IFRS 15 — Revenue from Contracts with Customers 2015 1 January 2018 January 2018

12 April 2016 Clarifications to IFRS 15 'Revenue from Effective for an entity's first annual IFRS
Overview
Contracts with Customers' issued financial statements for periods
beginning on or after 1 January 2018
IFRS 15 specifies how and when an IFRS reporter will recognise revenue as well as requiring such entities to
provide users of financial statements with more informative, relevant disclosures. The standard provides a single,
The amendments do not change the
principles based five-step model to be applied to all contracts with customers.
underlying principles of the standard,
just clarify and offer some additional
IFRS 15 was issued in May 2014 and applies to an annual reporting period beginning on or after 1 January 2018.
transition relief.
On 12 April 2016, clarifying amendments were issued that have the same effective date as the standard itself.

History of IFRS 15 Related Interpretations

o None
Date Development Comments
Amendments under consideration by the IASB
June 2002 Project on revenue added to the IASB's History of the project
o None
agenda
Superseded Standards

19 December 2008 Discussion Paper Preliminary Views on Comment deadline 19 June 2009

IFRS 15 replaces the following standards and interpretations:
Revenue Recognition in Contracts with
Customers published
o IAS 11 Construction contracts
24 June 2010 Exposure Draft ED/2010/6 Revenue Comment deadline 22 October 2010
o IAS 18 Revenue
from Contracts with
Customers published
o IFRIC 13 Customer Loyalty Programmes

o IFRIC 15 Agreements for the Construction of Real Estate

14 November 2011 Exposure Draft ED/2011/6 Revenue Comment deadline 13 March 2012
from Contracts with
o IFRIC 18 Transfers of Assets from Customers
Customers published (re-exposure)
o SIC-31 Revenue - Barter Transactions Involving Advertising Services

28 May 2014 IFRS 15 Revenue from Contracts with Effective for an entity's first annual IFRS
 
Customers issued financial statements for periods
beginning on or after 1 January 2017 Summary of IFRS 15

Objective
11 September IASB defers effective date of IFRS 15 to New effective date of IFRS 15 is 1
The objective of IFRS 15 is to establish the principles that an entity shall apply to report useful information to o a series of distinct goods or services that are substantially the same and that have the same pattern of
users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows transfer to the customer.
arising from a contract with a customer. [IFRS 15:1] Application of the standard is mandatory for annual
reporting periods starting from 1 January 2018 onwards. Earlier application is permitted. Income arising in the course of an entity’s ordinary activities.

  The amount of consideration to which an entity expects to be entitled in exchange for transferring promised
goods or services to a customer, excluding amounts collected on behalf of third parties.
Scope
 
IFRS 15 Revenue from Contracts with Customers applies to all contracts with customers except for: leases within
the scope of IAS 17 Leases; financial instruments and other contractual rights or obligations within the scope Accounting requirements for revenue
of IFRS 9 Financial Instruments, IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IAS
The five-step model framework
27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures; insurance contracts
within the scope of IFRS 4 Insurance Contracts; and non-monetary exchanges between entities in the same line
The core principle of IFRS 15 is that an entity will recognise revenue to depict the transfer of promised goods or
of business to facilitate sales to customers or potential customers. [IFRS 15:5]
services to customers in an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services.  This core principle is delivered in a five-step model framework: [IFRS
A contract with a customer may be partially within the scope of IFRS 15 and partially within the scope of another
15:IN7]
standard.  In that scenario: [IFRS 15:7]
o Identify the contract(s) with a customer
o if other standards specify how to separate and/or initially measure one or more parts of the contract,
then those separation and measurement requirements are applied first. The transaction price is then
reduced by the amounts that are initially measured under other standards;

o if no other standard provides guidance on how to separate and/or initially measure one or more parts
of the contract, then IFRS 15 will be applied. 

 
o Identify the performance obligations in the contract
Key definitions
o Determine the transaction price
[IFRS 15: Appendix A]
o Allocate the transaction price to the performance obligations in the contract
An agreement between two or more parties that creates enforceable rights and obligations.
o Recognise revenue when (or as) the entity satisfies a performance obligation.
A party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary
Application of this guidance will depend on the facts and circumstances present in a contract with a customer
activities in exchange for consideration.
and will require the exercise of judgment.
Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or
Step 1: Identify the contract with the customer
decreases of liabilities that result in an increase in equity, other than those relating to contributions from equity
participants. A contract with a customer will be within the scope of IFRS 15 if all the following conditions are met: [IFRS 15:9]

A promise in a contract with a customer to transfer to the customer either: o the contract has been approved by the parties to the contract;

o a good or service (or a bundle of goods or services) that is distinct; or

 o each party’s rights in relation to the goods or services to be transferred can be identified; o the customer can benefit from the good or services on its own or in conjunction with other readily
available resources; and
o the payment terms for the goods or services to be transferred can be identified;
o the entity’s promise to transfer the good or service to the customer is separately idenitifable from
o the contract has commercial substance; and other promises in the contract.

o it is probable that the consideration to which the entity is entitled to in exchange for the goods or Factors for consideration as to whether a promise to transfer goods or services to the customer is not separately
services will be collected. identifiable include, but are not limited to: [IFRS 15:29]

If a contract with a customer does not yet meet all of the above criteria, the entity will continue to re-assess the o the entity does provide a significant service of integrating the goods or services with other goods or
contract going forward to determine whether it subsequently meets the above criteria. From that point, the services promised in the contract;
entity will apply IFRS 15 to the contract. [IFRS 15:14]
o the goods or services significantly modify or customise other goods or services promised in the
The standard provides detailed guidance on how to account for approved contract modifications. If certain contract;
conditions are met, a contract modification will be accounted for as a separate contract with the customer. If
not, it will be accounted for by modifying the accounting for the current contract with the customer. Whether o the goods or services are highly interrelated or highly interdependent.
the latter type of modification is accounted for prospectively or retrospectively depends on whether the
remaining goods or services to be delivered after the modification are distinct from those delivered prior to the Step 3: Determine the transaction price
modification. Further details on accounting for contract modifications can be found in the Standard. [IFRS 15:18-
The transaction price is the amount to which an entity expects to be entitled in exchange for the transfer of
21].
goods and services. When making this determination, an entity will consider past customary business practices.
Step 2: Identify the performance obligations in the contract [IFRS 15:47]

At the inception of the contract, the entity should assess the goods or services that have been promised to the Where a contract contains elements of variable consideration, the entity will estimate the amount of variable
customer, and identify as a performance obligation: [IFRS 15.22] consideration to which it will be entitled under the contract. [IFRS 15:50] Variable consideration can arise, for
example, as a result of discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses,
o a good or service (or bundle of goods or services) that is distinct; or penalties or other similar items. Variable consideration is also present if an entity’s right to consideration is
contingent on the occurrence of a future event.  [IFRS 15:51]
o a series of distinct goods or services that are substantially the same and that have the same pattern of
transfer to the customer. The standard deals with the uncertainty relating to variable consideration by limiting the amount of variable
consideration that can be recognised. Specifically, variable consideration is only included in the transaction price
A series of distinct goods or services is transferred to the customer in the same pattern if both of the following if, and to the extent that, it is highly probable that its inclusion will not result in a significant revenue reversal in
criteria are met: [IFRS 15:23]   the future when the uncertainty has been subsequently resolved. [IFRS 15:56]

o each distinct good or service in the series that the entity promises to transfer consecutively to the However, a different, more restrictive approach is applied in respect of sales or usage-based royalty revenue
customer would be a performance obligation that is satisfied over time (see below); and arising from licences of intellectual property. Such revenue is recognised only when the underlying sales or usage
occur. [IFRS 15:B63]
o a single method of measuring progress would be used to measure the entity’s progress towards
complete satisfaction of the performance obligation to transfer each distinct good or service in the Step 4: Allocate the transaction price to the performance obligations in the contracts
series to the customer.
Where a contract has multiple performance obligations, an entity will allocate the transaction price to the
A good or service is distinct if both of the following criteria are met: [IFRS 15:27] performance obligations in the contract by reference to their relative standalone selling prices. [IFRS 15:74] If a
standalone selling price is not directly observable, the entity will need to estimate it. IFRS 15 suggests various o the entity’s performance creates or enhances an asset that the customer controls as the asset is
methods that might be used, including: [IFRS 15:79] created; or

o Adjusted market assessment approach o 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.
o Expected cost plus a margin approach
If an entity does not satisfy its performance obligation over time, it satisfies it at a point in time. Revenue will
o Residual approach (only permissible in limited circumstances). therefore be recognised when control is passed at a certain point in time. Factors that may indicate the point in
time at which control passes include, but are not limited to: [IFRS 15:38]
Any overall discount compared to the aggregate of standalone selling prices is allocated between performance
obligations on a relative standalone selling price basis. In certain circumstances, it may be appropriate to allocate o the entity has a present right to payment for the asset;
such a discount to some but not all of the performance obligations. [IFRS 15:81]
o the customer has legal title to the asset;
Where consideration is paid in advance or in arrears, the entity will need to consider whether the contract
includes a significant financing arrangement and, if so, adjust for the time value of money. [IFRS 15:60] A o the entity has transferred physical possession of the asset;
practical expedient is available where the interval between transfer of the promised goods or services and
payment by the customer is expected to be less than 12 months. [IFRS 15:63] o the customer has the significant risks and rewards related to the ownership of the asset; and

Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation o the customer has accepted the asset.

Revenue is recognised as control is passed, either over time or at a point in time. [IFRS 15:32] Contract costs

Control of an asset is defined as the ability to direct the use of and obtain substantially all of the remaining The incremental costs of obtaining a contract must be recognised as an asset if the entity expects to recover
benefits from the asset. This includes the ability to prevent others from directing the use of and obtaining the those costs. However, those incremental costs are limited to the costs that the entity would not have incurred if
benefits from the asset. The benefits related to the asset are the potential cash flows that may be obtained the contract had not been successfully obtained (e.g. ‘success fees’ paid to agents). A practical expedient is
directly or indirectly. These include, but are not limited to: [IFRS 15:31-33] available, allowing the incremental costs of obtaining a contract to be expensed if the associated amortisation
period would be 12 months or less. [IFRS 15:91-94]
o using the asset to produce goods or provide services;
Costs incurred to fulfil a contract are recognised as an asset if and only if all of the following criteria are met:
o using the asset to enhance the value of other assets; [IFRS 15:95]

o using the asset to settle liabilities or to reduce expenses; o the costs relate directly to a contract (or a specific anticipated contract);

o selling or exchanging the asset; o the costs generate  or enhance resources of the entity that will be used in satisfying performance
obligations in the future; and
o pledging the asset to secure a loan; and
o the costs are expected to be recovered.
o holding the asset.
These include costs such as direct labour, direct materials, and the allocation of overheads that relate directly to
An entity recognises revenue over time if one of the following criteria is met: [IFRS 15:35] the contract. [IFRS 15:97]

o the customer simultaneously receives and consumes all of the benefits provided by the entity as the The asset recognised in respect of the costs to obtain or fulfil a contract is amortised on a systematic basis that is
entity performs; consistent with the pattern of transfer of the goods or services to which the asset relates. [IFRS 15:99]
Further useful implementation guidance in relation to applying IFRS 15 Where the entity has performed by transferring a good or service to the customer and the customer has not yet
paid the related consideration, a contract asset or a receivable is presented in the statement of financial
These topics include: position, depending on the nature of the entity’s right to consideration. A contract asset is recognised when the
entity’s right to consideration is conditional on something other than the passage of time, for example future
o Performance obligations satisfied over time
performance of the entity. A receivable is recognised when the entity’s right to consideration is unconditional
except for the passage of time.
o Methods for measuring progress towards complete satisfaction of a performance obligation
Contract assets and receivables shall be accounted for in accordance with IFRS 9. Any impairment relating to
o Sale with a right of return
contracts with customers should be measured, presented and disclosed in accordance with IFRS 9. Any
o Warranties difference between the initial recognition of a receivable and the corresponding amount of revenue recognised
should also be presented as an expense, for example, an impairment loss. [IFRS 15:107-108]
o Principal versus agent considerations
 
o Customer options for additional goods or services
Disclosures
o Customers’ unexercised rights
The disclosure objective stated in IFRS 15 is for an entity to disclose sufficient information to enable users of
o Non-refundable upfront fees financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising
from contracts with customers. Therefore, an entity should disclose qualitative and quantitative information
o Licensing about all of the following: [IFRS 15:110]

o Repurchase arrangements o its contracts with customers;

o Consignment arrangements o the significant judgments, and changes in the judgments, made in applying the guidance to those
contracts; and
o Bill-and-hold arrangements
o any assets recognised from the costs to obtain or fulfil a contract with a customer.
o Customer acceptance
Entities will need to consider the level of detail necessary to satisfy the disclosure objective and how much
o Disclosures of disaggregation of revenue emphasis to place on each of the requirements. An entity should aggregate or disaggregate disclosures to ensure
that useful information is not obscured. [IFRS 15:111]
These topics should be considered carefully when applying IFRS 15.
In order to achieve the disclosure objective stated above, the Standard introduces a number of new disclosure
  requirements. Further detail about these specific requirements can be found at IFRS 15:113-129.

Presentation in financial statements  

Contracts with customers will be presented in an entity’s statement of financial position as a contract liability, a Effective date and transition
contract asset, or a receivable, depending on the relationship between the entity’s performance and the
customer’s payment. [IFRS 15:105] The standard should be applied in an entity’s IFRS financial statements for annual reporting periods beginning on
or after 1 January 2018. Earlier application is permitted.  An entity that chooses to apply IFRS 15 earlier than 1
A contract liability is presented in the statement of financial position where a customer has paid an amount of January 2018 should disclose this fact in its relevant financial statements. [IFRS 15:C1]
consideration prior to the entity performing by transferring the related good or service to the customer. [IFRS
15:106]
When first applying IFRS 15, entities should apply the standard in full for the current period, including
retrospective application to all contracts that were not yet complete at the beginning of that period. In respect
of prior periods, the transition guidance allows entities an option to either: [IFRS 15:C3]

o apply IFRS 15 in full to prior periods (with certain limited practical expedients being available); or

o retain prior period figures as reported under the previous standards, recognising the cumulative effect
of applying IFRS 15 as an adjustment to the opening balance of equity as at the date of initial
application (beginning of current reporting period).