Revenue from Customer Contracts & Tax implications

PSAK 72 is the adoption of IFRS 15 Revenue from contracts with customers: effective 2018.
This standard is principles based, comprehensive standard because it regulates all types of
income related to customer contracts thereby eliminating the regulation in other standards Join
project with IASB and FASB (US GAAP)
The Company will make changes to the terms of the contract in order to meet the definition of
the contract and the terms of settlement of obligations in accordance with PSAK 72.

Objective - Apply the principles regarding the nature, amount, timing and uncertainty of income
and cash flows arising from contracts with customers; Achievement of objectives; Recognize
revenue to represent the transfer of promised goods or services to customers; Consider the terms
of the contract and all relevant deeds and circumstances; Apply to individual contracts and
portfolio contracts.

Scope
For all contracts with customers, except:
- lease contracts - PSAK 30 Leases (73);
- insurance contracts - PSAK 62 Insurance contracts;
Investments in other companies:
PSAK 71: Financial instruments for recognition and measurement
PSAK 65: Consolidated Financial Statements,
PSAK 66: Joint Arrangements,
PSAK 4: Separate Financial Statements and
PSAK 15 Investments in Associates and Joint Ventures; and monetary exchanges between
entities in the same line of business to facilitate sales to customers or potential customers of
contracts between two oil companies to liquefy oil to meet demands from customers in different
locations in a timely manner.
DSAK issues new PSAK which adopts three International Financial Reporting Standards (IFRS),
namely PSAK 71 Financial Instruments which adopts IFRS 9, PSAK 72 Revenue from Contracts
with Customers which adopts IFRS 15, and PSAK 73 Leases which adopts IFRS 16 This article
will focus on discussing PSAK 72.
The fundamental change brought about by PSAK 72 is the existence of a single standard of
revenue recognition for all types of industries. In PSAK 72, an entity shall record a contract with
a customer only if all of the following criteria are met.

The stages of revenue recognition from customer contracts according to PSAK 72 are:
1. Identifying Contracts with Customers
2. Identifying Performance Obligations
3. Determining Transaction Prices
4. Allocating transaction prices to performance obligations
5. Recognizing revenue when (when) the entity has completed the

Performance
Obligations - The objective of PSAK 72 is to establish principles regarding the nature, amount,
timing, and uncertainty of income and cash flows arising from contracts with customers.

PSAK 72 applied to all customer contracts, except:

Lease contracts - PSAK 30 Leases (73);
Insurance contracts - PSAK 62 Insurance contracts;
Financial instruments - PSAK 71: Financial Instruments, PSAK 65: Consolidated Financial
Statements, PSAK 66: Joint Arrangements, PSAK 4: Separate Financial Statements and PSAK
15 Investments in Associates and Joint Ventures; and monetary exchanges between entities in
the same line of business to facilitate sales to customers or potential customers, for example: a
contract between two oil companies to exchange oil to meet demands from customers in different
locations in a timely manner.
Identifying Contracts with Customers
An entity shall record contracts with customers only when all of the following criteria are met:
The parties to the contract have agreed to the contract (in writing, verbally or in accordance with
common business practice) and are committed to performing their respective obligations;
The entity can identify the rights of each party regarding the goods or services to be transferred;
The entity can identify the payment term for the goods or services to be transferred;
The contract has commercial substance (ie the risk, timing or amount of the entity's future cash
flows are expected to change as a result of the contract); and
It is probable that the entity will collect the consideration it will be entitled to in exchange for
goods or services to be transferred to the customer.
In evaluating whether collectability exists, an entity considers the customer's ability and intention
to pay the consideration amount when it is due.
There is no contract, if each party to the contract has a unilaterally enforceable right to terminate
a fully unperformed contract without compensation to the other party.
The contract is not fully executed if both of the following criteria are met:
The entity has not transferred the promised goods or services to the customer; and the Entity has
not received, and has not been entitled to receive, any consideration in exchange for the
promised goods or services.
The contract does not meet the criteria and the entity receives consideration from the customer,
then the practice is recognized as revenue if one of the criteria is met:
The Entity has no remaining obligation to transfer goods or services to the customer and all, or
substantially all, of the customer's promised consideration has been received by the entity and is
non-refundable; or
The Contract has been terminated and the consideration received from the customer is non-
refundable.
An entity combines two or more contracts as a single contract if one or more of the following
criteria are met:
The contract is negotiated as a package with a single commercial purpose;
The amount of consideration paid in one contract depends on the price or performance of another
contract; or
The goods or services promised in the contract (or several goods or services promised in each
contract) constitute a single performance obligation.
A contract modification is a change in the scope or price of the contract (or both) agreed to by
the parties to the contract.
An entity shall account for it as a separate contract if the following conditions are met:
The scope of the contract increases due to the addition of the promised goods or services that are
distinguishable; and
The contract price is increased by a fee that reflects the entity's stand-alone selling prices for the
addition of the promised goods or services and appropriate adjustments to prices that reflect the
circumstances of the particular contract.
An entity shall account for a non-separable contract if the following conditions are met:
The entity shall account for a modification of the contract as if the modification of the contract
was a termination of an existing contract and the creation of a new contract, if the remaining
goods or services are distinguishable from the goods or services transferred on or before the date
of the modification. contract.
An entity shall account for contract modifications as if they were part of an existing contract if
the remaining goods or services are not distinguishable and, therefore, form part of a single
performance obligation that is partially satisfied at the date of the contract modification.
Identifying Performance Obligations
At the inception of the contract, an entity assesses the goods or services promised in the contract
with the customer and identifies as performance obligations each promise to transfer to the
customer either:
A good or service (or package of goods or services) that is distinguishable; or
A series of distinguishable goods or services that are substantially the same and have the same
parenting pattern to customers
Goods or services promised to customers are distinguishable if the following two criteria are
met:
The customer benefits from the goods or services either the goods or services themselves or in
conjunction with other resources readily available to customers; and
The entity's promise to transfer goods or services to a customer can be identified separately from
other promises in the contract.
If the promised goods or services are indistinguishable, the entity combines the goods or services
with other promised goods or services until the entity identifies the package of goods or services
as distinguishable.
Contract agreements with customers include the following:
Contracts generally explicitly state the promised goods or services to be transferred to the
customer.
However, performance obligations are not limited to goods or services explicitly stated in the
contract.
Distinguishable goods or services can take the form of:
Sales of manufactured goods; purchased.
Implementation of the task of providing services; regulatory services
Distribution of rights to goods and services, and others.

Determining Transaction Prices

When (or as long as) a performance obligation is settled, an entity recognizes revenue on the
amount of the transaction price (which does not include estimates of restricted variable
consideration) allocated to the performance obligation.
The way the Entity determines the Transaction Price is:
Taking into account the terms of the contract and general business practices.
The transaction price is the amount of consideration that an entity expects to be entitled in
exchange for transferring goods or services to customers, excluding amounts billed on behalf of
third parties (e.g taxes).
The fees promised in a contract with a customer may include a fixed amount, a variable amount,
or both.
The entity considers the terms of the contract and the entity's general business practices to
determine the transaction price. The nature, timing and amount of the consideration promised by
the customer affect the estimated transaction price.
An entity considers the impact of all of the following:
Variable Rewards
Returns Liability
Estimated Variable Returns Restrictions Variable Rewards Refinement of Variable Rewards
Existence of Significant Funding Components in
Non-Cash Compensation
Payments to Customers
Allocating Transaction Prices to Performance Obligations
The objective of allocating transaction prices is for the entity to allocate transaction prices to
each performance obligations (or distinguishable goods or services) in an amount that represents
the amount of consideration that the entity expects to be entitled to in exchange for transferring
the promised goods or services to customers.

The entity allocates the transaction price to each performance obligation identified in the contract
with:
The basis of the relative stand-alone selling price, unless specifically regulated for the allocation
of discounts and for the allocation of consideration which includes variables.
Changes in Transaction Prices the entity allocates to the performance obligation in the contract
subsequent changes to the transaction prices on the same basis as at the beginning of the
contract.
An entity records a change in the transaction price as a result of a contract modification.
In the event of a contract modification, an entity shall allocate the change in transaction price in
one of the following ways:
An entity shall allocate a change in the transaction price prior to the modification if, and to the
extent that the change in the transaction price is attributable to the amount of the variable
consideration promised before the modification and modification is accounted for as a
termination of the contract.
Modifications are accounted for as separate contracts, meaning that the entity allocates the
change in the transaction price to the performance obligations in the modified contract
Recognizes revenue when (when) the entity has completed the Performance Obligations
Assets are transferred when (or as long as) the customer obtains control of the asset.
At the inception of the contract, the entity determines whether the entity settles the performance
obligation over time or at a certain time
Performance Obligation Over Time.
The entity transfers control of the goods or services over time, meaning that it completes the
performance obligation and recognizes revenue over time, if one of the criteria following are
met:
The customer simultaneously receives and consumes the benefits provided by the entity's
performance when the entity performs its performance obligations
The entity's performance creates or enhances an asset (for example, work in progress) that the
customer controls as an asset created or enhanced
The entity's performance does not create an asset with alternative uses to the entity and the entity
has the right to enforceable payments for performance completed to date
Performance Obligations Completed son Time (Performance Obligation At a Point In Time)
If the performance obligation is not completed over time, the entity will settle the performance
obligation at a certain time.
To determine the specific time at which the customer obtains control of the promised asset and
the entity settles the performance obligation, the entity considers the control requirements.
In addition, an entity considers indicators of a transfer of control, which include, but are not
limited to, the following:
The entity has a present right to payment for the asset
Customer has legal title to the asset
The entity has transferred physical ownership of the asset
Customer has significant risks and rewards of ownership assets
Customer has received assets
Control includes the ability to prevent other entities from directing use of, and benefiting from,
assets.
An asset's benefit is the potential cash flow (inflow or outflow savings) that can be obtained
directly or indirectly in a variety of ways, such as by:
Using the asset to produce goods or provide services (including public services);
Using assets to increase the value of other assets;
Use assets to settle liabilities or reduce expenses;
Sell or exchange assets;
Guarantee assets for loan acquisition; and
Own assets.
Measurement of progress towards the completion of a performance obligation – over time
For each performance obligation that is settled over time, an entity recognizes revenue by
measuring progress towards the completion of a performance obligation.
The objective of measuring progress: to describe the entity's performance in transferring control
over promised goods or services to customers.
An entity shall apply a single method of measuring progress for each performance obligation that
is settled over time and an entity shall apply that method consistently to similar performance
obligations and in similar circumstances.
At the end of each reporting period, the entity re-measures progress towards the full completion
of the performance obligation that is settled over time.
Methods of measuring progress according to the nature of goods and services:
a. Output method
b. Input method Output method
Output is the value of goods or services agreed in the contract.
Output can be determined based on;
a. Appraisal
b. Milestones of completion
c. Survey to determine the solution
d. The time that has been used
e. Units produced
Output sometimes cannot be used as a measure of output, for example the units produced are
used, while the company has just arrived at the semi-finished goods stage.
Output is sometimes not easy to observe because the relationship between input and output does
not occur directly.
Input Method Input
are an entity's efforts to fulfill obligations?
Inputs can be in the form of resources and hours of use.
Inputs are not appropriate to be used as a measure of completion of obligations if:
The inputs do not contribute to the completion of performance obligations, for example
inefficiency
Input costs do not match the progress of the entity in completing performance obligations.
Incremental Cost of Acquisition of Contracts
An entity shall recognize the incremental costs of acquiring contracts with customers as an asset
if the entity expects to recover those costs.
Incremental costs of acquiring a contract are costs incurred to acquire a contract with a customer
that would not have been incurred if the contract had not been obtained (for example, a sales
commission).
Costs to acquire contracts incurred regardless of whether the contracts obtained are recognized as
an expense when incurred, unless those costs can be explicitly charged to the customer
regardless of whether the contracts were obtained.
If costs incurred in fulfilling a contract with a customer are not within the scope of another
Standard, an entity shall recognize as an asset the costs incurred to fulfill the contract only if
those costs meet all of the following criteria:
Costs directly related to the contract or for the anticipated contract can be identified specifically
by the entity (for example, costs related to services provided under renewal of an existing
contract or costs of designing assets to be transferred under a specific contract that has not yet
been approved);
The cost of generating or increasing the entity's resources to be used in settling (or continuing to
settle) a future performance obligation; and
Costs are expected to be recovered.
Assets recognized (deferred contract costs) are amortized on a systematic basis consistent with
the transfer to the customer of goods or services related to the asset.
Assets may relate to goods or services transferred under a specific anticipated contract.
The entity updates the amortization to reflect significant changes
The entity recognizes an impairment loss in profit or loss if the carrying amount of the asset
recognized exceeds:
The remaining amount of the consideration that the entity expects to receive in exchange for
goods or services related to the asset; less
Costs that are directly related to the provision of goods or services and that have not been
recognized as expenses.

Presentation
When one of the parties to the contract has performed, the entity presents the contract in the
statement of financial position as:
Contract assets if (liabilities > benefits received), or

A contractual liability if (obligation < consideration received) is contingent on the relationship

between the entity's performance and customer payments.
An entity shall present the unconditional right to consideration separately as a receivable.