Applications of Basic Concepts:

Step 1: Identify the contract with the customer

➔ IFRS 15 applies to contracts with customers. It does not apply to non-monetary exchanges
between entities in the same line of business to facilitate sales to customers.
Step 2: Identify the performance obligations in the contract
➔ Each promise in a contract to transfer a distinct good or service is a performance obligation
to be accounted for separately.
➔ A good or service is distinct if:
◆ A customer can benefit from the good or service either on its own or together with
other resources that are readily available to the customer; and
◆ The good or service is separately identifiable from other promises in the contract
➔ The fact that the entity regularly sells a good or service separately indicates that a customer
can benefit from the good or service on its own or with other readily available resources.
➔ A promised good or service that is not distinct shall be combined with other promised goods
or services until a bundle of goods or services that is distinct is identified. This may result in
treating all the promised goods or services in a contract as a single performance obligation.
➔ Performance obligations include only activities that involve the transfer of a good or service
to a customer. Performance obligations do not include administrative tasks to set up a
contract.
Step 3: Determine the transaction price
➔ The transaction price (and consequently, revenue) excludes amounts collected on behalf of
third parties.
Step 4: Allocate the transaction price among the performance obligations
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation
➔ Performance obligations are classified as either (a) satisfied over time or (b) satisfied at a
point in time
◆ Satisfied over time - recognize revenue as the entity progresses towards the complete
satisfaction of the obligation.
● If the outcome of the PO cannot be reasonably measured but the entity
expects to recover the costs incurred in satisfying the performance obligation,
revenue shall be recognized only to the extent of the costs incurred until such
time that the outcome of the performance obligation can be reasonably
measured.
◆ Satisfied at a point in time - recognize revenue when the entity satisfies the obligation
➔ Subscriptions to publications and similar items
◆ These are usually performance obligations satisfied over time. Thus, revenue is
recognized as follows:
● TP is allocated to the number of items covered by the contract based on their
relative SASP
● The allocated amounts are recognized as revenue as each item is dispatched.
● When the items involved have the same relative SASP, revenue is recognized
on a straight-line basis over the period in which the items are dispatched.
➔ Tuition fees
◆ These are usually performance obligations satisfied over time. Thus, revenue is
recognized over the period of instruction. Prorate the amount along the instruction
time.
➔ Advertising commissions
◆ Media commissions are PO satisfied at a point in time. Revenue is then recognized
when the related advertisement or commercial appears before the public,
◆ Production commissions are PO satisfied over time, Revenue is then recognized by
reference to the stage of completion of the project.
➔ Admission fees
◆ Fee = one-time event = PO satisfied at a point in time = recognize revenue when the
event takes place
◆ Fee = subscription to a number of events = PO satisfied over time = prorate the
amount to the happening of event
● If the events have the same relative SASP, revenue may be recognized on a
straight-line basis over the period(s) where the events take place.