REVENUE FROM CONTRACTS WITH CUSTOMERS

PFRS 15
  IFRS 15 specifies how and when an IFRS reporter will
recognise revenue as well as requiring such entities to
provide users of financial statements with more informative,
relevant disclosures. The standard provides a single,
principles based five-step model to be applied to all
contracts with customers.
 IFRS 15 was issued in May 2014 and applies to an annual
reporting period beginning on or after 1 January 2018. On
OVERVIEW 12 April 2016, clarifying amendments were issued that have
the same effective date as the standard itself.
 The standard should be applied in an entity’s IFRS financial
statements for annual reporting periods beginning on or
after 1 January 2018. Earlier application is permitted.  An
entity that chooses to apply IFRS 15 earlier than 1 January
2018 should disclose this fact in its relevant financial
statements. [IFRS 15:C1]
IFRS 15 REPLACES  IAS 11 
THE FOLLOWING
STANDARDS AND Construction contracts
INTERPRETATIONS  IAS 18 
: Revenue
 IFRIC 13 

Customer Loyalty Programmes

 IFRIC 15 

Agreements for the Construction of Real Estate

 IFRIC 18 

Transfers of Assets from Customers

 SIC-31 

Revenue - Barter Transactions Involving Advertising

Services
OBJECTIVE
The objective of this Standard is to establish the principles that
an entity shall 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.
SCOPE
IFRS 15 Revenue from Contracts with Customers applies to all
contracts with customers except for:
1. leases within the scope of IAS 17 Leases;
2. financial instruments and other contractual rights or
obligations within the scope of IFRS 9 Financial Instruments, 
IFRS 10 Consolidated Financial Statements, IFRS 11 Joint
Arrangements, IAS 27 Separate Financial Statements and 
IAS 28 Investments in Associates and Joint Ventures;
3. insurance contracts within the scope of IFRS 4 Insurance
Contracts; and
4. non-monetary exchanges between entities in the same line of
business to facilitate sales to customers or potential customers.
[IFRS 15:5]
SCOPE
 A contract with a customer may be partially within the scope of IFRS 15 and partially within the scope
of another standard.  In that scenario: [IFRS 15:7]
 if other standards specify how to separate and/or initially measure one or more parts of the contract,
then those separation and measurement requirements are applied first. The transaction price is then
reduced by the amounts that are initially measured under other standards;
  if no other standard provides guidance on how to separate and/or initially measure one or more parts
of the contract, then IFRS 15 will be applied. 
KEY DEFINITIONS
Contract An agreement between two or more parties that
creates enforceable rights and obligations.
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.
Income Increases in economic benefits during the
accounting period in the form of inflows or
enhancements of assets or decreases of liabilities
that result in an increase in equity, other than those
relating to contributions from equity participants.

[IFRS 15: Appendix A]

KEY DEFINITIONS
Performance A promise in a contract with a customer to transfer
obligation to the customer either:
• a good or service (or a bundle of goods or
services) that is distinct; or
• a series of distinct goods or services that are
substantially the same and that have the same
pattern of transfer to the customer.
Revenue Income arising in the course of an entity’s ordinary
activities.
Transaction The amount of consideration to which an entity
price expects to be entitled in exchange for transferring
promised goods or services to a customer,
excluding amounts collected on behalf of third
parties.

[IFRS 15: Appendix A]

ACCOUNTING REQUIREMENTS FOR REVENUE
THE FIVE-STEP MODEL FRAMEWORK

The core principle of IFRS 15 is that an entity will recognise revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the entity expects to
be entitled in exchange for those goods or services.
1. Identify the contract(s) with a customer
2. Identify the performance obligations in the contract
3. Determine the transaction price
4. Allocate the transaction price to the performance obligations in the contract
5. Recognise revenue when (or as) the entity satisfies a performance obligation.

Application of this guidance will depend on the facts and circumstances present in a contract with a
customer and will require the exercise of judgment.
 A contract with a customer will be within the scope of IFRS 15
if all the following conditions are met: [IFRS 15:9]
1. the contract has been approved by the parties to the
contract;
STEP 1: 2. each party’s rights in relation to the goods or services to
IDENTIFY THE be transferred can be identified;
CONTRACT WITH 3. the payment terms for the goods or services to be
THE CUSTOMER transferred can be identified;
4. the contract has commercial substance; and
5. it is probable that the consideration to which the entity is
entitled to in exchange for the goods or services will be
collected.
 If a contract with a customer does not yet meet all of the above
criteria, the entity will continue to re-assess the contract going
forward to determine whether it subsequently meets the above
criteria. From that point, the entity will apply IFRS 15 to the
STEP 1:
contract. [IFRS 15:14]
IDENTIFY THE
The standard provides detailed guidance on how to account for
CONTRACT WITH
approved contract modifications. If certain conditions are met,
THE CUSTOMER a contract modification will be accounted for as a separate
contract with the customer. If not, it will be accounted for by
modifying the accounting for the current contract with the
customer. [IFRS 15:18-21].
 At the inception of the contract, the entity should assess the
goods or services that have been promised to the customer, and
STEP 2: identify as a performance obligation: [IFRS 15.22]
IDENTIFY THE  a good or service (or bundle of goods or services) that is
PERFORMANCE
distinct; or
OBLIGATIONS IN
 a series of distinct goods or services that are substantially
THE CONTRACT
the same and that have the same pattern of transfer to the
customer.
 A series of distinct goods or services is transferred to the
customer in the same pattern if both of the following criteria
are met: [IFRS 15:23]  
STEP 2:  each distinct good or service in the series that the entity
IDENTIFY THE promises to transfer consecutively to the customer would be
PERFORMANCE a performance obligation that is satisfied over time (see
OBLIGATIONS IN below); and
THE CONTRACT  a single method of measuring progress would be used to
measure the entity’s progress towards complete satisfaction
of the performance obligation to transfer each distinct good
or service in the series to the customer.
 A good or service is distinct if both of the following criteria are
met: [IFRS 15:27]
STEP 2:
 the customer can benefit from the good or services on its
IDENTIFY THE
own or in conjunction with other readily available
PERFORMANCE
resources; and
OBLIGATIONS IN
 the entity’s promise to transfer the good or service to the
THE CONTRACT
customer is separately identifiable from other promises in
the contract.
 Factors for consideration as to whether a promise to transfer
goods or services to the customer is not separately identifiable
include, but are not limited to: [IFRS 15:29]
STEP 2:  the entity does provide a significant service of integrating
IDENTIFY THE the goods or services with other goods or services promised
PERFORMANCE in the contract;
OBLIGATIONS IN THE
 the goods or services significantly modify or customise
CONTRACT
other goods or services promised in the contract;
 the goods or services are highly interrelated or highly
interdependent.
 The transaction price is the amount to which an entity expects
to be entitled in exchange for the transfer of goods and
services. When making this determination, an entity will
consider past customary business practices. [IFRS 15:47]
STEP 3: Where a contract contains elements of variable consideration,
DETERMINE THE the entity will estimate the amount of variable consideration to
which it will be entitled under the contract. [IFRS 15:50]
TRANSACTION
Variable consideration can arise, for example, as a result of
PRICE discounts, rebates, refunds, credits, price concessions,
incentives, performance bonuses, penalties or other similar
items. Variable consideration is also present if an entity’s right
to consideration is contingent on the occurrence of a future
event.  [IFRS 15:51]
 Where a contract has multiple performance obligations, an
entity will allocate the transaction price to the performance
obligations in the contract by reference to their relative
STEP 4: standalone selling prices. [IFRS 15:74] If a standalone selling
ALLOCATE THE price is not directly observable, the entity will need to estimate
TRANSACTION PRICE it. IFRS 15 suggests various methods that might be used,
TO THE PERFORMANCE including: [IFRS 15:79]
OBLIGATIONS IN THE  Adjusted market assessment approach
CONTRACTS
 Expected cost plus a margin approach
 Residual approach*
 Any overall discount compared to the aggregate of standalone
selling prices is allocated between performance obligations on
a relative standalone selling price basis. In certain
circumstances, it may be appropriate to allocate such a
STEP 4: discount to some but not all of the performance obligations.
ALLOCATE THE [IFRS 15:81]
TRANSACTION PRICE Where consideration is paid in advance or in arrears, the entity
TO THE PERFORMANCE will need to consider whether the contract includes a
OBLIGATIONS IN THE significant financing arrangement and, if so, adjust for the time
CONTRACTS value of money. [IFRS 15:60] A practical expedient is
available where the interval between transfer of the promised
goods or services and payment by the customer is expected to
be less than 12 months. [IFRS 15:63]
 Revenue is recognised as control is passed, either over time or at a
point in time. [IFRS 15:32]
Control of an asset is defined as the ability to direct the use of and
obtain substantially all of the remaining benefits from the asset. This
includes the ability to prevent others from directing the use of and
obtaining the benefits from the asset. The benefits related to the asset
STEP 5: are the potential cash flows that may be obtained directly or
RECOGNISE REVENUE indirectly. These include, but are not limited to: [IFRS 15:31-33]
WHEN (OR AS) THE  using the asset to produce goods or provide services;
ENTITY SATISFIES A  using the asset to enhance the value of other assets;
PERFORMANCE
OBLIGATION  using the asset to settle liabilities or to reduce expenses;
 selling or exchanging the asset;
 pledging the asset to secure a loan; and
 holding the asset.
 An entity recognises revenue over time if one of the following criteria
is met: [IFRS 15:35]
 the customer simultaneously receives and consumes all of the
STEP 5: benefits provided by the entity as the entity performs;
RECOGNISE REVENUE  the entity’s performance creates or enhances an asset that the
WHEN (OR AS) THE
customer controls as the asset is created; or
ENTITY SATISFIES A
PERFORMANCE  the entity’s performance does not create an asset with an
OBLIGATION alternative use to the entity and the entity has an enforceable right
to payment for performance completed to date.
 If an entity does not satisfy its performance obligation over time, it
satisfies it at a point in time. Revenue will therefore be recognised
when control is passed at a certain point in time. Factors that may
indicate the point in time at which control passes include, but are not
STEP 5: limited to: [IFRS 15:38]
RECOGNISE REVENUE  the entity has a present right to payment for the asset;
WHEN (OR AS) THE
 the customer has legal title to the asset;
ENTITY SATISFIES A
PERFORMANCE  the entity has transferred physical possession of the asset;
OBLIGATION  the customer has the significant risks and rewards related to the
ownership of the asset; and
 the customer has accepted the asset.
CONTRACT COST
Costs incurred to fulfil a contract are recognised as an
The incremental costs of obtaining a contract asset if and only if all of the following criteria are met:
[IFRS 15:95]
must be recognised as an asset if the entity
expects to recover those costs. However, those  the costs relate directly to a contract (or a specific
incremental costs are limited to the costs that the anticipated contract);
entity would not have incurred if the contract  the costs generate  or enhance resources of the
had not been successfully obtained (e.g. ‘success entity that will be used in satisfying performance
fees’ paid to agents). A practical expedient is obligations in the future; and
available, allowing the incremental costs of  the costs are expected to be recovered.
obtaining a contract to be expensed if the These include costs such as direct labour, direct
associated amortisation period would be 12 materials, and the allocation of overheads that relate
months or less. directly to the contract. [IFRS 15:97]
[IFRS 15:91-94] The asset recognised in respect of the costs to obtain or
fulfil a contract is amortised on a systematic basis that
is consistent with the pattern of transfer of the goods or
services to which the asset relates. [IFRS 15:99]
 FURTHER USEFUL IMPLEMENTATION GUIDANCE IN
RELATION TO APPLYING IFRS 15

These topics include: 8.  Non-refundable upfront fees

1. Performance obligations satisfied over time 9.  Licensing
2.  Methods for measuring progress towards 10.  Repurchase arrangements
complete satisfaction of a performance obligation 11. Consignment arrangements
3.  Sale with a right of return 12. Bill-and-hold arrangements
4.  Warranties 13. Customer acceptance
5.  Principal versus agent considerations 14. Disclosures of disaggregation of revenue
6. Customer options for additional goods or
services

7.  Customers’ unexercised rights

PRESENTATION IN FINANCIAL
STATEMENTS

 Contracts with customers will be presented in an entity’s statement of financial position as a contract
liability, a contract asset, or a receivable, depending on the relationship between the entity’s performance
and the customer’s payment. [IFRS 15:105]
 A contract liability is presented in the statement of financial position where a customer has paid an
amount of consideration prior to the entity performing by transferring the related good or service to the
customer. [IFRS 15:106]
 PRESENTATION IN FINANCIAL
STATEMENTS
 Where the entity has performed by transferring a good or service to the customer and the customer has
not yet paid the related consideration, a contract asset or a receivable is presented in the statement of
financial position, depending on the nature of the entity’s right to consideration. A contract asset is
recognised when the entity’s right to consideration is conditional on something other than the passage of
time, for example future performance of the entity. A receivable is recognised when the entity’s right to
consideration is unconditional except for the passage of time.
 Contract assets and receivables shall be accounted for in accordance with IFRS 9. Any impairment
relating to contracts with customers should be measured, presented and disclosed in accordance with
IFRS 9. Any difference between the initial recognition of a receivable and the corresponding amount of
revenue recognised should also be presented as an expense, for example, an impairment loss. [IFRS
15:107-108]
DISCLOSURES
The disclosure objective stated in IFRS 15 is for 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. Therefore, an entity should disclose qualitative
and quantitative information about all of the following: [IFRS
15:110]
• its contracts with customers;
•  the significant judgments, and changes in the judgments,
made in applying the guidance to those contracts; and
•  any assets recognised from the costs to obtain or fulfil a
contract with a customer.
DISCLOSURES
Entities will need to consider the level of detail necessary to
satisfy the disclosure objective and how much emphasis to
place on each of the requirements. An entity should aggregate
or disaggregate disclosures to ensure that useful information is
not obscured. [IFRS 15:111]
In order to achieve the disclosure objective stated above, the
Standard introduces a number of new disclosure requirements.
Further detail about these specific requirements can be found
at IFRS 15:113-129.