IFRS 15 - Revenue From Contracts With Customers

Revenue from Contracts with
Customers
IFRS 15
25 February 2020
Sensitivity: Internal
IFRS 15 in Grameenphone: some real life cases
1. Bundled performance obligation: revenue recognition under IFRS 15;

2. Recognizing revenue from customer loyalty program;
3. Gross vs net accounting: Handset (device) revenue;
4. Revenue from Internet of Things (IoT)
5. Accounting for Mobile Financial Services (MFS)
6. Treating customer acquisition costs under IFRS 15: Accounting for first recharge commission;
Revenue from contracts with customer

Agenda
Changeover and Scope

Five step model of revenue
recognition
Contract costs
The closing
What’s changed
Pre IFRS 15 IFRS 15

Sale of goods or services Sales to customers
IAS 18, IFRIC 13, 15 Consolidation Consolidation

IFRS 15
IAS 11 guidance guidance
Gains and losses Sales to non-customers
Consolidation Consolidation
IAS 16 IAS 40 IAS 16 IAS 40
guidance guidance
 IFRIC 15 type requirements removed and replaced by new over time criteria.
 More guidance on separating goods and services bundled in a contract.
 More guidance on measuring transaction price.
 No IAS 11 equivalent to guide accounting when revenue is recognised over time.
Scope
Revenue from Contracts with Customers (IFRS 15) shall be applicable to all contracts with customers,
except the following:
(a) lease contracts;

(b) insurance contracts;
(c) financial instruments and other contractual rights or obligations; and
(d) non-monetary exchanges between entities in the same line of business to facilitate sales to customers
or potential customers. For example, this Standard would not apply to a contract between two oil
companies that agree to an exchange of oil to fulfil demand from their customers in different specified
locations on a timely basis.

Agenda

Five step model of revenue
recognition
Contract costs
The closing
The five step model overview
STEP
Identify the contract with a customer
1
STEP
Identify the performance obligation
2
STEP
Determine the transaction price
3
STEP
Allocate the transaction price
4
STEP
Recognise revenue
5
Revenue from contracts

7 with customer
STEP
Identify the contract 1
... collection of consideration is ... rights to goods or services

considered probable. and payment terms can be
identified.
A contract
exists if...
... it is approved and the parties

are committed to their
... it has commercial substance. obligations.
Revenue from contracts

8 with customer
STEP
Identify performance obligations 2
Performance obligation (PO) = promise to deliver good or service that is
Criterion 1: Criterion 2:
Capable of being distinct Distinct within context of the contract
Can the customer benefit from the good + Promise to transfer the good or service is
or service either on its own or together separately identifiable from other
with readily available resources? promises in the contract?
Yes No
Not distinct – combined with other

Distinct performance obligation
goods and services

STEP
Identify performance obligations - series exception 2
A series of distinct goods or services is treated as a single performance obligation if the

criteria below are met.
+ + =
Distinct goods or Each distinct good or Same pattern of Single performance
services are service is satisfied transfer obligation
substantially the same over time

STEP
Single performance obligation? 2
= + + +
Contract to Bricks Windows Fittings Construction
build a house service
Criterion 1 – Benefit on its Criterion 2 – Good or service

own or with other resources is separately identifiable

Do the goods and
services individually
meet the criteria? Each material could be used with Entity is providing a significant
another readily available item. integration service.

STEP
Determine the transaction price 3
Variable consideration and the Consideration payable to a

constraint customer
…reduction to the transaction price

unless it’s a payment for a distinct
Transaction good or service.
Price
Non-cash consideration Significant financing
component
…measured at fair value unless it

cannot be reliably measured.
Exception: Variable consideration is not estimated for sales- or usage-based royalties

on licences of intellectual property.

STEP
Significant financing component 3
Interest expense Practical expedient available Interest income

– no adjustment required
Payment in advance t0 Payment in arrears

t -12 t +12
months Performance months
To make the assessment all relevant factors are considered – in particular the:
 Difference between the transaction price and the cash selling price of the goods or services;
 Combined effect of the length of time between payment and performance and the prevailing interest rates;
 Other reasons for the payment terms.
Discount  Rate that would be used in a separate financing transaction between the entity
rate and customer.

STEP
Significant financing component 3
Contract to Contract price: Expected delivery date: Cash price: CU100 if

construct CU80 paid on 2 years from contract payment on delivery.
equipment contract inception inception
Does the Yes because…

transaction
price include a Significant period Cash price is No indicators
significant between delivery different from advance is for
financing and payment. transaction price. another reason.
component?

STEP
Allocate transaction price to performance obligations 4
Allocate based on relative

Determine stand-alone selling prices
stand-alone selling prices
Best evidence If not available
Performance obligation 1
Observable price Estimate price
Performance obligation 2
Performance obligation 3 Adjusted market

Expected cost plus

assessment
a margin approach
Fair value measurement approach
Residual approach only if

selling price is highly variable or
uncertain

Recognise revenue: STEP
Performance obligations satisfied over time 5
An performance obligation is satisfied over time if either:
Customer simultaneously receives and

Routine or recurring
1 consumes the benefits as the entity
services.
performs.
The customers controls the asset as the Asset built on

2
entity creates or enhances it. customer’s site.
The entity’s performance does not create an

3 asset with an alternate use and there is a Asset built to order.
right to payment for performance to date.

STEP
Over time criteria 5
Contract to build Customer can cancel Right to payment to Quarterly payments

specialised with 30 days' notice cover costs incurred arrangement
equipment if contract cancelled
Do the terms meet

the no alternate
No alternate use Right to payment
use and right to
payment criteria?  
Payment needs to approximate selling price of goods and services transferred
to date (i.e. payment amount should include a profit margin)..

STEP
Measuring performance over time 5
For each performance obligation an entity chooses a method that depicts its performance.
Output method Input method
 Surveys  Costs incurred

 Milestones reached  Labour hours
 Units delivered  Machine hours
 Units delivered and similar methods not appropriate if work in progress is material.
 Adjustments required for wastage and uninstalled materials when cost method used.

STEP
Performance obligations satisfied at a point in time 5
Recognise revenue when customer obtains control of the promised asset.
Indicators that control has transferred include the customer has…
A present
Physical
obligation to Legal title
possession
pay
Risks and
Accepted the
rewards of
asset
ownership
Exception: Separate requirements for distinct licences of intellectual property.

Agenda

Five step model of revenue recognition
Contract costs
The closing

Contract Costs – What’s Changed?
IAS 11 IFRS 15
 Acceptable to measure revenues and  No automatic link between revenue and cost.
costs applying POC with balance sheet
 Costs incurred that relate to satisfied or
‘true up’.
partially satisfied performance obligation are
expensed as incurred.

Contract Costs
Revenue Cost recognition

recognition
Point in time  Costs capitalised when they represent:

− Costs to fulfil a contract;
− Costs to obtain a contract; or
− Capitalised in accordance with another standard e.g. IAS 2.
 Costs are expensed when control of the goods or services are
transferred to the customer.
 Costs capitalised prior to the existence of the contract are

Over Time expensed to the extent they relate to past performance.
 Costs incurred after commencement of performance are
generally expensed as incurred.

Contract costs
Costs to obtain a contract Costs to fulfil a contract
Capitalise incremental costs if: Capitalise as fulfilment costs if:
Incurred only as result


Not in the scope of
of obtaining the contract
 another standard
 Recovery is expected
 Directly related
Generate or enhance
(e.g. sales commission)
 resources

Practical Amortisation period < 1 year? Recovery is expected
expedient Expense costs as incurred

Costs to fulfil a contract
 Direct costs that are eligible for

capitalisation if other criteria are met
 Costs to be expensed when incurred
General and administrative costs –

Direct labour (e.g. employee wages) unless explicitly chargeable under
the contract
Costs that relate to satisfied performance
Direct materials (e.g. supplies)
obligations
Allocation of costs that relate directly to

Costs of wasted materials, labour, or
the contract (e.g. depreciation and
other contract costs
amortisation)
Cost that are explicitly chargeable to the

customer under the contract
Costs that do not clearly relate to
Other costs that were incurred only unsatisfied performance obligations
because the entity entered into the
contract (e.g., subcontractor costs)

Amortisation and impairment
Amortisation period
 Systematic basis consistent with the pattern of transfer.
 Considers anticipated contracts (e.g. renewal options).
Impairment
Remaining Costs directly

Carrying
amount
 consideration − related to providing
amount expected to goods or services
be received
If conditions improve, impairment can be reversed

Agenda

Five step model of revenue recognition
Contract costs
Know your journals
Presentation and disclosures
The closing

When can one apply IFRS 15 to a portfolio of contracts with similar
characteristics?
A portfolio approach is not permitted under IFRS 15
If it reasonably expects applying IFRS 15 to a portfolio would not

differ materially from applying it to individual contracts
If accounting for the contracts individually would result in undue

costs for the entity
If the goods or services in the contracts are delivered to the same

customer

A good is a performance obligation if:
The customer can benefit from the good on its own
The good is separately identifiable from other goods in the contract
The good has a separately identifiable fair value
The customer can benefit from the good on its own and the good is
separately identifiable from other promises in the contract

Under IFRS 15, the transaction price would be adjusted for which
of the following:
Bundled goods and services
Time value of money
Undelivered goods and services
Customer credit risk

Which of the following statements is a true statement about the
requirements for recognising revenue included in IFRS 15?
Revenue is recognised when the risk and rewards of ownership pass

to the customer
An entity first assesses if control has transferred at a point in time, if

this is not the case then revenue is recognised over time
An entity first assesses if one of three criteria indicating control

transfers over time is met. If none are met, revenue is recognised at
a point in time
Revenue from the sale of a good is only recognised when the legal
title of a good has been transferred

Which of the following is an example of contract costs that would
not be eligible for capitalisation (assuming the criteria are met)?
Sales commission
Wasted materials
Payments to subcontractors
Supplies used in providing the goods or services

Which of the following is a true statement relating to contract
assets?
A contract asset arises if the entity’s obligations exceed its right to
consideration under the contract
A contract asset is an unconditional right to consideration
Contract assets can be presented together with receivables
A contract asset arises if the entity’s right to consideration exceeds

its obligations under the contract

1) Contracts must be enforceable, have
commercial substance and be approved by
the parties to the contract.
2) Revenue is recognised as control is passed,
either over time or at a point in time.
3) Contract terms and legal environment are
important
4) The incremental costs of obtaining a contract
must be recognised as an asset if the entity
expects to recover those costs.
5) An entity to disclose sufficient information to
enable users of financial statements to
understand the nature, amount, timing and
uncertainty of revenue and cash flows arising
from contracts with customers

Thank You
Nazmul Hasan ACA

Specialist, Financial Accounting & Reporting
Grameenphone Ltd.


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Revenue from Contracts with

1. Bundled performance obligation: revenue recognition under IFRS 15;

Revenue from contracts with customer

Changeover and Scope

Pre IFRS 15 IFRS 15

IAS 18, IFRIC 13, 15 Consolidation Consolidation

Gains and losses Sales to non-customers

(a) lease contracts;

Revenue from contracts with customer

Changeover and Scope

Revenue from contracts

... collection of consideration is ... rights to goods or services

... it is approved and the parties

Revenue from contracts

Performance obligation (PO) = promise to deliver good or service that is

Not distinct – combined with other

Revenue from contracts with customer

A series of distinct goods or services is treated as a single performance obligation if the

Revenue from contracts with customer

Criterion 1 – Benefit on its Criterion 2 – Good or service

Revenue from contracts with customer

Variable consideration and the Consideration payable to a

…reduction to the transaction price

…measured at fair value unless it

Exception: Variable consideration is not estimated for sales- or usage-based royalties

Revenue from contracts with customer

Interest expense Practical expedient available Interest income

Payment in advance t0 Payment in arrears

Revenue from contracts with customer

Contract to Contract price: Expected delivery date: Cash price: CU100 if

Does the Yes because…

Revenue from contracts with customer

Allocate based on relative

Performance obligation 3 Adjusted market

Residual approach only if

Revenue from contracts with customer

Performance obligations satisfied over time 5

An performance obligation is satisfied over time if either:

Customer simultaneously receives and

The customers controls the asset as the Asset built on

The entity’s performance does not create an

Revenue from contracts with customer

Contract to build Customer can cancel Right to payment to Quarterly payments

Do the terms meet

Revenue from contracts with customer

Output method Input method

 Surveys  Costs incurred

Revenue from contracts with customer

Recognise revenue when customer obtains control of the promised asset.

Indicators that control has transferred include the customer has…

Exception: Separate requirements for distinct licences of intellectual property.

Revenue from contracts with customer

Changeover and Scope

Revenue from contracts with customer

Revenue from contracts with customer

Revenue Cost recognition

Point in time  Costs capitalised when they represent:

 Costs capitalised prior to the existence of the contract are

Revenue from contracts with customer