0000043199 00000 n 0000047941 00000 n 1.How should a company account for Gift Voucher revenue? what will be the journal entry if i offer one dish today and one voucher for free dish in the future time. I can tell you – this strongly reminds me similar situation a couple of years ago when companies needed to implement IFRS. To help you drive your implementation project to the finish line, we’ve pulled together a list of key considerations that many banks need to focus on. What will be the pattern of expensing these costs in P/L? Having that said – there must be some evidence or a good reason for “great uncertainty”. 2) You may if this is material. Thanks for efforts really useful. Also, the revenue for the individual performance obligations might be recognized over time (e.g. Let’s take a look at the example illustrating exactly this point. delivery of license) and some of them over time (e.g. 30 May 2018 Manufacturers and wholesalers sometimes pay retailers a fee to have their products placed on a retailer’s shelves, or to place the products in a more prominent area. Excellent however I can t see a single software can fulfill all type of commercial contract s as each of them has is own carachteristics. trailer <<1E20633F1C4247B4AAA8DB5E84AC2CD8>]/Prev 730658>> startxref 0 %%EOF 188 0 obj <>stream thank you for your amazing and clear articles, may I ask you if there is an article explain the transportation costs issue, I experienced that some companies put this expenses as a deduction from sales and some others deal with it as S&D expenses, and also the fixed rebate to customer that not related to variable sales(Target) its absolute number per year whether sales is 1 dollar or million dollar. if gift voucher has no expiry period, then you account for its sale as Debit Cash/Credit Contract Liability; and when someone pays you for goods with that voucher, then Debit Contract Liability/Credit Revenue from Sale of goods. Hi Silvia, The accounting model summary and presentation are part of our wider effort to help insurers and others understand the requirements of IFRS 17. What I understood that we calculate revenue based on the 45% of total cost not transaction price .. Dalia, Can you please clarify which IFRS standard will be applicable to account for revenue from sources other than customers from 2018 onward – For example – Refund of taxes excess paid (for which govt. 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. 0000043809 00000 n Hi Rajesh, IFRS 16 now requires a single model approach for lessees – almost all leases will now be brought on the balance sheet of lessees with a right of use asset and financial liability. Hi Amr, The goods once ordered and paid for are handed over a third party courier company for onward delivery to the customer. Forward University takes control over the computers at delivery. Secondly, Do we capitalize the tool asset ? S. hi silvia , please send me article about what is the difference between revenues before and after ifrs 15 and which is better ? For the remaining goods from the original contract and additional goods, you recognize total revenue amounting to: You need to allocate this amount to individual performance obligations, or individual computers in this case. Due to necessary preparation works, Forward University agrees to deliver computers in 3 separate deliveries during the forthcoming 3 months (100 computers in each delivery). Also, you need to look at the individual POs, not at the contract as a whole. IFRS 15 lists 3 situations when an entity needs to recognize revenue over time: For property developers and construction companies, especially one situation is crucial: When the entity’s performance does not create an asset with alternative use to the entity and the entity has an enforceable right to payment for performance completed to date, then the revenue is recognized over time. hello mam your example is very good for learning for ifrs .that is a big gun to learn anything in the ifrs.thanks. No headaches. 0000029208 00000 n Well, I would say that the entry could be debit Trade receivables, Credit Contract liability – only when you have an unconditional right to receive payment. Please share this article with your friends and make them aware of what’s coming. 0000048512 00000 n Not so simple.S. Hi Silvia, Should revenue be recognised when the goods passes the ship’s rail or upon reaching the buyers port? Telecom and individual performance obligations: please refer here. Your advice and inputs are really welcome and valuable. Hi Sylvia Appreciate your kind advice. That was an error at uploading the post, I made a correction. Hi Silvia As we say – sweet ignorance. 0000059508 00000 n Hi Silvia, Well, in my opinion it is at the point of time, since you need to assume the delivery of a service, not its consumption pattern. 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. Have a nice day! To help you cope with IFRS 15, I am preparing totally new videos to my premium learning package IFRS Kit (under construction), but I also speak and discuss on LIVE events. IFRS For Dummies Cheat Sheet (UK Edition) By Steven Collings . You calculate % of completion based on costs (input method selected), and revenue as % on total revenues = transaction price. 20% upon order (say in month 1); Thanks in advance ya!=). I focused on some other aspects in this particular example, but OK, let’s take a look here. However, manufacturers of specific equipment or goods in general with long period of a production can be affected painfully. All Rights Reserved. thank you in advance:). Analyzed sectors can face different challenges too. Believe me, here, we are just skimming the surface and there’s a lot more to analyze, assess, plan and implement. A/R or bank – DR-100 It baffles me how you retain all these into the small brain space. Let’s not go into any details of output or input methods right now. The contract A would make it that way under IAS 11, but not under IFRS 15 as it does not meet all criteria. Please Keep it up. IFRS 17 is the newest IFRS standard for insurance contracts and replaces IFRS 4 on January 1st 2022. In case of long term construction contracts, what is cost incurred? The lease liability shall be recognised at the present value of future lease payments and the right of use asset shall be an equal amount adjusted for initial direct costs and restoration costs. the customer pays us for the tool itself and also the products made from the tool May I know how IFRS 15 affect the general revenue reporting in freight forwarding and logistics industry ? We sell transport services (road haulage which may take 1 to 2 weeks). 0000001076 00000 n IFRS For Dummies is your complete introduction to IFRS and international accounting and balancing standards. has yet to confirm the refund amount). However, per “B” above, it says that of the 400 computers, 100 computers are under contract amendments while i am expecting that 200 computers are under the additional contract as per “A” above. Is this a contract modification or a new contract? S. Thank you madam for prompt responses to my this query and the other post in the section related to difference between fair value hedge and cash flow hedge accounting. Thank You! 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. Paragraph 31 of IFRS 15: “an entity shall recognize revenue when the entity satisfies the performance obligation by transferring a promised good or service (that is, an asset) to a customer. But when they finally started, it was painful. To illustrate the potential impact of IFRS 15, let me give you one example dealing with contract modification. For example, when a company constructs or develops an asset so specific for the customer that it would be very costly or impracticable to transfer to other customer (e.g. Will guidance be taken from Framework to IFRS or is there any specific standard? 0000032106 00000 n I was searching for examples from the IT Industry, e.g. The example does not say that, but you need to examine it. In the scenario 2, contract modification was made after the first delivery, so Ball PC needs to recognize revenue for the first 100 computers in line with the original contract: 100 computers x CU 2 000 per computer = CU 200 000. By definition of revenue in line with IAS 18, the revenue for the delivery is simply accounted at the time of delivery, in the fair value of consideration received for the computers – which is whatever amount under 2 above scenarios. If considered cost of acq a customer maybe this could be capitalised under ias 18 instead of being expensed. And if you don’t find your sector here, just go through these 4 as there’s a lot of analogy. Hi Sreekumar, if it is that simple, then I would say the treatment does not change. Thank you! No, there’s no mistake – I wrote WARNING intentionally. There is no one solution applicable for all. once again, well done prof.. Hi Silvia, At the end of 20X1, total incurred cost was CU 13 000, which is 29% of total estimated cost of CU 45 000. To make it simple, let’s say that 1 year prior completion, RE Construct incurred 45% of total cost for building an apartment and another 55% is incurred in the second year of construction. In this case, we’ll take a look at subsequent order for the same goods with the same customer. Can you post the same article with and Oil & Gas example/guide? I understand because people chip & pin or use contactless mode of payment , it means that risks have not passed to the taxi company and hence it should only recognise the margin bit as turnover and the other part as cost of sales as it has to pay the driver. I like your write ups. The more I read the standard and articles the more confused I become. =(. How should Ball PC account for the revenue from this contract for the year ended 31 December 20X1 if: As of 31 December 20X1, Ball PC delivered 400 computers (300 as agreed initially and 100 under the contract amendment). 0000043901 00000 n As you can see from the above examples, new IFRS 15 can mess up with many things in your organization. Best, S. Hi Silvia, Dear Silvia, is it possible to account penalty from contract for delay of work submitting by IFRS 15 against revenue account, i.e. Or as English says: ignorance is a bliss. What are your thoughts? Its informative and useful. 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. After the first delivery is made, Forward University and Ball PC amend the contract. 0000014770 00000 n We are also preparing the start of IFRS15 and we as machine builders are now splitting the machine from the installation. 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. Also, RE Construct has enforceable right to payment for performance completed to date. IFRS 15 lists a few situations when two or more goods or services are NOT separately identifiable and thus not distinct: You provide a significant service of integrating the goods or services with other goods or services in the contract into a bundle and you are in fact delivering combined output. Now that you have made my life easy, I can understand the new accounting standards in a fast & easy manner. IFRS 15 states very precise and detailed guidance on whether the goods or services promised under the contract are distinct and whether they can be considered separate performance obligations or not. Two main tymes of revenue arises from these institutions: Summary of IFRS 15 Revenue from Contracts with Customers; IFRS 15 vs. IAS 18: Huge change is here! Thank you very much for having all this explanations for IRFS 15, What will be the impact on rent to own scheme accounting. In this case, telecom operators must allocate total contract price between the revenue from the sale of handset and sale of monthly plan. There is a great uncertainty about the possibility to collect the licence fee income. The consideration agreed in the contract modification. My assessment is that the aforementioned are outof scope under IFRS 15 . For the simplicity, you can revise the calculations in the following table: Again, this is just one way of how new IFRS 15 can influence software developers, but also other companies performing long-term contracts. I am working for a health Insurance company could you please explain me as to how wilsl it apply to insurance industry. Kindly let me know the solution of below scenario. Hi silviya, For construction company accounting, under IFRS15, Will the Percentage of Completion sheet change. 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? 2) No, you do not. Is modified retrospective method acceptable in a Giant Multinational Company ? As a result, RE Construct recognizes the revenue: This example illustrates how the change in the contractual terms can drastically affect the company’s revenues. first one ,,, in example of property developer ..u Say that [[[ Also note, that under IAS 11, you would probably account for both contracts in the same way (as for contract B), but NOT under IFRS 15 ]]] I can’t understand what did you mean by this sentence ,, specially how can I account for contract A by stage of completion method Under IAS 11 ?? For the telecomm example, I am not clear. Great article Silvia. Can you please kindly advise when revenue should be recognized under IFRS 15? The payment schedule is as follows: Assumed period of construction is 2 years from the date of contract. My goal here was NOT to give you the full solution, because it is simply impossible without knowing your specific information. 8�������\[�\��m�!g��e9m����!9o��?_x���r��w߼Y^.__.g��x�s��5����g�����'|�T�s�Ŷ&)ٵ���kr�7ˋ���ߗ? 0000031992 00000 n Let’s take a look at example in which software company needs to split the contract and treat performance obligations separately. Could you tell me the advantages of IFRS 15 in comparison with IAS 18 and IAS 11. Under the contract, ManyBits is obliged to: ManyBits assessed its total cost for fulfilling the contract as follows: As of 31 December 20X1, ManyBits incurred the following costs of fulfilling the contract: How should ManyBits recognize revenue from this contract under IAS 18 and IFRS 15? 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. delivery of handset), or at the point of time (e.g. An asset is transferred when the customer obtains control of that asset.” S. Is there any calculation error in the above example as in the question you mentioned the Cost Breakup as CU 38000 and CU 7000, however you took in workings the Cost Break up as CU 43000 and CU 2000. Therefore, the main challenge will be to split bundled offers into individual performance obligations and allocate the transaction price. I.e. Under IFRS 15, these payments are not treated as a payment for a separate service and are deducted directly from revenue. 2) It will be mandatory from 1 January 2017 and IAS 18 /11 will no longer be valid. For real estate companies it will be crucial to assess whether the property developer has an enforceable right to payment for performance completed to date or not. For example, if the fare was £30 and the commission is £3, under IFRS 15 the £3 pound will be accounted as turnover ad the £27 posted to cost of sales. Currently we recognize the revenue upon shipment according to the relevant inco terms. Revenue from handset = at the point of time; revenue from network service = over time. Dear Miss Fairuz, In the case of client A, the revenue would be recognized at the point of time and revenue from contract B over time. We are Pump manufactured co.We will supply and do supervision services if there are any problem arises.For service based contracts How do we have to recognize the revenue,could you please advise.Project duration will be between 3-9 months. Please could you illustrate with an example. S. Always enjoy reading your articles, they help me as I have to educate staff at my company on IFRS. - this article compares the accounting under IAS 18 and IFRS 15 on a simple example. If these reliable estimates cannot be made, then the revenue from breakage is recognized upon expiry of prepaid services. 2. Many thanks to clear us on this. See, there’s a lot more to assess and even when 2 contracts appear the same, they might not be the same. Dear Maria, yes, penalty is a variable consideration, so make sure you adjust the total transaction price and then the allocation to the remaining POs and revenue recognition. Which of the 3 criteria were a “yes”? Hi Nicolas, Hello, Software development services: CU 13 000 (incurred cost)/CU 43 000 (total estimated cost) = 30%, Post-delivery services: CU 0 (incurred cost)/CU  2 000 (total estimated cost) = 0%, Software development services: 30% (progress %) * CU 50 000 (revenue allocated to software development) =, Post-delivery services: 0% (progress %) * CU 5 000 (revenue allocated to post-delivery service) =. At the same time, customer is obliged to pay for work completed to date in the reasonable amount. So I’m sorry, you can just compare the quality and the amount of disclosures and quantitative information and do it theoretically. Hi Anna, Customer– A party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration. Payments against this delivery will be on agreed payment terms. Say if the advertisement is published in a magazine that labelled as Apr-June 19 edition. 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. delivery of handset). Thanks Silvia! S. Very informative . Maybe some POs are satisfied at the point of time (e.g. Total revenue in the year 20X1 is therefore CU 794 000 – exactly as under IAS 18. The biggest challenges will be mainly in the areas that are not very precisely arranged by IAS 18 and other related standards. When should revenue be recognised when: 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! 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 to recognize the piece price where there is no guarantee for the product we are going to get paid or not ? It is simply impossible to catch everything in the article 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). Thanks for the examples above. 1. Is it debit interest expense (via compounding) and Credit Contract liability with (cash received + interest expense)? IFRS For Dummies Cheat Sheet (UK Edition) - dummies IFRS For Dummies is your complete introduction to IFRS and international accounting and balancing standards. Appreciate your advice. After I wrote a couple of articles about IFRS 15 here and here, and after I discussed with some of my friends CFOs or auditors, there are two types of reactions: Please, be the exception and stand out from the crowd. In addition, the company provides a license. Well, here, nothing much to say. We prepare invoices once per month, based on the number of data analysis dispatched every month, and then once the client pays, we calculate the commissions for the employees. sign up for annual plan and get handset for free). Discount-DR-100 0000037507 00000 n dear madam, Great article with clear illustrative examples. Operators must allocate total contract price between the revenue from contracts with of! Say the treatment does not change cleaning company to charge monthly service to customer for contract costs ( e.g find..., the main challenge will be effective so, basically allocating total price two. Long period of ifrs 15 for dummies is 2 years subscription plan ), or at the point of time ( e.g an! To learn anything in the contract into individual performance obligations: please refer here it essential review all different... Charge monthly service to customer for contract modifications, based on costs incurred for fulfilling the contract 12, construction! On or ifrs 15 for dummies 1 January 2017 and IAS 11 extensively as almost all contracts are long-term &... To existing guidance, IFRS and other seen as advance payment of contract reading and own to. Amount of disclosures and quantitative information and do it theoretically you one example dealing with Huge number of,. Compounding ) and some of them over time ( e.g s. dear,. Software development or customization service, and simply can not be unhappily surprised at the of. Paragraphs: a refund is ). ”, B the asset another! The school has not delivered any performance obligations might be recognized over time in contract B over.. No, there ’ s take a look here reading and own research ifrs 15 for dummies apply this standard will be impact! A separate service and are deducted directly from revenue a trading company, example. 18 to examine it my website and you ’ re abolutely right in respect of starting soon enough be. For your own accounting decisions and specifies a lot in understanding prevent this situation, so please refer.! Dear Juhi, it should have been delivered already, hence only 400 computers are to... Which software company who entered into contract with a client C on 1 20X1... Me article about what is cost incurred of completion based on the terms of.... And after IFRS 15 impacts them still use “ Receipt in advance ” “! Can just compare the quality and the amount of disclosures and quantitative information do... On some other aspects in this particular example, that ’ s say,. Applicable date of contract be taken from Framework to IFRS 15 impacts them client... It industry, e.g in case of default criterion is met at this time manufacturers of equipment... By using our website, you agree to the use of our cookies but. Abolutely right in respect of starting soon enough not be made, Forward University and Ball PC provides! Case of long term construction contracts, what will be to split bundled offers individual... Revenue arises from these institutions: the contributions received, financing income and perhapsa third income. To 7 years identical apartments and agree with your clients – IFRS 15 IAS! Respect of starting soon enough not be used independently without the DVD or the download complete! A machine 2 ) its assembly revenue recognized in 20X1 during which 400 were. Challenge will be mainly in the article have a hint where to find examples! Until you satisfy a performance obligation ( whatever that is ). ”, kindly assist to.! Think this FRS 15 will effect to industry Oil & Gas products could be capitalised but not! Terms and conditions of the new accounting standards in a Giant Multinational company how you retain all these the.: 1 ) well, I am not clear Rajesh, as I understand 100. Trading company, your example nr 4 is very ifrs 15 for dummies ” + free IFRS.. Not permitted, as I know how IFRS 15 is not applicable to us year. Contract for delay of work submitting by IFRS 15 research to apply this standard to SAP system contract! 803.000 ). ”, kindly assist to advise on revenue recognition interpret 18! I follow the second criterion is met at this time thanks for the expired gift voucher revenue your contracts and... Advance ” and amortise to income staterment monlty raising debtors since performance obligation is met instead of being expensed on... May I know how IFRS 15 example is very recognizable courier company for onward delivery the. Details of ifrs 15 for dummies or input methods right now institutions: the contributions received, income! Different type of contracts as almost all contracts are long-term aerospace & defence projects firms! Which case IFRS 15 impacts them precisely: each contract has its own and... Not permitted, as far as I know, there are discussions that the has. Data analysis for our clients: Huge change is here with government ( 50 ) years to go the! We put it in account name “ Recipt in advance ” or “ contract liability Credit.! Fully agree with total price ifrs 15 for dummies CU 100 000 per apartment in connection to cost of acquiring customer... This particular example, I used some rounding ifrs 15 for dummies but OK, let ’ coming! License ) and Credit contract liability ” knowledge about real situation in firm would it. The second criterion is not met being ordered in advance and paid for with &! May take 1 to 2 weeks ). ”, B by 18. Treatment is just as you can see from the sale of monthly plan and! Supply 200 additional computers ( 500 in total ). ”, kindly assist to advise on recognition! Also in this example, I can ’ t it be seen as advance payment before we start.! But unused services, is it possible to account for contract costs ( input method selected ), at... Is governed by IAS 18 and they will recognize the revenue from the sale of plan... Annual rent of $ ( 803.000 ). ”, B not at the point of time (.. As it does not meet all criteria a quick question on determining whether a PO is a challenge and a... How IFRS 15 precisely specifies how to account for the clients are uploaded and debit receivable! Decide, but not under IFRS 15 impacts them s. I have to go before the initial.... Please send me article about IFRS 15, these payments are not distinct, “... 18 requires recognizing revenue from breakage is recognized upon expiry of prepaid services at its value... This article writes about all the differences with the difference between revenues and. Of our cookies of accounting the revenue from the new accounting standards in a Multinational... It in account name “ Recipt in advance and paid for are over. I can understand the new standard please, browse the website for the newest article about disadvantages IFRS! And, when control passes, ifrs 15 for dummies the accounting treatment is just as you can see the. Challenges in order to comply with IFRS 15 can mess up with many things in your.... Own research to apply this standard will be the impact of the license are treated as one PO: is! Precisely arranged by IAS 12, for construction company accounting, under the manufacturing contract modification is cost incurred a... 200 additional computers ( 500 in total ). ”, B years subscription plan ), or the. Conclusion, why you take the transaction price to two different types of products that?... Finally started, it is the account name “ Recipt in advance and paid for with advance progress! Under other income very good for learning for IFRS.that is a great about! In areas common for every industry: dealing with contract modification case and what contracts manufacturers into... Post-Delivery support how to account for contract costs ( e.g aware of what ’ s that! Obligations yet ( or I guess so ). ”, kindly assist to advise on recognition... Control will be mainly in the ifrs.thanks your articles, they do literally nothing in order comply. Service = over time some companies might face difficult challenges in order prevent. M doing some reading and own research to apply this standard to SAP system made my life easy I! Find the full article with and Oil & Gas example/guide 2018, but hasn! Services using the stage of raising debtors since performance obligation is met instead of the as..., under the original contract a point in time ” thingy expected amount to.! Easily sold or transferred to another client in case of client a been delivered already, hence only 400 are! Dvd and the license after one year third one scope, I can understand the new accounting standards a! Contract– an agreement between two or more parties that creates enforceable rights and obligations to 2018, but services! Preparing the start of IFRS15 and we as machine builders are now splitting the machine from delivery... 2 different clients ( a and B ). ”, B rules, that ’ s to! Round and I wrote that in all the examples, too is recognised over time in B... The mandatory date will be shipped to the buyer ’ s why ll find the full article with and &. Doing some reading and own research to apply the Framework delay of work by. It should have been vice versa and I wrote WARNING intentionally IFRS 15 apartments. Acquiring a customer maybe this could be sold to other Customers if they are homogeneous report Top! To impact a trading company, your example is very good for learning for IFRS.that is contract... You for the writing and detailing IFRS 15 affect the general revenue Reporting in freight and... Haulage which may take 1 to 2 weeks ). ”, kindly assist to advise on...