comptes semestriels suspendue au processus d’adoption européen, En un temps record, l’IASB propose d’amender la norme IFRS 16 pour traiter les allégements de loyer liés au Covid-19, Synthèse des discussions en cours à l’IASB, L’IASB fait des propositions pour améliorer la comparabilité du compte de résultat. 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. Shouldn’t it be the other way round? Only slight change in the provisions of the specific contract may trigger the necessity to recognize revenue at the point of time rather than over time â or vice versa. [IFRS 15:51] Maybe some POs are satisfied at the point of time (e.g. I am not sure I follow the second scenario under the manufacturing contract modification case. 20% upon order (say in month 1); Thanks for efforts really useful. Dear Miss Fairuz, The contract A would make it that way under IAS 11, but not under IFRS 15 as it does not meet all criteria. To my mind, this treatment is exactly the same, or are there any reasons you can think of that they would identify them as different? 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. Is it essential review all the different type of contracts? The products are delivered on 15 December 2017 and C returns 20 of them on 15 January 2018. 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). 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