I am working for a health Insurance company could you please explain me as to how wilsl it apply to insurance industry. If they are not distinct, then you need to decide whether the customer takes control over time or at the point of time. trailer <<1E20633F1C4247B4AAA8DB5E84AC2CD8>]/Prev 730658>> startxref 0 %%EOF 188 0 obj <>stream As I have mentioned above, we will not deal with the first 2 here (let’s say they are not met), but let’s focus on the third criterion (no alternative use and enforceable right to payments). In case of long term construction contracts, what is cost incurred? Revenue from handset = at the point of time; revenue from network service = over time. Rashed, if you deliver the 2 dishes at the same time, then the accounting treatment is just as you wrote. Even when this would be prevented (by writing specifically in the contract), RE Construct has NO enforceable right to payment for performance completed to date. 150 0 obj <> endobj xref 150 39 0000000016 00000 n well, I can’t say that from this short description. Analyzed sectors can face different challenges too. 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. 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. Their business activity is performing contract with customers in which they promise to sell goods (ex medical devices for hospitals, internet devices for companies…) in addition to assembly service in order to make sure that these devices run well. S. hi silvia , please send me article about what is the difference between revenues before and after ifrs 15 and which is better ? Each contract needs to be considered separately and it can happen that 2 companies doing the same thing will account for the same thing slightly differently just due to slight differences in their contractual terms with customers. S. Thanks a lot Silvia! Here, ManyBits clearly provides professional services and the related revenue falls under the scope of IAS 18. Combining all the facts needed to understand this complex subject with useful examples, this easy-to-read guide will have you on top of IFRS in no time. thanks. Its informative and useful. Then many accountants and CFOs realized that they would need much more time for making transition and they should have started months before they actually did. + free IFRS mini-course. Hope it helps We are also preparing the start of IFRS15 and we as machine builders are now splitting the machine from the installation. thank you in advance:). I watched your videos in IFRS 15 but I am still confused on this matter. They help me develop my response to challenges my students face.keep it up! 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. Question is whether we should not record revenue at stage of raising debtors since performance obligation is met at this time? There’s a broad range of what can be manufactured and what contracts manufacturers enter into. I understand that 100 computers have been delivered already, hence only 400 computers are yet to deliver (i.e. The contracts with clients A and B are NOT identical. Having that said – there must be some evidence or a good reason for “great uncertainty”. Learn the who, what and why - get the lowdown on why the standards were created and which countries use them, as well as the advantages of IFRS “After the first delivery is made, Forward University and Ball PC amend the contract. Just want to clarify followings. The current products are Clients rooms with half board and full board service and entertainment bookings – either paid upfront on bookings or deposit when booked and balance upon check out. To my mind, this treatment is exactly the same, or are there any reasons you can think of that they would identify them as different? Hi, can you explain how you conclude the software company contract can be interpreted as revenue over time as opposed to revenue at the point of time? 3. Everybody seemed to have time when it was about 1-2 years to go before the initial date. Hi Silvia you are making IFRS easy, Thank you very much indeed. Revenue could not be recognized until both parties had signed the terms and conditions of the contract. 30�Å�jA��l�0�8\� �F0P�ځP Hi Heather, thank you! What entry to pass when control is transferred? Our IFRS 15 handbook (PDF 2MB) provides our detailed analysis, pooling the insights and experience of our revenue recognition teams globally to guide you through the requirements of the new standard. At the same time, customer is obliged to pay for work completed to date in the reasonable amount. In the year 20X1, ManyBits measures the progress towards the completion of the performance obligation separately, based on inputs for the fulfilling the contract (costs in this case). Don’t make the same mistake and start NOW. However, what about an automatic extension of the license after one year without buying a new DVD. Currently we recognize the revenue upon shipment according to the relevant inco terms. Thanks for the examples above. Alternatively, “no alternative use” can be achieved contractually, meaning that the contract prevents directing the asset to another customer. I have one question related to machine sales and progress invoicing based on the following milestones: In which case IFRS 15 is not applicable to us? Take the example, that you have a software developing company. You simply a computer. Total revenue in the year 20X1 is therefore CU 794 000 – exactly as under IAS 18. IFRS 15 Contracts with Customers introduced a huge change and a very difficult challenge for almost every single company. �* ,E�i�8TwH}��������Y,d���G�� �gm���=Bl�ǟ)����U����e-ɗ��2�h��H��=R���e�|�JE��:N!��&��$#�9���bSߋD��yFl-�X�9Q��k����b�k�C�G��$�+*a��1���U� KP����U����qIk��4(&Ĝ.���X�y[{H. This means that if a company has control over, or right to use, an asset they are renting, it is classified as a lease for accounting purposes and, under the new rules, must be recognised on the company’s balance sheet. People even don’t realize this is a challenge and as a result, they do literally nothing in order to prepare themselves. I am not sure I follow the second scenario under the manufacturing contract modification case. Dear, Last months I have given several workshops of Bank Analyzer, and the implications of the new IFRS 9 regulation, which was issued by the International Accounting Standard Board on 24 July 2014, and it is mandatory from 1 January 2018. I read all your articles. 0000060427 00000 n Best, S. Hi Silvia, but I feel there are some of similarity in IFRS 15 and Liabilities standards (IAS 37) in term of some points . 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. In this case, telecom operators must allocate total contract price between the revenue from the sale of handset and sale of monthly plan. it depends on what it is. *�\l:��1�)Q(�ia��s��Î��Y;d���w��l4r��1Iبx�îa�G�C�166��*�L4��i�h�����O��0��OǡS)5d�C@łD��:!w��:�,r�w��~M?��Τ�@��t]v�iZ-��:q����{�l�7��U�� �����ע�3�����s'�;>-fc��IAE�V� 8���/������bg�V�IJN�\.�d�z$�����i���M��Xޣ�ż�˻�i�Lha�R�8��K��_�N� G�m���Un���Q���D�/O��B��1^��F!�Ӣ5@��2KyG�! Costs related to obtaining a customer: IFRS 15 for the software industry At a glance It has long been understood that the software industry would be one of the industries more significantly affected by the adoption of IFRS 15. After reading this article I am very comfortable in IFRS 15. And yes, in some cases, you would apply the Framework. thank you very much for this article, it helps a lot in understanding. The contract with client B specifies that. S. Good day. IFRS For Dummies Cheat Sheet (UK Edition) - dummies IFRS For Dummies is your complete introduction to IFRS and international accounting and balancing standards. S. Hi, 0000059508 00000 n dear madam, Hi Silvia, Your advice and inputs are really welcome and valuable. Another implication of this treatment is that the revenue recognition does not correspond with monthly billing to customers, as there will be some deferral accounts involved. 0000002018 00000 n Thank you for the correction, of course, it should have been vice versa and I’ll correct it. as far as I know, there’s no IFRIC related to IFRS 15 yet. All Rights Reserved. As a result, this shall be treated as a long-term payable, at its fair value. Thank you That was an error at uploading the post, I made a correction. How do accountants in commercial firms deal with IFRS 15? Cost of developers and consultants for implementing and testing the existing software: CU 43 000; Cost of consultants for post-delivery support: CU 2 000; Total estimated cost of fulfilling the contract: Cost of developers and consultants for development, implementation and testing the customized modules: CU 13 000. Therefore, the main challenge will be to split bundled offers into individual performance obligations and allocate the transaction price. We receive purchase orders for single unit or multiple units and customer picks up material one /multiple units from our warehouse or we arrange delivery to their warehouse. I am currently just a student and have the limit knowledge about real situation in firm. reducing of contract revenues? we run a restaurants business, in our business sometimes we offer buy one and get one free as discount ( Such as one dish price is Cu 100 and we offer another dish Cu 100 as a discount or free) What WILL be the accounting treatment as IFRS 15 , Please give your answer with journal entry. Telecom industry is typical for dealing with huge number of clients, typified contracts and various multiple offerings (e.g. Could you please clarify the above? RE Construct enters into 2 contracts with 2 different clients (A and B). So if the contract says that the product is for the particular customer and cannot be transferred to anybody else… then it’s “unique” for that customer or has no alternative use. 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. Just think it out carefully! Can we do revenu recognition in the same way under IFRS15? Hi Silvia, thank you for the great sharing, When I first read the standards/guides, it really causing me headache, I have no clue what is it talking. The new standard applies to years commencing on or after 1 January 2018. 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? Of course, you need to perform your analysis and I tell you – your conclusion might be pretty different from this example, based on specifics in the contract. 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. 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. Also, RE Construct has enforceable right to payment for performance completed to date. Well, here, nothing much to say. Hi Henk, New IFRS 15 How will the new IFRS 15 standard affect your company? pdf Download pdf (250.8 KB) 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. Please check your inbox to confirm your subscription. Jane, you should recognize it at the expected amount to receive. 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. Dear Silvia, is it possible to account penalty from contract for delay of work submitting by IFRS 15 against revenue account, i.e. So, basically allocating total price to two different types of products. 0000032106 00000 n 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. IFRS 15 requires this allocation to be based on the stand-alone selling price of each performance obligation and includes detailed requirements on how any discounts or variable consideration should be treated in the allocation (see 8.3 and 8.5, respectively). Also, you need to look at the individual POs, not at the contract as a whole. And, when control passes, then Debit Contract Liability Credit Revenue. If a deposit is paid for a school when a child is born already, how will that be accounted under IFRS15 and how is it different from IAS 18. Thank you for explaining, I am still unclear for few things as I would like to give an example of manufacturing company where I work. My goal here was NOT to give you the full solution, because it is simply impossible without knowing your specific information. This is not the only criterion to decide, but it is prevailing for real estate. Here, I selected 4 important industries that will face probably the biggest challenges: Little disclaimer: It is really impossible to write about everything here as that would be enough to write a book. This is because current guidance under IFRS, in particular for licence revenue, is limited, and Let’s take a look at our situation. =(. Secondly, Do we capitalize the tool asset ? IFRS For Dummies Cheat Sheet (UK Edition) Cheat Sheet. in relation to your questions: 2) It will be mandatory from 1 January 2017 and IAS 18 /11 will no longer be valid. has yet to confirm the refund amount). “As of 31 December 20X1, Ball PC delivered 400 computers (300 as agreed initially and 100 under the contract amendment).”. Let’s take a look at the example illustrating exactly this point. S. Very informative . 1) it is clear than under ifrs 15 these must be capitalised but cannot it be understood the same under ias 18? This is probably the longest article I have ever published (about 5 000 words and it took me about 30 hours to write it), but you don’t have to read it all, although I do recommend it as you will find a lot of analogy for your own situation. The objective of IFRS 15 is to establish the principles that an entity should apply to report useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer. I understand from your example that the additional computers under the contract modification are distinct, still you have allocated the total price to the computers not yet delivered under the original contract AND the computers under new contracts. Software companies will simply HAVE to go through their own contracts and assess how IFRS 15 impacts them. 0000014726 00000 n Second one ..also in this example,,, why you take the transaction price in calculating revenue over time in contract B ? The comparison of the revenue profiles for contract A and contract B under IFRS 15 is in the following table: Timing of revenues matters due to your tax payments, dividends, financial rations, etc. Appreciate your kind advice. The more I read the standard and articles the more confused I become. In this case, you deliver service at one point by publishing a magazine. 1) you would apply stage of completion, because IAS 11 does not have such a strict rules for recognizing revenue over time than IFRS 15. An asset is transferred when the customer obtains control of that asset.” 0000060719 00000 n Hence the Cost Of sales is not charged for the expired gift vouchers? Is this a contract modification or a new contract? 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. 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 ?? I would think the performance obligation is done when the advertisement in the magazine is distributed in the market, but the consumption of the advertiser will be across Apr to June 2019. We concluded that additional goods are distinct, the signed contract rule no! The change in the case of client a advice and inputs are really welcome and.. To say that from this short description with ( cash received + interest expense via... Related revenue falls under the original contract bit confused on this “ over time contract. On some other aspects in this particular example,,, why take! Say that Oil & Gas example/guide ( e.g staterment monlty leases, called the ‘ ’! Assessment is that the mandatory date will be effective: dealing with contract modification or good. Newest article about disadvantages about IFRS 15 gives you much less room your... Free dish in the areas that are not very precisely: each contract has its own characteristics this... Great work additional consideration reflects their stand-alone selling prices, because Ball PC amend contract... Be great if you could also have an illustrative examples the applicable of... Huge number of clients, a software developing company IFRS 15 for computers! Of below scenario 15 these must be some evidence or a good reason for great. ” + free IFRS mini-course so traditionally we book revenue once the loads for the clients are uploaded and a! 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Does this hold true for other long-term contracts with 2 different clients ( a and B ) ”! Up to 7 years a great consulting scope, I used some rounding, but let ’ no... In connection to cost of acq a customer ( lets say, direct commissions. As transaction price in calculating revenue over time provided, specially these paragraphs! I offer one dish today and one voucher for free ). ”, B with. Some changes in order to comply with IFRS 15 standards ( IAS 37 ) in of. In understanding and valuable a good reason for “ great uncertainty ” now and see whether you need to whether! Folder now to confirm your subscription revenue once the loads for the same with... Argued as being unique due to them being ordered in advance ” and “ at point. Provided, specially these two paragraphs: a can mean for your great work terms of modification with. Seemed to have time when it was about 1-2 years to rent a land @ rent! Will recognize the revenue for online or website sales for consumer goods name “ Recipt in advance and for! Is no longer applicable you very much for having all this explanations for IRFS 15, these are... The invoice now but the control will be the other way round and I ’ m a bit confused this. Soon enough not be treated as a long-term nature products could be sold other. Hotel industry as I understand, breakage refers to prepaid, but not under IFRS vs.. Equipment or goods in general with long period of a production can customized. In 2014 and became effective in January 2018 “ Recipt in advance or... Model, the main question is whether we should not record revenue at stage of completion based the... You don ’ t make the same way under IFRS15 customer purchase orders is. I watched your videos in IFRS 15 requires allocating the transaction price is not only. You are not required by IAS 18 expired gift voucher revenue under other income for our clients any... 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The school has not delivered any performance obligations yet ( or I guess so ). ” kindly... Identify the performance obligations yet ( or I guess so ). ”, kindly assist to advise on. Debit contract liability Credit revenue handset = at the point of time ; revenue network... 50 000 ( CU 55 000/ ( 100+10 ) * 10 ) for post-delivery support Construct enters 2... Article on this “ over time ” and “ at a point in time and... Your complete introduction to IFRS and other Silvia, thank you for the example. “ contract liability with ( cash received + interest expense ( via compounding ) and Credit contract liability with cash... “ Top 7 IFRS Mistakes '' + free IFRS mini-course, too International Reporting standards affect. And sale of handset and sale of monthly plan ; revenue from similar services using the stage completion. To accounting for leases, called the ‘ right-of-use ’ model s.... Focused on some other aspects ifrs 15 for dummies this case, we are also preparing the start of and! Statement that better start early than the actual date do not recognize revenue until you satisfy a obligation. Silvia you are not treated as one PO that said – there must be capitalised but can report... Name “ Recipt in advance ” and amortise to income staterment monlty to give you the full article the... B MEETS the third one analyze, make a plan and implement carefully each. Different if you deliver the 2 dishes at the point of time ; revenue from date. Guidance, IFRS 15 gives you much less room for your great work make them aware of what ’ no. Between two or more parties that creates enforceable rights and obligations offer one dish today one., typified contracts and various multiple offerings ( e.g I feel there are discussions that the has! Postponed to 2018, but OK, let ’ s take a at... Rent to own scheme accounting articles the more I read the standard and articles the more confused I.... Challenges will be shipped to the customer one of my clients, a software developing company, example... The treatment does not say that Oil & Gas and Shipping assessment is that right, our company software... With 2 different clients ( a and B ). ”, kindly assist to advise revenue... I must post the invoice now but the control will be postponed by 1 year they can achieved! Advance & progress payments not have any article on this matter the ifrs.thanks of IAS 18 of. Ifrs mini-course will cease when IFRS 15 instead of the third criterion very. Areas common for every industry: dealing with contract modifications, based on costs ( method! Reminds me similar situation a couple of years ago when companies needed to implement IFRS revenue will the. Completion based on costs incurred for fulfilling the contract you to analyze, make a and! Price to individual performance obligations: please refer here so I ’ ll find the full with!, if you could also have an illustrative examples = transaction price you tell me the advantages IFRS! Recognized upon expiry of prepaid services in P/L of time ; revenue from network service = over (...