www.IFRSbox.

com List of Examples IFRS 15 Revenue from Contracts with Customers

N. Title Location
Example 1 Illustration of 5-step model (telecom contract) Handouts + Excel
Example 2 Contract modification Excel
Example 3 Explicit vs. implicit performance obligations Excel
Example 4 Performance obligations: are they distinct? (IT contract) Handouts
Example 5 Variable consideration with contingency Excel
Example 6 Significant financing component and right of return Excel
Example 7 Allocating variable consideration + licenses Excel
Example 8 Revenue over time vs. at the point of time (real estate) Excel
Example 9 Contract costs Excel
Example 10 Transition to IFRS 15 Excel
www.IFRSbox.com Example 1: 5-step model IFRS 15 Revenue from Contracts with Customers

Telecom operator, ABC Corp. entered into a contract with Johnny on 1 July 20X1. In line with the contract, Johnny subscribes for ABC's monthly plan for 12 months and in retu
receives free handset from ABC Corp. Johnny will pay a monthly fee of CU 100. Johnny gets the handset immediately after contract signature.
ABC sells the same handsets for CU 300 and the same monthly plans for CU 80/month without handset.
How should ABC recognize revenues from the contract with Johnny in 20X1 under IFRS 15?

Step 1: Identify the contract with a customer

= written contract between Johnny and ABC Corp.

Step 2: Identify the performance obligations

PO #1: Network services (monthly plan)

PO #2: Handset

Step 3: Determine the transaction price

Monthly fee:
Months of subscription:
Total transaction price: 0

Step 4: Allocate the transaction price to the performance obligations

Stand-alone selling Allocated

Performance obligations Revenue Billing
price transaction price
Network services
Handset 0 0
www.IFRSbox.com Example 1: 5-step model IFRS 15 Revenue from Contracts with Customers

Total 0 0

Step 5: Recognize revenue when (or as) an entity satisfies a performance obligation

PO #1: Network services (monthly plan)

PO #2: Handset

Journal entries:

Revenue from handset:

Debit Contract assets => Contract asset = entity’s right to consideration in exchange for goods or services that the
Credit Revenues from sales of goods) transferred to a customer when that right is conditioned on something other than the p
0 time (for example, the entity’s future performance).

Invoice - month 1:

Debit Trade receivables

Credit Contract assets 0
Credit Revenues from services
0

Total revenue in 20X1:

Revenue from handset
Revenue from network services (6 months)
Total: 0
 www.IFRSbox.com Example 1: 5-step model IFRS 15 Revenue from Contracts with Customers

for 12 months and in return, Johnny

 www.IFRSbox.com Example 1: 5-step model IFRS 15 Revenue from Contracts with Customers

or goods or services that the entity has

omething other than the passage of
www.IFRSbox.com Example 2: Contract modification IFRS 15 Revenue from Contracts with Customers

Ball PC, computer manufacturer, enters into contract with Forward University to deliver 300 computers for total price of CU 600 000 (CU 2 000 per computer).
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
control over the computers at delivery.
After the first delivery is made, Forward University and Ball PC amend the contract. Ball PC will supply 200 additional computers (500 in total).
How should Ball PC account for the revenue from this contract if:
Scenario 1: The price for additional 200 computers was agreed at CU 388 000, being CU 1 940 per computer. Ball PC provided a volume discount of 3% for additional delivery w
volume discounts provided in similar contracts with other customers.
As of 31 December 20X1, Ball PC delivered 400 computers (300 as agreed initially and 100 under the contract amendment).
How shall Ball PC account for the contract modification under IFRS 15?

1.1 Assessing the type of contract modification

1.2 Amount of revenue

Revenue from the original contract (contract #1):

Products delivered until 31 December 20X1
Originally agreed price:
Total revenue from contract #1:

Revenue from the additional contract (contract #2):

Products delivered until 31 December 20X1 Debit Contract assets
Agreed price: Credit Revenues from sales of goods
Total revenue from contract #2:

Total revenue in 20X1 from contracts #1 and #2: 0 CU

Advise how Ball PC recognizes revenue in 20X1 if:

Scenario 2: The price for additional 200 computers was agreed at CU 268 000, being CU 1 340 per computer. The price for additional computers was reduced significantly due
- Ball PC provided a discount of 30% for additional delivery because it hopes for the future cooperation with Forward University (nothing even discussed yet). As a result, initia
products was set at CU 1 400 per computer.
- After initial delivery, Forward University discovered minor defects on 50 computers and as a result, Ball PC agreed to provide partial credit of CU 240 per computer. This cred
new agreed price for additional 200 computers (resulting price of (1 400*200-240*50)/200 = 1 340/computer).
Note: contract amendment was made after the first delivery.
As of 31 December 20X1, Ball PC delivered 400 computers (300 as agreed initially and 100 under the contract amendment).

2.1 Assessing the type of contract modification

2.2 Contract modification - type II

a) Revenue from the original contract - before modification:

Products delivered before contract modification
Originally agreed price:
Total revenue from contract #1:

b) Reduction of revenue for initial 50 computers ("catch-up")

N. of products with minor defects (initial delivery)
Reduction of price per computer
Total adjustment of revenue for initial delivery
Debit Contract assets
Total revenue before contract modification 0 Credit Revenues from sales of goods)
www.IFRSbox.com Example 2: Contract modification IFRS 15 Revenue from Contracts with Customers
Debit Contract assets
Credit Revenues from sales of goods)

2.2 Contract modification - type III

a) Total n. of products after modification:

Products from original contract not yet delivered before modification
Products agreed in modification
Total n. of products to be delivered after modification

b) Total consideration to allocate

Consideration from original contract not yet recognized
Consideration from contract modification without the credit for defective products
Total

c) Total revenue after modification until 31 December 20X1:

Allocated price per 1 computer (b/a)
N. of computers delivered after modification until 31/12/20X1
from original contract (300-100)
from modification
Debit Contract assets
Total n. of computers Credit Revenues from sales of goods)
Total revenue after modification until 31 December 20X1: 0

Total revenue in 20X4 0

 www.IFRSbox.com Example 2: Contract modification IFRS 15 Revenue from Contracts with Customers

0 per computer).
hs (100 computers in each delivery). Forward University takes

unt of 3% for additional delivery which reflects the normal

ters was reduced significantly due to the following:

n discussed yet). As a result, initial price for additional

f CU 240 per computer. This credit is incorporated into the

www.IFRSbox.com Example 2: Contract modification IFRS 15 Revenue from Contracts with Customers

0
www.IFRSbox.com Example 3: Explicit vs. implicit promises in the contract IFRS 15 Revenue from Contracts with Customers

ABC Corp., producer of cleaning machines, sells their cleaning machines to various companies. Determine the performance obligations in the following contracts:
1) In contract with the client A, ABC promises to deliver 10 cleaning machines for total price of CU 200 000. The contract A contains a clause about free repair and maintenanc
years after purchase.
2) In contract with the client B, ABC promises to deliver 5 cleaning machines for total price of CU 100 000. No warranty is promised in the contract, however, ABC Corp. is well-
customer services and providing 1-year free repair services in the past.
3) In contract with the client C, ABC promises to deliver 50 cleaning machines for total price of CU 1 000 000. No warranty is promised in the contract, and ABC usually does no
services in the country of client C. However, after the contract is signed, ABC offers free maintenance service to a client C as a bonus for big order.

1. Contract A

2. Contract B

3. Contract C
 www.IFRSbox.com Example 3: Explicit vs. implicit promises in the contract IFRS 15 Revenue from Contracts with Customers

ollowing contracts:
bout free repair and maintenance service within 2

ract, however, ABC Corp. is well-known for its perfect

ontract, and ABC usually does not provide any free

der.
www.IFRSbox.com Example 5: Variable consideration with constraint
IFRS 15 Revenue from Contracts with Customers

BigBooks Corp. is a company providing centralized accounting services for corporations. It enters into a 3-year contract with client A. The contract states:
- BigBooks will maintain all bookkeeping and document processing activities for client A, including preparing annual financial statements, monthly reports and
prepare monthly reports and annual financial statements only in conjunction with bookkeeping and data processing performed by BigBooks' team.
- The annual fee is CU 272 000 per year , consisting of: CU 250 000 per year for up to 50 000 accounting entries, CU 1 000 per month for monthly reports and
annual financial statements and tax return. BigBooks is entitled to CU 5 per accounting entry in excess of 50 000 entries per year.
- BigBooks is entitled to an annual bonus payment of CU 12 000 if the average processing time of 1 batch of 1 000 documents is less than 1 week in the particu

Careful analysis of client's A activities and past accounting records show that in the first year, n. of accounting entries is assumed at 48 000, in the second year
year at 53 000.

Based on past work records and delivery times BigBooks Corp. assumes that the probability of processing time of 1 000 documents in less than 1 week is 30%.

Identify individual performance obligations in the contract and determine the transaction price.

1. Step #1 - Identify the contract with customer

2. Step #2 - Identify individual performance obligations

3. Step #3 - Determine the transaction price

3.1 Fee for accounting records:

Year 2 - 50 000 entries

Year 3 - 53 000 entries (250 000+5*3 000)
Total - fee for accounting records: 0

3.2 Fee for monthly reports / annual financial statements

Monthly reports - Year 1-3
Annual financial statements - Year 1-3
Total - fee for monthly reports / annual fin. statements 0

3.3 Performance bonus 0 or 12 000 Constraint limits the amount of revenue as BigBooks can recognize only 0 or
Total performance bonus (3*12 000) 12 000 per year (nothing in between).
Probability of processing 1 000 docs under 1 week Therefore, based on 30% probability, BigBooks limits the bonus to zero until
Expected value of variable consideration
highly probable that the average processing times fall below 1 week and BigB
be entitled to bonus.
After the effect of constraint 0

Total transaction price 0

How would the transaction price change if the contract states that BigBooks is entitled to an annual bonus amounting to CU 0-12 000 and its precise amount
number of times when the batch processing time for 1 000 docs fell below 1 week during the year?

3.3 Performance bonus - variable amount 0 -12 000

Total performance bonus (3*12 000) Here, the constraint does not limit the amount of bonus as BigBooks can get
Probability of processing 1 000 docs under 1 week from 0 to 12 000 based on real performance in individual weeks.
Expected value of variable consideration In case 1, with 30% probability, it was highly probable that BigBooks will not
After the effect of constraint 0 overall annual target of average time below 1 week.
But in case 2, it is 30% probable that BigBooks will achieve individual average
below 1 week during some individual weeks of the year.
 www.IFRSbox.com Example 5: Variable consideration with constraint
IFRS 15 Revenue from Contracts with Customers

. The contract states:

ents, monthly reports and tax returns. BigBooks
gBooks' team.
h for monthly reports and and CU 10 000 per year for

than 1 week in the particular year.

8 000, in the second year at 50 000 and in the third

n less than 1 week is 30%.

ks can recognize only 0 or

ts the bonus to zero until it becomes

fall below 1 week and BigBooks will

00 and its precise amount depends on

bonus as BigBooks can get anything

ividual weeks.
ble that BigBooks will not achieve
k.
achieve individual average times
year.
 Example 6: Significant financing component
www.IFRSbox.com IFRS 15 Revenue from Contracts with Customers
+ right of return

Voyage ltd. intends to buy 30 trucks from Autocar, local car dealer. However, due to cash shortage, Voyage is not able to pay immediately after planned delivery, therefore Auto
agrees that Voyage pays a half of total price at delivery and the second half after 1 year. Voyage and Autocar agree on the right of return within 90 days of delivery.
1 month later, Voyage sends an e-mail to Autocar with acceptance of all conditions. 2 weeks after that e-mail, Autocar calls Voyage that 30 trucks are ready, Voyage takes truc
and pays the 1st half of total price.
Price per 1 truck is CU 32 000. However, Autocar agrees to receive one half now and the second half in 1 year only if Voyage accepts increased purchase price of CU 33 000 pe
truck. The Autocar's cost of 1 truck is CU 28 000. What should Autocar recognize in its financial statements and when?

On the contract date:

No revenue is recognized.

On the delivery date:

No revenue is recognized, as there's a right of return and there's no historical evidence based on which
Autocar can conclude that it's highly probable that significant reversal of revenue will not occur.
Note: if there would have been such an evidence, revenue could have been recognized.

Journal entries:

#1 Receipt from Voyage (30*33 000/2)

Debit Cash
Credit Refund liability
0

#2 Delivery of trucks at cost (30*28 000)

Debit Asset - right to recover products

Credit Inventories
0

After 90 days from delivery, when the right of return lapses:

Significant financing component calculation:

Cash selling price (30*32 000) of 1/2
Agreed selling price (30*33 000) there is a significant financing component

Calculating internal rate of return:

Cash out (in form of trucks at ORIGINAL selling price)

Cash in
Net cash out in the beginning of transaction 0
Net cash in at the end of transaction
Internal rate of return: Let’s assume this reflects the rate at separate financing transaction.
If not, then it would be necessary to adjust the selling price.
Formula used:
=IRR(c45:c46)

Journal entries:

#1 Revenue from sale of trucks

Debit Refund liability

Debit Receivable Difference between cash selling price and the amount already received
Credit Revenue from sale of trucks
0

#2 Cost of sales

Debit Cost of sales

Credit Asset - right to recover the products
0

Careful with the interest here! You need to recognize it over remaining 9 months, as the receivable (asset) was recognized after right of return lapses.
Therefore, it is necessary to calculate monthly IRR for the period of remaining 9 monhts (if you recognize interest on monthly basis).
(we use the effective interest method under IFRS 9 here):

Time CF Interest re Receivable c/f

Recognition of revenue 0
Cash in - month 1
Cash in - month 2
Cash in - month 3
Cash in - month 4
Cash in - month 5
Cash in - month 6
Cash in - month 7
Cash in - month 8
Cash in - month 9
Monthly rate of interest for remaining 9 months:
 Example 6: Significant financing component
www.IFRSbox.com IFRS 15 Revenue from Contracts with Customers
+ right of return

after planned delivery, therefore Autocar

within 90 days of delivery.
0 trucks are ready, Voyage takes trucks

ased purchase price of CU 33 000 per

parate financing transaction.

ust the selling price.

nd the amount already received

of return lapses.
www.IFRSbox.com Example 7: Allocating variable consideration IFRS 15 Revenue from Contracts with Customers

Jack & Partner want to produce and distribute clothing with the famous animated characters created by Mikel. Mikel enters into a contract with Jack & Partner for 2 intellectu
- License 1: to use trademark "Mikel" in a www domain owned by Jack & Partner in order to promote and sell clothing with Mikel's brand;
- License 2: to use animated Mikel's characters on clothing.
Both licenses will be transferred to Jack & Partner immediately after contract is signed by both parties.The consideration for License 1 is fixed, set at CU 3 000.
The consideration for License 2 is 10% of future sales of clothing with Mikel's animated characters. Based on budgets, Mikel estimates total consideration for License 2 at CU 5
How and when shall Mikel recognize revenue from the contract with Jack & Partner, if:
1) Mikel sold these licenses separately in the past to a similar customer for CU 3 000 (License 1) and CU 50 000 (License 2).
2) Mikel sold these licenses separately in the past to a similar customer for CU 10 000 (License 1) and CU 40 000 (License 2).
In the year 1, total revenues from the sales of Mikel-branded clothing generated by Jack&Partner amount to CU 100 000.

1. Scenario 1: stand-alone prices are CU 3 000/License 1 and CU 50 000/License 2

1.1 Assessment of allocating variable consideration

Here, Mikel's estimate of the sales-based fees approximates stand-alone selling price of License 2; and similarly, consideration for License 1
approximates stand-alone selling price of License 1.
As a result, variable consideration based on sales can be allocated fully to one performance obligation - License 2.

1.2 Allocation of variable consideration

License 1:
License 2:
Total 0

1.3 Revenue - year 1:

Revenue for transfer of License 1 - after contract signature:

Debit Contract Asset

Credit Revenue from sale of license 1
0

Revenue for transfer of License 2 in the year 1:

Total sales of Mikel-branded clothing:

Sales-based royalties (10%) 0

Debit Contract Asset

Credit Revenue from sale of license 2
0

Note: Mikel can recognize revenue from sales-based royalty only when a subsequent sale occurs (para B63 of IFRS 15).
In this case, it relates only to License 2, as the full revenue for license 1 is fixed.

2. Scenario 2: stand-alone prices are CU 10 000/License 1 and CU 40 000/License 2

2.1 Assessment of allocating variable consideration

Here, Mikel's estimate of the sales-based fees does NOT approximate stand-alone selling prices for both Licenses.
As a result, the conditions for allocating variable consideration to one performance obligations in IFRS 15 (85) are NOT met.
Therefore, Mikel allocates the transaction prices based on the relative stand-alone prices.

2.2 Allocation of a consideration

Allocated transaction prices

Stand-alone
selling prices Consideration 1 Consideration 2
(fixed) (variable)
License 1:
License 2:
Total 0 0 0

2.3 Revenue - year 1:

Revenue for transfer of License 1 - after contract signature (fixed part):

Debit Contract Asset

Credit Revenue from sale of license 1
0

Revenue for transfer of License 2 - after contract signature (fixed part)

Debit Contract Asset

Credit Revenue from sale of license 2
0

Revenue for transfer of License 1 - year 1 (variable part):

Debit Contract Asset (CU 10 000/CU 50 000 * sales of CU 100 000 * 10% royalty)
Credit Revenue from sale of license 1
www.IFRSbox.com Example 7: Allocating variable consideration IFRS 15 Revenue from Contracts with Customers
Debit Contract Asset
Credit Revenue from sale of license 1
0

Revenue for transfer of License 2 - year 1 (variable part):

Debit Contract Asset (CU 40 000/CU 50 000 * sales of CU 100 000 * 10% royalty)
Credit Revenue from sale of license 2
0

Note: Mikel can recognize revenue from sales-based royalty only when a subsequent sale occurs (para B63 of IFRS 15).
In this case, it relates to both licenses, as the part of variable consideration is allocated to License 1 too.

Also please note that in this particular example, amounts of total revenues in individual point of times are the same.
However, amounts of revenues per licenses is different from scenario 1 and the it would have a significant impact when
the licenses are not transferred at the same time.
 www.IFRSbox.com Example 7: Allocating variable consideration IFRS 15 Revenue from Contracts with Customers

with Jack & Partner for 2 intellectual property licenses:

ed, set at CU 3 000.

consideration for License 2 at CU 50 000.
www.IFRSbox.com Example 8: Recognition over time vs. at the point of time IFRS 15 Revenue from Contracts with Customers

RE Construct, property developer, builds a residential complex consisting of 50 apartments. Apartments have a similar size and proportions - however, they can be customized
RE Construct enters into 2 contracts with 2 different clients (A and B). Both clients want to buy almost identical apartments and agree with total price of CU 100 000 per apart
as follows:
- Upon the signature of a contract, clients pay deposit of CU 10 000 each.
- Milestone: 1 year prior planned completion, RE Construct will deliver progress reports to clients and clients need to pay CU 50 000 each.
- Completion: Upon the completion of the construction, the legal ownership to apartments is transferred to clients and they pay the remaining amount of CU 40 000 each.
Assumed period of construction is 2 years from the date of contract. RE Construct has the right to retain the payments from any client in the situation when that client defaul
completion.
The contracts with clients A and B are NOT identical. Further contractual terms specify that:
- No other specific terms in the contract with client A.
- The contract with client B specifies that RE Construct cannot transfer or direct the apartment to another client and in return, the client B cannot terminate the contract. If th
contract before its completion, RE Construct has the right for all contractual price if RE Construct decides to complete the contract.
Total assumed cost of construction is CU 80 000, thereof CU 35 000 in the first year of construction and CU 45 000 in the second year of construction.

When and how shall RE Construct recognize revenue from contract A and contract B?

1. Contract A

1.1 Assessment

The third criterion for recognizing revenue over time is NOT met, for the following reasons:
1) An apartment can be easily sold / transferred to another client in the case of default.
2) RE Construct has NO enforceable right to payment for performance up to date (keeps only the progress payments - these might not be sufficient)

RE construct must recognize revenue from the contract A at the point of time.

1.2 Revenue recognition

Year 1
No revenue is recognized.

Year 2 - at delivery of apartment to a client

RE Construct will recognize revenue of CU 100 000 (full amount) at the point of delivery.

1.3 Journal entries

Upon the signature of contract - deposit received from client A

Debit Cash
Credit Contract liability
0

Milestone 1 - progress payment received from client A

Debit Cash
Credit Contract liability
0

Completion - final payment received from client A

Debit Cash
Credit Contract liability
0

Delivery of apartment to the client A

Debit Contract liability

Credit Revenue
0

2. Contract B

2.1 Assessment

The third criterion for recognizing revenue over time IS met, due to following reasons:
1) RE Construct cannot direct the apartment for the alternative use (the contract with client B does not permit the transfer).
2) RE Construct has the enforceable right to payment for performance completed to date.

RE Construct recognizes revenue from the contract B over time.

2.2 Revenue recognition

Year 1

Revenue is recognized with reference to the progress towards completion.

In this case, it is appropriate to measure progress towards completion by the input method.

Year Costs Progress Revenue

1
2
Total 0 0.00% 0
www.IFRSbox.com Example 8: Recognition over time vs. at the point of time IFRS 15 Revenue from Contracts with Customers

2.3 Journal entries

Upon the signature of contract - deposit received from client B

Debit Cash
Credit Contract liability
0

Milestone 1 - progress payment received from client B

Debit Cash
Credit Contract liability
0

Year 1 - revenue recognized from contract B

Debit Contract liability

Credit Revenue from contract B
0

Completion - final payment received from client B

Debit Cash
Credit Contract liability
0

Delivery of apartment to the client B + revenue in the year 2

Debit Contract liability

Credit Revenue
0
 www.IFRSbox.com Example 8: Recognition over time vs. at the point of time IFRS 15 Revenue from Contracts with Customers

wever, they can be customized to clients’ needs.

price of CU 100 000 per apartment. The payment schedule is

amount of CU 40 000 each.

uation when that client defaults on the contract before its

ot terminate the contract. If the client B defaults on the

ction.
www.IFRSbox.com Example 9: Contract Costs IFRS 15 Revenue from Contracts with Customers

BigBooks Corp. (see example 5) is a company providing centralized accounting services for corporations. It enters into a 3-year contract with
client A to provide all bookkeeping and data processing activities for the period of 3 years.

Before providing the services, BigBooks incurs the following expenses:

- commission to a sales representative for arranging the contract: CU 5 000
- fee to a lawyer for drafting and finalizing sales contract: CU 3 500
- investment into additional 10 computers dedicated to contract with client A: CU 4 000
- customization of existing accounting software to BigBook's needs, preparing new chart of accounts and data flows, testing: CU 13 000
- payroll expenses of 3 employees dedicated to contract A for 3 years: CU 30 000.

How should BigBooks recognize these expenses in its financial statements?

1. Costs to obtain the contract with client A

Commission to sales representative:

Legal fees (drafting & finalizing the contract)
Total 0

These costs need to be capitalized and amortized over period of 3 years as BigBooks expects to recover them through future fees for the services provided.

Journal entries:

Debit Asset - costs for contract A

Credit Cash / Bank account
0

Amortization:

Based on revenue recognized for the contract.

Revenue Percentage Amortization
Year 1:
Year 2:
Year 3:
Total 0 0.00% 0
(from ex. 5)

Year 1:

Debit P/L - amortization of costs for contract A

Credit Asset - costs for contract A
0

2. Costs to fulfill the contract with client A

Investment into additional 10 computers: => in line with IAS 16 (account as for PPE and depreciate on a systematic basis)

Customization of SW, data flow, testing Debit Asset - costs for contract A
=> costs do relate directly to the contract A Credit Cash / bank account
=> costs do generate/enhance resources 0
=> costs are expected to be recovered

BigBooks need to capitalize these costs and amortize them similarly as costs above

Based on revenue recognized for the contract.

Revenue Percentage Amortization
Year 1:
Year 2:
Year 3:
Total 0 0.00% 0
(from ex. 5)

Year 1:

Debit P/L - amortization of costs for contract A 0

Credit Asset - costs for contract A 0
0

Payroll expenses
=> costs do relate directly to the contract A
=> however, these costs do NOT generate/enhance resources

These costs are expensed in P/L when incurred.

 www.IFRSbox.com Example 9: Contract Costs IFRS 15 Revenue from Contracts with Customers

ervices provided.
www.IFRSbox.com Example 10: Transition to IFRS 15 IFRS 15 Revenue from Contracts with Customers

BigBooks, company providing centralized data services, adopts IFRS 15 for the annual period starting 1 January 2017.
During the transition process, BigBooks identified that it has 2 contracts with 2 multinational corporations, under which free computers were provided:. Both contracts are fo
follows:
Contract 1: starting 1 July 2015 for 5 years, monthly fee CU 300 000, 10 computers with total cost of CU 100 000 were given for free to a client.
Contract 2: starting 1 September 2016 for 5 years, monthly fee CU 200 000, 5 computers with total cost of CU 50 000 were given for free to a client.
During transition process, BigBooks found the following:
- under current standard, IAS 18, no revenue for computers was recognized and cost of computers was treated as a marketing expense
- under IFRS 15, transfer of computers is a separate performance obligation and BigBooks needs to allocate transaction price also to computers. Stand-alone selling price of 1
Show how should BigBooks make a transition to IFRS 15 under full retrospective adoption approach and modified approach.

Analysis of reporting under IAS 18 and IFRS 15

Under IAS 18 Under IFRS 15 (see Working #1 below)

2015 2016 2017 2015 2016 2017
Contract 1
Computers 0 0 0 148,760 0 0
Services 1,800,000 3,600,000 3,600,000 1,785,124 3,570,248 3,570,248
Contract 2
Computers 0 0 0 0 74,534
Services 0 800,000 2,400,000 0 795,031 2,385,093
Total
Computers 0 0 0 148,760 74,534 0
Services 1,800,000 4,400,000 6,000,000 1,785,124 4,365,279 5,955,341
Differences
Computers 148,760 74,534 0
Services -14,876 -34,721 -44,659

Working #1 - Allocation of TP to PO
Contract 1 Contract 2
Transaction price: 18,000,000 12,000,000
Stand-alone Stand-alone
Allocated TP Allocated TP
selling price selling price
Monthly services 18,000,000 17,851,240 12,000,000 11,925,466
Computers 150,000 148,760 75,000 74,534
Total 18,150,000 18,000,000 12,075,000 12,000,000

Transition approach 1: Full retrospective adoption

Journal entries:

#1 Restatement of opening balances for the earliest period presented (2015):

Debit - F/P Contract assets 133,884 Statement of financial position (extract)

Credit - F/P Retained earnings -133,884 2017
0 Contract assets
(contracts 1 and 2) 129,039
#2 Restatement of comparative period (2016):
Equity - accumulated profit -173,697
Debit - F/P Contract assets 39,813 (effect of correction)
Credit - F/P Retained earnings -39,813
0
Statement of comprehensive income (extract)
#3 Current year's revenues:
2017
No restatement here, as we assume BigBooks adopted IFRS 15
since 1 January 2017 and the revenues have already been reported Revenues from sales of computers 0
under new standard. Revenues from services 5,955,341

Working #2 - Balance of contract assets

b/f in P/L c/f Statement of changes in equity (extract)
Contract #1
2015 148,760 -14,876 133,884 Retained earn
2016 133,884 -29,752 104,132
2017 104,132 -29,752 74,380 Opening balance at 1-Jan-2016
Contract #2
2016 74,534 -4,969 69,565 Profit for the year ended 31-Dec-2016 as restated
2017 69,565 -14,907 54,658 Balance at 1-Jan-2017
Total c/f
2015 133,884 Profit for the year ended 31-Dec-2017
2016 173,697 Balance at 31-Dec-2017
2017 129,039

Transition approach 2: Modified adoption

Journal entries: Statement of financial position (extract)

2017
Restatement of previous periods = cumulative catch-up adjustment: Contract assets
(contracts 1 and 2) 129,039
Debit - F/P Contract assets 173,697
Credit - F/P Retained earnings -173,697 Equity - accumulated profit -173,697
www.IFRSbox.com Example 10: Transition to IFRS 15 IFRS 15 Revenue from Contracts with Customers
Debit - F/P Contract assets
Credit - F/P Retained earnings
0 (effect of correction)

Statement of comprehensive income (extract)

2017

Revenues from sales of computers 0

Revenues from services 5,955,341

Statement of changes in equity (extract)

Retained earn

Opening balance at 1-Jan-2016

Profit for the year ended 31-Dec-2016

Balance at 1-Jan-2017
Change in accounting policy - effect of transition to IFRS 15
Balance at 1-Jan-2017 as restated

Profit for the year ended 31-Dec-2017

Balance at 31-Dec-2017
 www.IFRSbox.com Example 10: Transition to IFRS 15 IFRS 15 Revenue from Contracts with Customers

ed:. Both contracts are for data processing only and the details are as

nd-alone selling price of 1 computer is CU 15 000.

2016 (restated) 1-1-2016 (restated)

173,697 133,884

-173,697 -133,884

come (extract)

2016 (restated)

74,534
4,365,279

Retained earnings
before restating restatement after restating
1,000,000 133,884 1,133,884

250,000 39,813 289,813

1,250,000 173,697 1,423,697

280,000 280,000
1,530,000 173,697 1,703,697

2016

0
 www.IFRSbox.com Example 10: Transition to IFRS 15 IFRS 15 Revenue from Contracts with Customers

come (extract)

2016

0
4,400,000

Retained earnings
before restating restatement after restating
1,000,000 0 1,000,000

250,000 0 250,000
1,250,000 0 1,250,000
f transition to IFRS 15 173,697 173,697
1,250,000 173,697 1,423,697

280,000 280,000
1,530,000 173,697 1,703,697