[Slide 1]

Measuring progress towards complete satisfaction of a performance obligation

 The entity uses a single method of measuring progress for each performance obligation satisfied over
time and applies that method to remeasure its progress at the end of each reporting period. Appropriate
methods of measuring progress include:
a. Output methods
b. Input methods

[Slide 2]

Output methods

- Progress is measured based on direct measurements of the value of the goods or services
transferred to date relative to the remaining goods or services promised under the contract.

Input methods

- Progress is measured based on efforts or inputs expended relative to the total expected inputs
needed to fully satisfy a performance obligation.

[Slide 3]

Changes in the measurement of progress

 The measure of progress is updated as circumstances change over time to reflect any changes in the
outcome of the performance.

Reasonable measure of progress

 Revenue for a performance obligation satisfied over time is recognized only if the progress towards the
complete satisfaction of the performance obligation can be reasonably measured.

[Slide 4]

Performance obligations satisfied at a point in time

- recognized WHEN the performance obligation is satisfied.

The entity considers the following indicators of transfer of control when determining the point in time at
which the promised good or service is transferred to the customer:

a. The entity has a present right to payment for the asset.

b. The customer has legal title to the asset.
c. The entity has transferred physical possession of the asset.
d. The customer has the significant risks and rewards of ownership of the asset.
e. The customer has accepted the asset.

[Slide 5]

Illustration:

On January 1, 20x1, Entity A enters into a contract with a customer for the sale of a machine and related one-
year maintenance services for a total contract price of ₱1,000,000. Entity A regularly sells these items
separately. If they were to be purchased separately, their stand-alone selling prices are as follow:

- ₱900,000 for the machine; and

- ₱300,000 for the one-year maintenance services

Entity A transfers the machine, and collects the total contract price, on February 1, 20x1. The maintenance
services start on that date.
[Slide 6]

 Revenue recognition

Step 1: Identify the contract with the customer

The contract qualifies for accounting in accordance with PFRS 15 because all the requirements are met.

Step 2: Identify the performance obligation in the contract

There are two performance obligations in the contract –

1. transfer of machine; and

2. rendering of maintenance services.

Each of these is a distinct good or service because:

a. The customer benefit from the machine and the maintenance services on their own. This is evidenced by
the fact that they are sold separately.
b. The promises to transfer the machine and provide the maintenance services are separately identifiable.

[Slide 7]

Step 3: Determine the transaction price

The transaction price ₱1,000,000

Step 4: Allocate the transaction price to the performance obligations

The transaction price is allocated to the performance obligations based on their relative stand-alone selling
prices as follows:

Stand-alone selling prices Allocation As allocated

Machine 900,000 (1M x 900/1,200) 750,000
Maintenance services 300,000 (1M x 300/1,200) 250,000
1,200,000 1,000,000

[Slide 8]

Step 5: Recognize revenue when (or as) a performance obligation is satisfied

The promise to transfer the machine is a performance obligation satisfied at a point in time because it does
not meet any of the conditions for a performance obligation satisfied over time.

The promise to provide the maintenance services is a performance obligation satisfied over time because
the customer simultaneously receives and consumes the benefits from the maintenance services as they are
rendered. Accordingly:

 Entity A recognizes revenue of ₱750,000 on February 1, 20x1 when the machine is transferred to the
customer.
 Entity A recognizes revenue from the maintenance services over the one-year contract period as the
services are rendered. If the costs of providing the maintenance services are expended evenly
throughout the performance period, Entity A may recognize revenue on a straight-line basis, i.e.,
₱20,833.33 per month (₱250,000 ÷ 12 months).

[Slide 9]

Contract cost

Contract costs include:

a. Incremental costs of obtaining a contract

b. Costs to fulfill a contract
[Slide 10]

Incremental costs of obtaining a contract

- “costs incurred in obtaining a contract with a customer that the entity would not have incurred had the
contract not been obtained (e.g., sales commission).” (PFRS 15.92)
- Recognized as asset if they are expected to be recovered.
- As a practical expedient, they are expensed when incurred if the expected amortization period of the
asset is one year or less.

[Slide 11]

Costs to fulfill a contract

Costs incurred in fulfilling a contract that are within the scope of other standards are accounted for in
accordance with those standards.

Costs incurred in fulfilling a contract that are outside the scope of other standards are recognized as asset if all
of the following criteria are met:

a. The costs are directly related to a contract or specifically identifiable anticipated contract.
b. The costs generate or enhance resources that will be used in satisfying performance obligations in the
future; and
c. The costs are expected to be recovered.

[Slide 12]

Costs that relate directly to a contract (or a specific anticipated contract) include any of the following:

a. Direct labor
b. Direct materials
c. Allocations of costs that relate directly to the contract or to contract activities
d. Costs that are explicitly chargeable to the customer under the contract; and
e. Other costs that are incurred only because an entity entered into the contract.

[Slide 13]

The following costs are expensed when incurred:

a. General and administrative costs

b. Costs of wasted materials, labor or other resources to fulfill the contract that were not reflected in the price
of the contract
c. Costs that relate to satisfied or partially satisfied performance obligations in the contract; and
d. Costs for which an entity cannot distinguish whether the costs relate to unsatisfied performance obligations
or to satisfied or partially satisfied performance obligations.

[Slide 14]

Amortization and Impairment

Contract costs that are recognized as asset are amortized on a systematic basis that is consistent with the
transfer of the related goods or services to the customer.

Impairment loss is recognized in profit or loss as follows:

1. First, recognize impairment loss in accordance with another Standard (e.g., PAS 2, PAS 16 and PAS 38)

[Slide 15]

2. Next, recognize impairment loss in accordance with PFRS 15, which is the excess of the asset’s carrying
amount over:
a. The remaining amount of consideration that the entity expects to receive in exchange for the goods
or services to which the assets relates; less
b. The costs that relate directly to providing those goods or services and that have not been
recognized as expenses
3. Lastly, the resulting carrying amount after applying ‘Step 2’ is included in the cash-generating unit (CGU) to
which the asset belongs for the purpose of applying PAS 36 Impairment of Assets to that CGU.

[Slide 16]

Presentation

A contract is presented in the statement of financial position as a contract liability or a contract asset when one
of the contracting parties has performed. An unconditional right to consideration is presented separately as a
receivable.

[Slide 17]

Scenario Accounting
 Consideration is received or becomes due before  Recognized a contract liability.
goods or services are transferred to the customer.
 Goods or services are transferred to the customer
before consideration is received:
a. Right to consideration is conditional.  Recognized a contract a contract asset.
b. Right to consider is unconditional.  Recognized a receivable.

[Slide 18]

Disclosure

PFRS 15 requires an entity to disclose qualitative and quantitative information about the following:

a. Its contract with customers;

b. The significant judgments, and changes in the judgments, made in applying PFRS 15 to those
contracts; and
c. Any assets recognized from the costs to obtain or fulfill a contract with a customer.