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All entities adopting IFRS 15 need to assess how the new requirements apply to them and update how their
revenue recognition policies are described in the financial statements.
Typically applies to
a. The customer
contracts for services
simultaneously
The concept of control of
receives and
an asset applies because
consumes the Cleaning services
services are viewed as an
economic benefits Transportation services
asset (momentarily) when
provided by the Some professional services
they are received and used
vendor’s
or consumed
performance
Consider whether another
vendor would need to
substantially re-perform the
work completed to date
In practice, it is not always straightforward to determine which of the ‘over time’ criteria, if any, are relevant
and whether they are satisfied. For example, in the case of a professional services engagement:
Does the customer receive a service or goods? Payroll processing services could be services that the
customer receives and benefits from throughout the contract and may qualify for over time revenue
recognition under the criteria in (a).
Is the objective of the engagement to produce a report? The customer is unlikely to benefit until the
report is delivered. In such cases, the entity needs to consider the criteria in (c) or revenue might need to
be recognised at a point in time when the report is completed.
Where (c) applies, a careful review of the contract terms, and the legal frameworks that govern the transaction,
is required. There is often considerable judgement involved in assessing:
While risks and rewards continues to be an indicator, entities moving from IAS 18 to IFRS 15 should consider
whether a different indicator or indicators could more accurately depict the transfer of control for the asset in
question, which could change the point in time when revenue is recognised. For example, some consumer
product manufacturers and retailers ship goods on “Free On Board (FOB) shipping point” terms, but retain a
degree of risk during shipment and may conclude that control is transferred (based on legal title, right to
payment, the customer’s right to redirect the goods) earlier than risks and rewards and may recognise revenue
earlier under IFRS 15.
For help and advice on revenue recognition issues please get in touch with your usual BDO contact or Tony
Perkins.
Variable consideration
Where the variable consideration in relation to the licence (but not sale) of IP is in the form of a sales-based or
usage-based royalty, ie the amount of consideration receivable is dependent upon the number of sales the
customer makes using the IP, then that variable consideration is subject to different constraints.
This restriction only applies where the sales-based or usage-based royalty relates solely or predominantly to
the IP licence such as may be the case with, for example, a licence for a movie for six weeks of screenings,
along with providing memorabilia at the start of the screening period. In instances where the royalty relates
solely or predominantly to the IP licence then the sales-based or usage-based royalty exception (the ‘royalty
exception’) must be applied to the royalty in its entirety.
In these instances, instead of the ‘general approach’ to estimating the variable consideration amount, IFRS 15
only permits the recognition of the revenue from these sales-based or usage-based royalties when, or as, the
later of the following occurs:
The customer sales on which the royalty is based will be approximately equal for each of the five years
under licence, and
Any activities undertaken by the entity affecting its IP will be performed on an even and continuous
basis throughout the licence period.
Should the entity recognise the royalty revenue based upon contractual terms?
Following the legal form of the royalty might not appropriately depict progress in satisfying its performance
obligation for providing access to the entity’s IP as it may exist from time to time throughout the licence
period.
Although the royalty exception sets a limit on the maximum amount of revenue that might be recognised, this
does not mean that this maximum amount should always be recognised. The entity may therefore need to defer
some of this revenue to satisfy the second test within the royalty exception recognition criteria. In practice, in
the scenario above, this might be done by applying an average expected royalty rate to calculate the revenue
deferral.
An example of this would be where a company licences IP with a payment structure as follows:
The minimum royalty guarantee element would not be subject to the royalty exception, as it does not form part
of the variable consideration, and so would be recognised when, or as, control of the licence is passed to the
customer. Any additional sales-based or usage-based royalties in excess of this guaranteed minimum would be
subject to the royalty exception and recognised in the period that the sales/usage occurs.
Where the licence of the IP is recognised at a point in time, the guaranteed minimum amount is recognised at
that point in time, with any excess royalties recognised once the sales/usage that take the royalties above the
guaranteed minimum occur.
Where the licence of the IP is recognised over time, more judgement is required by management as they will
need to determine an appropriate measure of progress. Regardless of the measure of progress selected,
cumulative revenue at any point in time must not exceed the sum of minimum guaranteed royalties plus excess
royalties earned to date.
For help and advice on revenue recognition issues please get in touch with your usual BDO contact or Scott
Knight.
Awards for early or timely delivery and penalties for late delivery (common in industries such as
construction – see example 1 below), or
Volume based rebates or stepped-pricing (common in industries such as retail or manufacturing – see
example 2 below).
Under IFRS 15 these amounts are referred to as ‘variable consideration’. Variable consideration can also arise
in other situations such as sales with a right of return, or where there is a valid expectation (either based on
customary business practice, or the seller’s intention when entering into the contract) that a price concession
will be offered later.
It is important to consider the treatment of these elements of revenue when looking at the accounting required
under IFRS 15 as this can differ from the previous accounting treatment.
At the start of the contract a seller must estimate the amount of consideration to which it expects to be entitled
on the contract. This estimate is updated at each reporting date until no further consideration is receivable.
IFRS 15 requires that this estimate of variable consideration is determined using either:
The most appropriate method should be selected for each contract, and then must be applied consistently
throughout the contract term.
Regardless of which method is used, the estimation of the variable consideration amount is constrained to the
extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will
not occur. This means that when estimating the variable consideration, IFRS 15 sets a higher hurdle than the
previous IFRS standards which may defer the recognition of some revenue.
An exception to the above approach is made in relation to consideration in the form of a sales-based or usage-
based royalty for the licence of intellectual property which we will consider in next month’s issue.
Example 1: variable consideration – over-time revenue recognition
A construction company enters into a contract to build a bridge for £10m with an expected completion date of
July 2019. The company determines that the over-time revenue recognition criteria of IFRS 15 have been met.
The contract contains award / penalty clauses depending on the date of completion as follows:
£’000 £’000
Due to the presence of a £1m penalty clause, the fixed consideration is £9m with any additional revenue being
variable consideration.
At the start of the contract, the construction company determines with a high degree of certainty that the bridge
will be completed on time and therefore, using the most likely outcome method and applying the constraint, no
awards or penalty deductions are included when estimating contract consideration (£10m).
At their reporting date of 31 December 2018 they reassess their variable consideration estimate. At this point,
it is most likely that the bridge will be completed in August 2019 but there is a reasonable chance that it will
not be completed until September 2019 so they determine that the date by which completion is highly probably
is September 2019.
Variable consideration to be recognised is therefore estimated to be constrained to £nil due to the penalty.
Previously, the penalty deduction may only have been accounted for when incurred.
If at 31 December 2018 the most likely date of completion is June 2019, with the date by which completion is
highly probably being determined as July 2019, then the variable consideration to be recognised would be
estimated as £1m giving total consideration of £10m. Previously this may have been £10.2m, including receipt
of the award based on the most likely completion date.
A manufacturing company (the ‘supplier’) enters into a contract to sell the product ‘A Biscuit’ to a
supermarket chain. The pricing in this contract is such that each pack is sold for £10, with a rebate being
offered at the end of the year based upon the total number of packs sold in 12 months. Revenue is recognised
for each pack upon delivery of that pack to the supermarket.
1 – 1,000 10
1,001 – 1,500 8
1,501 or more 7
The variable consideration is the £3 per pack that reflects the difference between the £10 and £7 selling prices.
To determine how much of this variable consideration it can recognise on the sale of the packs to the
supermarket chain throughout the year, the supplier must estimate how many packs of A Biscuit it expects to
sell. At the start of the contract, based upon normal sale volumes to businesses similar to the supermarket chain
it estimates that it will sell 1,200 packs (so consideration of £8 per pack) and it is highly probable that they will
not sell more than 1,500 packs. The variable consideration of £3 is therefore constrained to £1 – giving a
transaction price per pack of £8.
Upon sale of each pack of A Biscuit to the supermarket chain during the year, the supplier recognises £8
revenue. The difference of £2 between the invoice amount and revenue recognised is recorded as a contract
liability.
At year end
At their reporting date of 31 December 2018 they reassess their variable consideration estimate. At this point,
based upon volumes sold to date and the remaining period of the contract, they estimate that they will now sell
2,000 packs to the supermarket chain in total. The variable consideration is now constrained to £nil – giving a
transaction price and revenue per pack of £7.
Stepped pricing
The above example shows a reduction in the price of each pack sold in the year. If the pricing were stepped
rather than cumulative (ie first 1,000 at £10, the next 500 at £8, and all the rest at £7) the process of estimating
variable consideration would still be the same:
During the year: recognise revenue of £9.67 for each pack sold as they estimate sales of 1,200 packs and
it is highly probable that they will not sell more than 1,500 packs [(1,000 x £10 + 200 x £8)/1,200]
At year end: recognise revenue of £8.75 for each pack sold as they estimate sales of 2,000 [(1,000 x £10
+ 500 x £8 + 500 x £7)/2,000]. This will result in a cumulative adjustment of (£0.92) reduction in
revenue for each pack sold to date.
For help and advice on revenue recognition issues please get in touch with your usual BDO contact or Scott
Knight.
For example, Capita, in its recent announcement notes that some of its contract costs will be expensed as
currently, while certain other costs (previously expensed) will now be capitalised as contract fulfilment assets
and released over the contract life. Taken with changes in revenue timing, this may lead to potentially lower
profits or losses in the early years of contracts – but with overall contract profitability unchanged.
What is changing?
As there is no specific IFRS addressing the accounting for costs, entities currently refer to a number of
different standards and principles in accounting for various types of costs incurred. Existing standards IAS 18
Revenue and IAS 11 Construction Contracts contain only limited guidance, mainly on applying the percentage
of completion method (under which contract revenue and costs are recognised with reference to the stage of
completion).
IFRS 15 introduces new guidance on accounting for all contract costs, distinguishing between:
Subject to certain criteria, these contract costs must be capitalised, amortised and assessed for impairment
under guidance in IFRS 15 (eg not IFRS 9 or IAS 36), while all other types of costs have to be expensed as
incurred. Assets recognised for contract costs are a new asset category and are presented separately from
contract assets and contract liabilities arising on the recognition of revenue. This could bring about a change in
practice for many entities.
However, under IFRS 15, these costs are recognised as an asset if they are expected to be recovered from the
customer. As a practical expedient, incremental costs of obtaining a contract can be expensed if the
amortisation period would be one year or less. Any other costs of obtaining a contract are expensed when
incurred, unless they are explicitly chargeable to the customer regardless of whether the contract is obtained.
Example
A company wins a competitive tender to provide consulting services to a new customer and incurs the
following costs to obtain the contract:
Any other costs to fulfil a contract are recognised as an asset under IFRS 15 only if they:
Costs relating to satisfied or partially satisfied performance obligations (past performance) must be expensed.
If the timing of payments agreed by the parties to the contract (either explicitly or implicitly) provides either
the customer or the vendor with a significant financing benefit (eg if £4m is paid in full up front but delivery
takes place 24 months later or vice versa), then IFRS 15 requires that the transaction price is adjusted to reflect
this ‘financing component’.
This is a significant departure from previous requirements as, under IAS 18, similar financing arrangements
will generally only have been considered where payment terms were deferred; typically payments in advance
would not have affected revenue. The objective of including such new adjustments for significant financing
components is for the vendor to recognise revenue at the cash selling price, even if the contract contains an
element of financing.
A company enters into a contract with a customer to construct a new building. An analysis of the contract
has determined that the revenue for the building will be recognised at a point in time, rather than over time,
with control over the completed building passing to the customer in two years’ time. The contract contains
two payment options: Either the customer can pay £5 million in two years’ time when it obtains control of
the building, or the customer can pay £4 million on the signing of the contract. The customer decides on
the latter option.
The company concludes that, because of the significant period of time between the date of payment by the
customer and the transfer of the completed building to the customer and the effect of prevailing market
rates of interest, there is a significant financing component in the arrangement.
The interest rate implicit in the transaction is 11.8%. However, because the vendor is effectively borrowing
from its customer, the vendor is also required to consider its own incremental borrowing rate which it has
determined to be 6%. The accounting entries required to reflect the significant financing component are as
follows:
Contract inception:
Cash £4,000,000
Contract liability £4,000,000
Recognition of a contract liability for the payment in advance.
Ignoring costs of sales, over the two year duration of the project, cumulative profit before tax will not be
affected (the increase in revenue being offset by the increase in interest expense). However, other possible
KPIs may change (eg EBITDA will increase from £4,000 to £4,494 over that period).
As a practical expedient, IFRS 15 allows the effects of a significant financing component to be ignored if
the vendor expects, at contract inception, that the period between the transfer of a promised good or
service to the customer and the date of payment will be one year or less.
Practical issues
This may also lead to a change in current practice, particularly in environments where interest rates are high, as
a financing component may have been recognised under IAS 18 for periods less than one year.
IFRS 15 also identifies a number of situations where there may be a timing difference between the supply of
the goods or services and payment that is not regarded as giving rise to a significant financing component, for
example where:
A customer has paid in advance and the timing of transfer of those goods or services is at the discretion
of the customer (such as prepaid phone cards and customer loyalty points)
A substantial amount of consideration payable by the customer is variable and the amount or timing of
that consideration will be determined by future events that are not substantially within the control of
either the vendor or the customer (such as a sales-based royalty)
The difference between the promised consideration and the cash selling price of the goods or services is
for a reason other than financing to either the customer or the vendor (such as to provide the customer
with protection that the vendor will fail to adequately complete its obligations – like the completion of
post construction remedial work on a building).
For help and advice on revenue recognition issues please get in touch with your usual BDO contact or Scott
Knight.
Accounting for advance billing under IAS 18 often initially resulted in the recognition of a trade receivable and
deferred revenue. Under IFRS 15, this ‘grossing up’ of the balance sheet may not be appropriate – reducing
gross assets and gross liabilities.
Practical example
A company has sold software maintenance services in a stand-alone transaction (ie not bundled with other
goods or services) for a two-year ‘non-cancellable’ period. The company has decided to recognise the revenue
evenly - £1,000 per month over the 24-month period. Payment for the service can be structured in one of the
following ways:
1. Invoiced in full at the start (say 1 January 2018) and payable in full on 31 March 2018
2. Invoiced in full at the start but payable in 24 equal instalments at the end of each calendar month, or
3. Invoiced and payable in 24 equal instalments at the end of each calendar month.
Under IAS 18, for options 1 and 2, companies would often have recognised a trade receivable of £24,000 and
deferred revenue of £24,000 on 1 January 2018.
However, under IFRS 15, the contract liability and trade receivable should be shown net until the earlier of
either:
a. The date the payment becomes due (ie when the ‘receivable’ is recognised), or
b. The date the goods or services are delivered (ie when a ‘contract asset’ is recognised).
Under IFRS 15, the fact that the contract is ‘non-cancellable’ affects the date at which payment becomes due:
it is the date at which the cash payment should be received under the contract, not the invoice date of the trade
receivable.
Comparison of accounting entries
Receivables and contract assets must be presented separately either in the notes or on the face of the balance
sheet.
As can be seen in the example under IAS 18 both gross assets and gross liabilities are increased by £24,000 at
1 January. Under IFRS 15 this grossing up may occur at a later date (option 1) or not at all (option 2 and 3)
If the changes to your balance sheet are going to be significant/material, you will want to explain them to the
company’s stakeholders. This is done by making disclosures in your last annual report prior to implementing
IFRS 15 (as required under IAS 8.30 – disclosures for new standards not yet effective).
For help and advice on revenue recognition issues please get in touch with your usual BDO contact or Tony
Perkins.
IFRS 15 in the Spotlight: Variable consideration & the sales-based or usage-based royalty exception
Where the variable consideration in relation to the licence (but not sale) of IP is in the form of a sales-based or
usage-based royalty, ie the amount of consideration receivable is dependent upon the number of sales the
customer makes using the IP, then that variable consideration is subject to different constraints.
This restriction only applies where the sales-based or usage-based royalty relates solely or predominantly to
the IP licence such as may be the case with, for example, a licence for a movie for six weeks of screenings,
along with providing memorabilia at the start of the screening period. In instances where the royalty relates
solely or predominantly to the IP licence then the sales-based or usage-based royalty exception (the ‘royalty
exception’) must be applied to the royalty in its entirety.
In these instances, instead of the ‘general approach’ to estimating the variable consideration amount, IFRS 15
only permits the recognition of the revenue from these sales-based or usage-based royalties when, or as, the
later of the following occurs:
The customer sales on which the royalty is based will be approximately equal for each of the five years
under licence, and
Any activities undertaken by the entity affecting its IP will be performed on an even and continuous
basis throughout the licence period.
Should the entity recognise the royalty revenue based upon contractual terms?
Following the legal form of the royalty might not appropriately depict progress in satisfying its performance
obligation for providing access to the entity’s IP as it may exist from time to time throughout the licence
period.
Although the royalty exception sets a limit on the maximum amount of revenue that might be recognised, this
does not mean that this maximum amount should always be recognised. The entity may therefore need to defer
some of this revenue to satisfy the second test within the royalty exception recognition criteria. In practice, in
the scenario above, this might be done by applying an average expected royalty rate to calculate the revenue
deferral.
An example of this would be where a company licences IP with a payment structure as follows:
The minimum royalty guarantee element would not be subject to the royalty exception, as it does not form part
of the variable consideration, and so would be recognised when, or as, control of the licence is passed to the
customer. Any additional sales-based or usage-based royalties in excess of this guaranteed minimum would be
subject to the royalty exception and recognised in the period that the sales/usage occurs.
Where the licence of the IP is recognised at a point in time, the guaranteed minimum amount is recognised at
that point in time, with any excess royalties recognised once the sales/usage that take the royalties above the
guaranteed minimum occur.
Where the licence of the IP is recognised over time, more judgement is required by management as they will
need to determine an appropriate measure of progress. Regardless of the measure of progress selected,
cumulative revenue at any point in time must not exceed the sum of minimum guaranteed royalties plus excess
royalties earned to date.
For help and advice on revenue recognition issues please get in touch with your usual BDO contact or Scott
Knight.
Awards for early or timely delivery and penalties for late delivery (common in industries such as
construction – see example 1 below), or
Volume based rebates or stepped-pricing (common in industries such as retail or manufacturing – see
example 2 below).
Under IFRS 15 these amounts are referred to as ‘variable consideration’. Variable consideration can also arise
in other situations such as sales with a right of return, or where there is a valid expectation (either based on
customary business practice, or the seller’s intention when entering into the contract) that a price concession
will be offered later.
It is important to consider the treatment of these elements of revenue when looking at the accounting required
under IFRS 15 as this can differ from the previous accounting treatment.
At the start of the contract a seller must estimate the amount of consideration to which it expects to be entitled
on the contract. This estimate is updated at each reporting date until no further consideration is receivable.
IFRS 15 requires that this estimate of variable consideration is determined using either:
The most appropriate method should be selected for each contract, and then must be applied consistently
throughout the contract term.
Regardless of which method is used, the estimation of the variable consideration amount is constrained to the
extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will
not occur. This means that when estimating the variable consideration, IFRS 15 sets a higher hurdle than the
previous IFRS standards which may defer the recognition of some revenue.
An exception to the above approach is made in relation to consideration in the form of a sales-based or usage-
based royalty for the licence of intellectual property which we will consider in next month’s issue.
Example 1: variable consideration – over-time revenue recognition
A construction company enters into a contract to build a bridge for £10m with an expected completion date of
July 2019. The company determines that the over-time revenue recognition criteria of IFRS 15 have been met.
The contract contains award / penalty clauses depending on the date of completion as follows:
£’000 £’000
Due to the presence of a £1m penalty clause, the fixed consideration is £9m with any additional revenue being
variable consideration.
At the start of the contract, the construction company determines with a high degree of certainty that the bridge
will be completed on time and therefore, using the most likely outcome method and applying the constraint, no
awards or penalty deductions are included when estimating contract consideration (£10m).
At their reporting date of 31 December 2018 they reassess their variable consideration estimate. At this point,
it is most likely that the bridge will be completed in August 2019 but there is a reasonable chance that it will
not be completed until September 2019 so they determine that the date by which completion is highly probably
is September 2019.
Variable consideration to be recognised is therefore estimated to be constrained to £nil due to the penalty.
Previously, the penalty deduction may only have been accounted for when incurred.
If at 31 December 2018 the most likely date of completion is June 2019, with the date by which completion is
highly probably being determined as July 2019, then the variable consideration to be recognised would be
estimated as £1m giving total consideration of £10m. Previously this may have been £10.2m, including receipt
of the award based on the most likely completion date.
A manufacturing company (the ‘supplier’) enters into a contract to sell the product ‘A Biscuit’ to a
supermarket chain. The pricing in this contract is such that each pack is sold for £10, with a rebate being
offered at the end of the year based upon the total number of packs sold in 12 months. Revenue is recognised
for each pack upon delivery of that pack to the supermarket.
1 – 1,000 10
1,001 – 1,500 8
1,501 or more 7
The variable consideration is the £3 per pack that reflects the difference between the £10 and £7 selling prices.
To determine how much of this variable consideration it can recognise on the sale of the packs to the
supermarket chain throughout the year, the supplier must estimate how many packs of A Biscuit it expects to
sell. At the start of the contract, based upon normal sale volumes to businesses similar to the supermarket chain
it estimates that it will sell 1,200 packs (so consideration of £8 per pack) and it is highly probable that they will
not sell more than 1,500 packs. The variable consideration of £3 is therefore constrained to £1 – giving a
transaction price per pack of £8.
Upon sale of each pack of A Biscuit to the supermarket chain during the year, the supplier recognises £8
revenue. The difference of £2 between the invoice amount and revenue recognised is recorded as a contract
liability.
At year end
At their reporting date of 31 December 2018 they reassess their variable consideration estimate. At this point,
based upon volumes sold to date and the remaining period of the contract, they estimate that they will now sell
2,000 packs to the supermarket chain in total. The variable consideration is now constrained to £nil – giving a
transaction price and revenue per pack of £7.
Stepped pricing
The above example shows a reduction in the price of each pack sold in the year. If the pricing were stepped
rather than cumulative (ie first 1,000 at £10, the next 500 at £8, and all the rest at £7) the process of estimating
variable consideration would still be the same:
During the year: recognise revenue of £9.67 for each pack sold as they estimate sales of 1,200 packs and
it is highly probable that they will not sell more than 1,500 packs [(1,000 x £10 + 200 x £8)/1,200]
At year end: recognise revenue of £8.75 for each pack sold as they estimate sales of 2,000 [(1,000 x £10
+ 500 x £8 + 500 x £7)/2,000]. This will result in a cumulative adjustment of (£0.92) reduction in
revenue for each pack sold to date.
For help and advice on revenue recognition issues please get in touch with your usual BDO contact or Scott
Knight.
IFRS 15 has prescriptive guidance on how to account for these return rights which requires the estimation not
only of the number of expected returns, but also the nature of these returns. These estimates could be difficult
to quantify and businesses may need to change their management reporting systems in order to ensure that they
have the information needed to implement this new standard.
It is important to note that, the third point notwithstanding, an exchange by customers of one product for
another of the same type, quality, condition and price (for example, exchanging the product for one of a
different colour or size) is not considered a return for the purposes of applying IFRS 15. Where an exchange
occurs, revenue is recognised on the date of the original sale. This means that estimating expected returns
under IFRS 15 could be complex, given the different accounting treatments of exchanges for similar and
different items.
In subsequent periods, the vendor updates its expected levels of returns, adjusting the measurement of the
refund liability and the associated inventory asset.
Although gross profit is unaffected, revenue, which is likely to be a key performance indicator, may be
significantly reduced. Therefore, it is clear that estimating expected levels of returns will be a critical estimate,
especially for businesses selling to the public.
For help and advice on accounting for returns please get in touch with Scott Knight.
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IFRS 15, Revenue from Contracts with Customers
Published byClaire Cummings Modified over 2 years ago
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7 Summary of the model Core principle: Recognise revenue to depict the transfer of goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for
those goods or servicesStep 1 :Identify the contract(s) with the customerStep 2 :Identify the performance
obligationsStep 3 :Determine the transaction priceStep 4 :Allocate the transaction price to the performance
obligationsStep 5 :Recognise revenue when (or as) the entity satisfies a performance obligation <img
src="http://slideplayer.com/7327210/24/images/7/Summary+of+the+model.jpg" width="800" align="left"
alt="Summary of the model" title="Core principle: Recognise revenue to depict the transfer of goods or
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. Step 1 : Identify the contract(s) with the customer. Step 2 : Identify the
performance obligations. Step 3 : Determine the transaction price. Step 4 : Allocate the transaction price to the
performance obligations. Step 5 : Recognise revenue when (or as) the entity satisfies a performance
obligation.">
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16 Step 5: Recognise revenue when (or as) performance obligations are satisfied
Revenue is recognised upon satisfaction of a performance obligation by transferring a good or service to a
customer.A good or service is generally considered to be transferred when the customer obtains
control.Control can transfer ‘over time’ or at a ‘point in time.’First, the entity determines if control transfers
over time.If control does not transfer over time, the default is point in time. <img
src="http://slideplayer.com/7327210/24/images/16/Step+5%3A+Recognise+revenue+when+%28or+as%29+p
erformance+obligations+are+satisfied.jpg" width="800" align="left" alt="Step 5: Recognise revenue when (or
as) performance obligations are satisfied" title="Revenue is recognised upon satisfaction of a performance
obligation by transferring a good or service to a customer. A good or service is generally considered to be
transferred when the customer obtains control. Control can transfer ‘over time’ or at a ‘point in time.’ First, the
entity determines if control transfers over time. If control does not transfer over time, the default is point in
time.">
17 Step 5: Recognise revenue when (or as) performance obligations are satisfied over time
Control of goods and services are transferred over time if one of the following three criteria is met:(a) The
customeris simultaneously receiving and consuming the benefits ofthe entity’s performance asthe
entityperforms(b) The entity creates or enhances an asset that the customer controls as it is created or
enhanced(c) The entity’s performance does not create an asset with alternative use, andThe entity has
enforceable right to payment for performance completed to dateIf none of the criteria for transfer over time are
met, control transfers at a point in time. <img
src="http://slideplayer.com/7327210/24/images/17/Step+5%3A+Recognise+revenue+when+%28or+as%29+p
erformance+obligations+are+satisfied+over+time.jpg" width="800" align="left" alt="Step 5: Recognise
revenue when (or as) performance obligations are satisfied over time" title="Control of goods and services are
transferred over time if one of the following three criteria is met: (a) The customer. is simultaneously receiving
and consuming the benefits of. the entity’s performance as. the entity. performs. (b) The entity creates or
enhances an asset that the customer controls as it is created or enhanced (c) The entity’s performance does not
create an asset with alternative use, and. The entity has enforceable right to payment for performance
completed to date. If none of the criteria for transfer over time are met, control transfers at a point in time.">
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18 Step 5: Recognise revenue when (or as) performance obligations are satisfied over time (cont.)
Measuring progress toward completionThe objective is to depict the entity’s performanceSelect a single
method for a particular performance obligation:Output methodsInput methodsApply consistent method for all
similar arrangementsIf unable to reasonably estimate progress, revenue should not be recognised until progress
can be estimatedHowever, if an entity can determine no loss will be incurred, the entity can recognise revenue
up to the value of costs incurred <img
src="http://slideplayer.com/7327210/24/images/18/Step+5%3A+Recognise+revenue+when+%28or+as%29+p
erformance+obligations+are+satisfied+over+time+%28cont.%29.jpg" width="800" align="left" alt="Step 5:
Recognise revenue when (or as) performance obligations are satisfied over time (cont.)" title="Measuring
progress toward completion. The objective is to depict the entity’s performance. Select a single method for a
particular performance obligation: Output methods. Input methods. Apply consistent method for all similar
arrangements. If unable to reasonably estimate progress, revenue should not be recognised until progress can
be estimated. However, if an entity can determine no loss will be incurred, the entity can recognise revenue up
to the value of costs incurred.">
25 Disclaimer This material has been prepared for general informational purposes only and is not intended to be
relied upon as accounting or other professional advice. Please refer to your advisors for specific advice.This
material is not a substitute for reading the standards and interpretations themselves. Therefore, the participants
should refer to these standards and interpretations and evaluate their applicability and the impact of current and
future adoption. <img src="http://slideplayer.com/7327210/24/images/25/Disclaimer.jpg" width="800"
align="left" alt="Disclaimer" title="This material has been prepared for general informational purposes only
and is not intended to be relied upon as accounting or other professional advice. Please refer to your advisors
for specific advice. This material is not a substitute for reading the standards and interpretations themselves.
Therefore, the participants should refer to these standards and interpretations and evaluate their applicability
and the impact of current and future adoption.">
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9 Summary of the model Core principle: Recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or servicesStep 1:Identify the contract(s) with a customerStep 2:Identify the
performance obligations in the contractStep 3:Determine the transaction priceStep 4:Allocate the transaction
price to the performance obligationsStep 5:Recognize revenue when (or as) each performance obligation is
satisfied3 July 2014The new revenue recognition standard <img
src="http://slideplayer.com/6418217/22/images/9/Summary+of+the+model.jpg" width="800" align="left"
alt="Summary of the model" title="Core principle: Recognize revenue to depict the transfer of promised goods
or 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. Step 1: Identify the contract(s) with a customer. Step 2: Identify the
performance obligations in the contract. Step 3: Determine the transaction price. Step 4: Allocate the
transaction price to the performance obligations. Step 5: Recognize revenue when (or as) each performance
obligation is satisfied. 3 July 2014. The new revenue recognition standard.">
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27 Step 5: Recognize revenue as performance obligations are satisfied over time (cont.)
Revenue is recognized over time by measuring progress toward completion of performance obligationsThe
objective is to most faithfully depict the entity’s performanceSelect a single method for each performance
obligation based on facts and circumstancesOutput methodsInput methodsApply method consistently for all
similar arrangementsIf unable to reasonably estimate progress, revenue should not be recognized until progress
can be estimatedHowever, if entity can determine that no loss will be incurred, it should recognize revenue up
to costs incurred3 July 2014The new revenue recognition standard <img
src="http://slideplayer.com/6418217/22/images/27/Step+5%3A+Recognize+revenue+as+performance+obligat
ions+are+satisfied+over+time+%28cont.%29.jpg" width="800" align="left" alt="Step 5: Recognize revenue as
performance obligations are satisfied over time (cont.)" title="Revenue is recognized over time by measuring
progress toward completion of performance obligations. The objective is to most faithfully depict the entity’s
performance. Select a single method for each performance obligation based on facts and circumstances. Output
methods. Input methods. Apply method consistently for all similar arrangements. If unable to reasonably
estimate progress, revenue should not be recognized until progress can be estimated. However, if entity can
determine that no loss will be incurred, it should recognize revenue up to costs incurred. 3 July 2014. The new
revenue recognition standard.">
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2 Agenda Summary of the exposure draft Feedback on the exposure draft Developments since the exposure
draft Project timeline 2 © 2011 IASC Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.iasb.org
<img src="http://images.slideplayer.com/25/7889490/slides/slide_2.jpg" width="800" align="left"
alt="Agenda Summary of the exposure draft Feedback on the exposure draft Developments since the exposure
draft Project timeline 2 © 2011 IASC Foundation." title="30 Cannon Street | London EC4M 6XH | UK.
www.iasb.org.">
3 The exposure draft Converged proposal with unanimous support of both the IASB and the FASB Improves
financial reporting: –Single model based on clear principles –Robust framework for addressing revenue issues
–Comparability across industries and markets –Enhanced disclosure requirements 7 <img
src="http://images.slideplayer.com/25/7889490/slides/slide_3.jpg" width="800" align="left" alt="The
exposure draft Converged proposal with unanimous support of both the IASB and the FASB Improves
financial reporting: –Single model based on clear principles –Robust framework for addressing revenue issues
–Comparability across industries and markets –Enhanced disclosure requirements 7" title="The exposure draft
Converged proposal with unanimous support of both the IASB and the FASB Improves financial reporting: –
Single model based on clear principles –Robust framework for addressing revenue issues –Comparability
across industries and markets –Enhanced disclosure requirements 7">
4 ED - Summary of the revenue proposals 1. Identify the contract(s) with the customer 2. Identify the separate
performance obligations 3. Determine the transaction price 5. Recognise revenue when a performance
obligation is satisfied 4. Allocate the transaction price Recognise revenue to depict the transfer of goods or
services in an amount that reflects the consideration expected to be received in exchange for those goods or
services Steps to apply the core principle: Core principle: © 2011 IFRS Foundation. 30 Cannon Street |
London EC4M 6XH | UK. www.ifrs.org 4 <img
src="http://images.slideplayer.com/25/7889490/slides/slide_4.jpg" width="800" align="left" alt="ED -
Summary of the revenue proposals 1. Identify the contract(s) with the customer 2." title="Identify the separate
performance obligations 3. Determine the transaction price 5. Recognise revenue when a performance
obligation is satisfied 4. Allocate the transaction price Recognise revenue to depict the transfer of goods or
services in an amount that reflects the consideration expected to be received in exchange for those goods or
services Steps to apply the core principle: Core principle: © 2011 IFRS Foundation. 30 Cannon Street |
London EC4M 6XH | UK. www.ifrs.org 4.">
5 Feedback on the exposure draft Comment letter period ended 22 October, 2010 Good level of responses
Overall support for project objective: to create a single, joint revenue standard for use across various industries
and capital markets 5 © 20101IASC Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.iasb.org
<img src="http://images.slideplayer.com/25/7889490/slides/slide_5.jpg" width="800" align="left"
alt="Feedback on the exposure draft Comment letter period ended 22 October, 2010 Good level of responses
Overall support for project objective: to create a single, joint revenue standard for use across various industries
and capital markets 5 © 20101IASC Foundation." title="30 Cannon Street | London EC4M 6XH | UK.
www.iasb.org.">
6 Re-deliberated proposals ProposalComments Recognise revenue when a good or service transfers to the
customer Transfer based on control works well for goods, but not services. Key question for service contracts -
when is transfer continuous? Identify separate performance obligations if goods and services distinct Clarify
‘distinct’. Concerns that a large number of separate of performance obligations will be identified. Contracts are
combined if independently priced; contract modifications are accounted for as new contracts if independently
priced Contracts will be combined too frequently. The cumulative catch-up in accounting for modifications
will apply too frequently. 6 <img src="http://images.slideplayer.com/25/7889490/slides/slide_6.jpg"
width="800" align="left" alt="Re-deliberated proposals ProposalComments Recognise revenue when a good
or service transfers to the customer Transfer based on control works well for goods, but not services."
title="Key question for service contracts - when is transfer continuous. Identify separate performance
obligations if goods and services distinct Clarify ‘distinct’. Concerns that a large number of separate of
performance obligations will be identified. Contracts are combined if independently priced; contract
modifications are accounted for as new contracts if independently priced Contracts will be combined too
frequently. The cumulative catch-up in accounting for modifications will apply too frequently. 6.">
7 Re-deliberated proposals ProposalComments Separate segments within a contract based on standalone selling
price Two step approach to segmentation is complicated and unnecessary Contract acquisition costs should be
recognised as an expense as incurred Acquisition costs should not always be expensed Distinguish two
warranties, both defer revenue based on a selling price ‘Statutory’ warranties should be cost accruals Account
for licences based on exclusivity ‘Exclusivity’ is not the right concept for distinguishing licences 7 <img
src="http://images.slideplayer.com/25/7889490/slides/slide_7.jpg" width="800" align="left" alt="Re-
deliberated proposals ProposalComments Separate segments within a contract based on standalone selling
price Two step approach to segmentation is complicated and unnecessary Contract acquisition costs should be
recognised as an expense as incurred Acquisition costs should not always be expensed Distinguish two
warranties, both defer revenue based on a selling price ‘Statutory’ warranties should be cost accruals Account
for licences based on exclusivity ‘Exclusivity’ is not the right concept for distinguishing licences 7" title="Re-
deliberated proposals ProposalComments Separate segments within a contract based on standalone selling
price Two step approach to segmentation is complicated and unnecessary Contract acquisition costs should be
recognised as an expense as incurred Acquisition costs should not always be expensed Distinguish two
warranties, both defer revenue based on a selling price ‘Statutory’ warranties should be cost accruals Account
for licences based on exclusivity ‘Exclusivity’ is not the right concept for distinguishing licences 7">
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9 Recognise revenue Key proposal ED: transfer based on control recognise revenue when a performance
obligation is satisfied by transferring a good or service to customer transferred when customer obtains control
ability to direct the use of and receive the benefit from revenue is recognised continuously only if service is
transferred continuously ie customer controls WIP 9 <img
src="http://images.slideplayer.com/25/7889490/slides/slide_9.jpg" width="800" align="left" alt="Recognise
revenue Key proposal ED: transfer based on control recognise revenue when a performance obligation is
satisfied by transferring a good or service to customer transferred when customer obtains control ability to
direct the use of and receive the benefit from revenue is recognised continuously only if service is transferred
continuously ie customer controls WIP 9" title="Recognise revenue Key proposal ED: transfer based on
control recognise revenue when a performance obligation is satisfied by transferring a good or service to
customer transferred when customer obtains control ability to direct the use of and receive the benefit from
revenue is recognised continuously only if service is transferred continuously ie customer controls WIP 9">
10 Recognise revenue Key proposal still transfer to customer Transfer of goods based on control carry forward
guidance in exposure draft about control add ‘risks and rewards’ as indicator eliminate ‘design or function’
indicator 10 <img src="http://images.slideplayer.com/25/7889490/slides/slide_10.jpg" width="800"
align="left" alt="Recognise revenue Key proposal still transfer to customer Transfer of goods based on control
carry forward guidance in exposure draft about control add ‘risks and rewards’ as indicator eliminate ‘design
or function’ indicator 10" title="Recognise revenue Key proposal still transfer to customer Transfer of goods
based on control carry forward guidance in exposure draft about control add ‘risks and rewards’ as indicator
eliminate ‘design or function’ indicator 10">
11 Recognise revenue Key proposal still transfer to customer Transfer of services is continuous if: entity’s
performance creates or enhances an asset customer controls or entity’s performance does not create an asset
with alternative use to the entity and one of: customer receives benefit as entity performs, or task would not
need to be re-performed (without the benefit of any inventory transfer), or entity has right to payment 11 <img
src="http://images.slideplayer.com/25/7889490/slides/slide_11.jpg" width="800" align="left" alt="Recognise
revenue Key proposal still transfer to customer Transfer of services is continuous if: entity’s performance
creates or enhances an asset customer controls or entity’s performance does not create an asset with alternative
use to the entity and one of: customer receives benefit as entity performs, or task would not need to be re-
performed (without the benefit of any inventory transfer), or entity has right to payment 11" title="Recognise
revenue Key proposal still transfer to customer Transfer of services is continuous if: entity’s performance
creates or enhances an asset customer controls or entity’s performance does not create an asset with alternative
use to the entity and one of: customer receives benefit as entity performs, or task would not need to be re-
performed (without the benefit of any inventory transfer), or entity has right to payment 11">
12 Separate performance obligations Key proposal ED: distinct goods or services performance obligation is a
promise to transfer a distinct good or service to the customer a good or service is distinct if it: –is sold
separately, or –has a distinct function and a distinct profit margin 12 <img
src="http://images.slideplayer.com/25/7889490/slides/slide_12.jpg" width="800" align="left" alt="Separate
performance obligations Key proposal ED: distinct goods or services performance obligation is a promise to
transfer a distinct good or service to the customer a good or service is distinct if it: –is sold separately, or –has
a distinct function and a distinct profit margin 12" title="Separate performance obligations Key proposal ED:
distinct goods or services performance obligation is a promise to transfer a distinct good or service to the
customer a good or service is distinct if it: –is sold separately, or –has a distinct function and a distinct profit
margin 12">
13 Separate performance obligations Key proposal still distinct goods or services One performance obligation if
a bundle of highly inter- related goods and services and the contract includes significant integration of those
goods & services into the item for which customer has contracted Otherwise separate performance obligations
if: –the good or service is distinct and –pattern of transfer of the good or service is different from that of other
goods or services in the contract 13 <img src="http://images.slideplayer.com/25/7889490/slides/slide_13.jpg"
width="800" align="left" alt="Separate performance obligations Key proposal still distinct goods or services
One performance obligation if a bundle of highly inter- related goods and services and the contract includes
significant integration of those goods & services into the item for which customer has contracted Otherwise
separate performance obligations if: –the good or service is distinct and –pattern of transfer of the good or
service is different from that of other goods or services in the contract 13" title="Separate performance
obligations Key proposal still distinct goods or services One performance obligation if a bundle of highly inter-
related goods and services and the contract includes significant integration of those goods & services into the
item for which customer has contracted Otherwise separate performance obligations if: –the good or service is
distinct and –pattern of transfer of the good or service is different from that of other goods or services in the
contract 13">
14 Combining and segmenting contracts Segmentation within contracts removed Combine two or more
contracts that are entered into at the same time with the same customer if one or more criteria met: –negotiated
as a package with a single commercial objective –amount of consideration in one contract depends on the other
–goods and services in the two contracts are interrelated in terms of design, technology or function 14 ©
2011IASC Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.iasb.org <img
src="http://images.slideplayer.com/25/7889490/slides/slide_14.jpg" width="800" align="left" alt="Combining
and segmenting contracts Segmentation within contracts removed Combine two or more contracts that are
entered into at the same time with the same customer if one or more criteria met: –negotiated as a package with
a single commercial objective –amount of consideration in one contract depends on the other –goods and
services in the two contracts are interrelated in terms of design, technology or function 14 © 2011IASC
Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.iasb.org" title="Combining and segmenting
contracts Segmentation within contracts removed Combine two or more contracts that are entered into at the
same time with the same customer if one or more criteria met: –negotiated as a package with a single
commercial objective –amount of consideration in one contract depends on the other –goods and services in
the two contracts are interrelated in terms of design, technology or function 14 © 2011IASC Foundation | 30
Cannon Street | London EC4M 6XH | UK | www.iasb.org">
15 Contract modifications If a contract modification results only in the addition of a distinct good or service at a
price commensurate with the additional good or service, account for as a separate contract Otherwise, re-
evaluate the performance obligation and reallocate the transaction price to each separate performance
obligation 15 © 2011 IASC Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.iasb.org <img
src="http://images.slideplayer.com/25/7889490/slides/slide_15.jpg" width="800" align="left" alt="Contract
modifications If a contract modification results only in the addition of a distinct good or service at a price
commensurate with the additional good or service, account for as a separate contract Otherwise, re-evaluate the
performance obligation and reallocate the transaction price to each separate performance obligation 15 © 2011
IASC Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.iasb.org" title="Contract modifications
If a contract modification results only in the addition of a distinct good or service at a price commensurate with
the additional good or service, account for as a separate contract Otherwise, re-evaluate the performance
obligation and reallocate the transaction price to each separate performance obligation 15 © 2011 IASC
Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.iasb.org">
16 Acquisition costs ED proposed all acquisition costs recognised as an expense Tentative decision – recognise
an asset for the incremental costs of obtaining a contract (eg commissions) and recoverable in that contract
Incremental costs are those costs which are not incurred unless the contract is obtained Present the asset
separately Amortise the asset on a systematic basis consistent with performance of the contract 16 © 2011
IASC Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.iasb.org <img
src="http://images.slideplayer.com/25/7889490/slides/slide_16.jpg" width="800" align="left" alt="Acquisition
costs ED proposed all acquisition costs recognised as an expense Tentative decision – recognise an asset for
the incremental costs of obtaining a contract (eg commissions) and recoverable in that contract Incremental
costs are those costs which are not incurred unless the contract is obtained Present the asset separately
Amortise the asset on a systematic basis consistent with performance of the contract 16 © 2011 IASC
Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.iasb.org" title="Acquisition costs ED
proposed all acquisition costs recognised as an expense Tentative decision – recognise an asset for the
incremental costs of obtaining a contract (eg commissions) and recoverable in that contract Incremental costs
are those costs which are not incurred unless the contract is obtained Present the asset separately Amortise the
asset on a systematic basis consistent with performance of the contract 16 © 2011 IASC Foundation | 30
Cannon Street | London EC4M 6XH | UK | www.iasb.org">
17 Warranties distinguished ED distinguished two types of warranty – latent defect and insurance. Both
‘deferred’ revenue. Tentative decisions: –account for warranty as a separate performance obligation if the
customer has the option to purchase the warranty separately –account for warranty as a cost accrual if the
customer has no option to purchase warranty separately and the assurance given to the customer is only that
past performance was as specified in contract 17 © 2011 IASC Foundation | 30 Cannon Street | London EC4M
6XH | UK | www.iasb.org <img src="http://images.slideplayer.com/25/7889490/slides/slide_17.jpg"
width="800" align="left" alt="Warranties distinguished ED distinguished two types of warranty – latent defect
and insurance." title="Both ‘deferred’ revenue. Tentative decisions: –account for warranty as a separate
performance obligation if the customer has the option to purchase the warranty separately –account for
warranty as a cost accrual if the customer has no option to purchase warranty separately and the assurance
given to the customer is only that past performance was as specified in contract 17 © 2011 IASC Foundation |
30 Cannon Street | London EC4M 6XH | UK | www.iasb.org.">
18 Licences The boards accept that exclusivity is not the basis for accounting for licences In granting a licence
an entity gives a promised right to the customer. That right gives rise to a performance obligation that is
satisfied at a point in time when the customer obtains control of the right 18 © 2011 IASC Foundation | 30
Cannon Street | London EC4M 6XH | UK | www.iasb.org <img
src="http://images.slideplayer.com/25/7889490/slides/slide_18.jpg" width="800" align="left" alt="Licences
The boards accept that exclusivity is not the basis for accounting for licences In granting a licence an entity
gives a promised right to the customer." title="That right gives rise to a performance obligation that is satisfied
at a point in time when the customer obtains control of the right 18 © 2011 IASC Foundation | 30 Cannon
Street | London EC4M 6XH | UK | www.iasb.org.">
19 Uncertain consideration The transaction price is the total amount of consideration that the entity estimates it
will be entitled to under the contract Estimate using the most predictive of two methods: probability-weighted
amount or most likely amount Do not recognise revenue if not reasonably assured to be entitled to that amount:
–customer can avoid payment –no experience –experience is not predictive 19 © 2011 IASC Foundation | 30
Cannon Street | London EC4M 6XH | UK | www.iasb.org <img
src="http://images.slideplayer.com/25/7889490/slides/slide_19.jpg" width="800" align="left" alt="Uncertain
consideration The transaction price is the total amount of consideration that the entity estimates it will be
entitled to under the contract Estimate using the most predictive of two methods: probability-weighted amount
or most likely amount Do not recognise revenue if not reasonably assured to be entitled to that amount: –
customer can avoid payment –no experience –experience is not predictive 19 © 2011 IASC Foundation | 30
Cannon Street | London EC4M 6XH | UK | www.iasb.org" title="Uncertain consideration The transaction price
is the total amount of consideration that the entity estimates it will be entitled to under the contract Estimate
using the most predictive of two methods: probability-weighted amount or most likely amount Do not
recognise revenue if not reasonably assured to be entitled to that amount: –customer can avoid payment –no
experience –experience is not predictive 19 © 2011 IASC Foundation | 30 Cannon Street | London EC4M 6XH
| UK | www.iasb.org">
20Time value of money Adjust transaction price for time value of money if the contract includes a financing
component that is significant to the contract Significant financing component if: –consideration would be
substantially different if paid cash at the time of transfer –significant timing difference between transfer of
goods and services and payment –contract contains an implicit or explicit interest rate 20 © 2011 IASC
Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.iasb.org <img
src="http://images.slideplayer.com/25/7889490/slides/slide_20.jpg" width="800" align="left" alt="Time value
of money Adjust transaction price for time value of money if the contract includes a financing component that
is significant to the contract Significant financing component if: –consideration would be substantially
different if paid cash at the time of transfer –significant timing difference between transfer of goods and
services and payment –contract contains an implicit or explicit interest rate 20 © 2011 IASC Foundation | 30
Cannon Street | London EC4M 6XH | UK | www.iasb.org" title="Time value of money Adjust transaction
price for time value of money if the contract includes a financing component that is significant to the contract
Significant financing component if: –consideration would be substantially different if paid cash at the time of
transfer –significant timing difference between transfer of goods and services and payment –contract contains
an implicit or explicit interest rate 20 © 2011 IASC Foundation | 30 Cannon Street | London EC4M 6XH | UK
| www.iasb.org">
21 Collectibility An entity should not reflect customer’s credit risk in the measurement of transaction price or
revenue Recognise an allowance for any expected impairment in contracts with customers Corresponding
amount in profit and loss presented as a separate line item adjacent to revenue ie contra revenue 21 © 2011
IASC Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.iasb.org <img
src="http://images.slideplayer.com/25/7889490/slides/slide_21.jpg" width="800" align="left"
alt="Collectibility An entity should not reflect customer’s credit risk in the measurement of transaction price or
revenue Recognise an allowance for any expected impairment in contracts with customers Corresponding
amount in profit and loss presented as a separate line item adjacent to revenue ie contra revenue 21 © 2011
IASC Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.iasb.org" title="Collectibility An entity
should not reflect customer’s credit risk in the measurement of transaction price or revenue Recognise an
allowance for any expected impairment in contracts with customers Corresponding amount in profit and loss
presented as a separate line item adjacent to revenue ie contra revenue 21 © 2011 IASC Foundation | 30
Cannon Street | London EC4M 6XH | UK | www.iasb.org">
22 Allocation of transaction price Allocate to each separate performance obligation the amount the entity
expects to receive in exchange for satisfying that performance obligation Allocate transaction price based on a
relative standalone selling price If the standalone selling price is highly variable the best technique for
estimating standalone selling price may be a residual technique 22 © 2011 IASC Foundation | 30 Cannon
Street | London EC4M 6XH | UK | www.iasb.org <img
src="http://images.slideplayer.com/25/7889490/slides/slide_22.jpg" width="800" align="left" alt="Allocation
of transaction price Allocate to each separate performance obligation the amount the entity expects to receive
in exchange for satisfying that performance obligation Allocate transaction price based on a relative standalone
selling price If the standalone selling price is highly variable the best technique for estimating standalone
selling price may be a residual technique 22 © 2011 IASC Foundation | 30 Cannon Street | London EC4M
6XH | UK | www.iasb.org" title="Allocation of transaction price Allocate to each separate performance
obligation the amount the entity expects to receive in exchange for satisfying that performance obligation
Allocate transaction price based on a relative standalone selling price If the standalone selling price is highly
variable the best technique for estimating standalone selling price may be a residual technique 22 © 2011
IASC Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.iasb.org">
23 Onerous test ED proposed onerous test at level of individual performance obligation Tentative decision to
test at the level of the remaining performance obligations in the contract Costs confirmed as those relating
directly to satisfying the remaining performance obligations (as described in the exposure draft) 23 © 2011
IASC Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.iasb.org <img
src="http://images.slideplayer.com/25/7889490/slides/slide_23.jpg" width="800" align="left" alt="Onerous
test ED proposed onerous test at level of individual performance obligation Tentative decision to test at the
level of the remaining performance obligations in the contract Costs confirmed as those relating directly to
satisfying the remaining performance obligations (as described in the exposure draft) 23 © 2011 IASC
Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.iasb.org" title="Onerous test ED proposed
onerous test at level of individual performance obligation Tentative decision to test at the level of the
remaining performance obligations in the contract Costs confirmed as those relating directly to satisfying the
remaining performance obligations (as described in the exposure draft) 23 © 2011 IASC Foundation | 30
Cannon Street | London EC4M 6XH | UK | www.iasb.org">
24 Timeline 24 June 2010 ? Comment letters received Exposure Draft Effective date Targeted outreach Public
roundtables 22 Oct 2010 Boards’ re- deliberations Final standard 2011 24 Continued targeted outreach <img
src="http://images.slideplayer.com/25/7889490/slides/slide_24.jpg" width="800" align="left" alt="Timeline
24 June 2010 ." title="Comment letters received Exposure Draft Effective date Targeted outreach Public
roundtables 22 Oct 2010 Boards’ re- deliberations Final standard 2011 24 Continued targeted outreach.">
25 Where to get more information Expressions of individual views by members of the IASB and its staff are
encouraged. The views expressed in this presentation are those of the presenter. Official positions of the IASB
on accounting matters are determined only after extensive due process and deliberation. 25 Find out more at:
http://go.iasb.org/revenue+recognition http://go.iasb.org/revenue+recognition IASB staff: Henry Rees
hrees@ifrs.orghrees@ifrs.org Glenn Brady gbrady@ifrs.orggbrady@ifrs.org Allison McManus
amcmanus@ifrs.org April Pitman apitman@ifrs.orgapitman@ifrs.org FASB staff: Kenny Bement
kbbement@fasb.orgkbbement@fasb.org <img
src="http://images.slideplayer.com/25/7889490/slides/slide_25.jpg" width="800" align="left" alt="Where to
get more information Expressions of individual views by members of the IASB and its staff are encouraged."
title="The views expressed in this presentation are those of the presenter. Official positions of the IASB on
accounting matters are determined only after extensive due process and deliberation. 25 Find out more at:
http://go.iasb.org/revenue+recognition http://go.iasb.org/revenue+recognition IASB staff: Henry Rees
hrees@ifrs.orghrees@ifrs.org Glenn Brady gbrady@ifrs.orggbrady@ifrs.org Allison McManus
amcmanus@ifrs.org April Pitman apitman@ifrs.orgapitman@ifrs.org FASB staff: Kenny Bement
kbbement@fasb.orgkbbement@fasb.org.">