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INSTALLMENT SALES & CONSTRUCTION CONTRACTS

Important notes on "PFRS 15 - REVENUE FROM CONTRACTS WITH CUST9MERS"

. Effective date: 01 January 2018 (deferredfrom its original effective date of Al January20lT
on the decision made by IASB dated I I September 2A15).
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based

. PFRS 15 eventually replaces/supersedes the fotlowing standards: PAS 11 (Construction

Contracts), PAS 18 (Revenue) and related interpretations (IFRIC 13, IFRIC 15, IFRIC 18, SIC
31).

Objective of PFRS 15: to establish the principles that entity shall apply to report useful
information to users of financial statements about the nature, amount, timing and uncertainty
of revenue and cash flows arisirrg frorn a contract with a customer.

Scope limitation: PFRS 15 does not covercustomer contracts under PAS 17 (Leases), PFRS 4
(Insurance Contracts), PFRS 9 (Financial Instruments), PFRS 11 (loint Arrangements),
among others.

The core principle of PFRS 15 is that an entity shall recognize revenue to depict the transfer
of promised gobds 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. This core
principle is delivered in a FIVE-IiTEP MODEL FRAMEWORK:

'/ Revenue from a contract with a customer cannot be recognized until a contract exists.
{CONTRACT is an agreemenl between two or more parties that creates enforceable rights &
obligotion!
{CUSTOMER i.s a parry* thqt hos contracted with entity to obtain.goods or serviees that are an
output rl lhe entit.v"'s ordinary activilies in exchangefor consideration.)

{PERFORM4\;CE OBLIGATION i:; a promise in a contact with a customer to transfer to the

customer distinct goods and/or services.]

|TRAI\SACTIO\: PRICE is the amount of consideration to which an entity expects to be entitled in

exchange frtr tran.sferring promised goods or services to a customer, excluding smounts callected
on behalf of third parties.rt

obligations in the contract.

'/ When a sales transaction involves a significant financing component, the fair value is
determined either by rteasuring the consideration received or by discounting the
payment using an imputed interest rate.
'/ When a company sells a bundle of goods at a discount, the discount should be
allocated to the product that caused the discount and not to the entire bundle.

performa nce obl igation.

'/ Revenue is recognized in the accounting period when the performance obligation is
satisfied.
'/ A company recognizes revenue from a performance obligation over time by measuring
the progress toward completion

Unless BoA issues a separate memo that would effectively include PFRS 15 in the CPA Board
Exam coverage, PFRS 15 is not yet covered nor included in the October zAfl CPA Board
Exam.