IFRS 15 –

REVENUE
FROM
CONTRACTS
 1. IDENTIFY THE CONTRACT WITH
APPLICATIO CUSTOMER
N OF THE 2. IDENTIFY SEPARATE
PERFORMANCE OBLIGATION IN A
FIVE-STEP CONTRACT.

PROCESS 3. DETERMINE TRANSACTION PRICE

4. ALLOCATE TRANSACTION PRICE TO
(AT A SEPARATE PERFORMANCE
OBLIGATIONS.
GLANCE) 5. RECOGNIZE REVENUE WHEN (OR
AS) EACH PERFORMANCE
OBLIGATION IS SATISFIED.
APPLICATIO
N OF THE On December 1, 2018, Anton receives an
order from a customer for a computer as well
FIVE-STEP as 12 months of technical support. Anton
PROCESS delivers the computer (and transfers its legal
title) to the customer on the same day. The
(AT A customer paid P50,400 upfront. The computer
sells P36,000 and the technical support sells
GLANCE) P14,400.
JOURNAL ENTRY:
12/01/18 CASH 50,400
SALES REVENUE 36,000
DEFERRED REVENUE 14,400

12/31/18 DEFERRED REVENUE 1,200

SALES/SERVICE REVENUE 1,200
(14,400/12)
 AN ENTITY CAN ONLY ACCOUNT FOR
STEP 1: REVENUE IF CONTRACT MEETS ALL
OF THE FOLLOWING CRITERIA:
IDENTIFY 1. Parties to contract have approved and are
committed to perform respective
THE obligations.

CONTRACT 2. Identify each party’s right regarding goods

or services transferred.
WITH 3. Identify payment terms for goods/services
transferred.
CUSTOMER 4. Contract has commercial substance.
5. Probable that the entity will collect the
consideration.
 To establish existence of performance
STEP 2: obligations:
1. Must provide goods/services that is
IDENTIFY distinct/separable.

PERFORMA a. Customers benefit on its own

b. Separately identifiable
NCE
OBLIGATIO 2. Series of goods or services that are
substantially the same and transferred in
N the same way.

a. Substantially the same

b. Same pattern of transfer
 STEP 2:
IDENTIFY Jackson is building a multi-residential area. It
PERFORMA enters into a contract with a customer for a
specific unit that is under construction. The
NCE goods and services to be provided in the
contract include procurement, construction,
OBLIGATIO piping, wiring, installation of equipment and
finishing.
N
 STEP 3: The effects of the following must be
considered in when determining the
DETERMINI transaction price:

NG 1. Variable consideration
TRANSACTI 2. Time value of money

ON PRICE 3. Non-cash consideration

4. Consideration payable
 STEP 4:
 Allocate transaction price to each identified
ALLOCATIN performance obligation in proportion to the
stand-alone selling price
G THE  If stand-alone selling price is not available:
TRANSACTI a. Adjusted market assessment
b. Estimated cost plus margin
ON PRICE c. Residual
  Obligation is satisfied when promised goods/services

STEP 5: is transferred to the customer (customer gains control)

of the asset.

RECOGNIZE  Performance obligation can be satisfied:

a. A point in time
REVENUE -Immediate right to payment
WHEN -Legal title transferred
-Physical possession
PERFORMAN -Customer acceptance
CE -Risk and rewards
b. Overtime
OBLIGATION -Consumes
IS SATISFIED -Control
-No alternative use to seller
 • Contractual agreement
• Grant from franchisor to
franchisee, the right to sell,
manufacture, or use the
FRANCHISING business name/system of
the franchisor.
• The franchisee must pay
for the services provided as
franchise fees.
PERFORMANCE OBLIGATION:

RIGHT TO OPEN A USE OF NAME OR CONTINUING SERVICES

BUSINESS INTELLECTUAL
PROPERTY
FRANCHISE FEES – SOURCES
OF REVENUE

Initial Franchise fees Continuing franchise fees

 Dominador’s Pizza enters into a franchise
agreement on December 31, 2017, giving Dian
the right to operate as a franchisee for 5 years.
The franchisor charges an initial franchise fee of
P475,000. Of this amount, P190,000 is payable
upon signing the agreement, and the balance is
payable in 5 annual payments of P57,000 each
ILLUSTRA on December 31.

TION As part of the agreement, franchisor helps the

franchise to locate, purchase location site,
supervise construction, training and providing
equipment. Training and equipment are sold
separately.
Present value of an ordinary annuity of 5 annual
receipts of P57,000 is discounted at 8%
amounting to P227,430.
 1. IDENTIFY THE CONTRACT WITH
CUSTOMER
APPLICATIO 2. IDENTIFY SEPARATE
PERFORMANCE OBLIGATION IN A
N OF THE CONTRACT.

FIVE-STEP 3. DETERMINE TRANSACTION PRICE

4. ALLOCATE TRANSACTION PRICE TO
PROCESS SEPARATE PERFORMANCE
OBLIGATIONS.
5. RECOGNIZE REVENUE WHEN (OR
AS) EACH PERFORMANCE
OBLIGATION IS SATISFIED.
IDENTIFY PERFORMANCE OBLIGATIONS:

1. RIGHTS TO TRADE NAME

2. SERVICES –TRAINING
3. MACHINERY AND EQUIPMENT
DETERMINE TRANSACTION PRICE:

DOWN PAYMENT P190,000

PV OF ANNUAL PAYMENTS (P57,000 x 3.99) 227,430
TOTAL TRANSACTION PRICE P417,430
ALLOCATE THE TRANSACTION PRICE:

1. RIGHTS TO TRADE NAME P190,000

2. SERVICES –TRAINING 94,430
3. MACHINERY AND EQUIPMENT (Cost of 95,000) 133,000

TOTAL P417,430

*Training is completed on Feb.1, 2018

*Equipment is installed in Feb.2, 2018
*The franchise opens on Feb.4, 2018 and satisfies the performance obligation related to
franchise rights, services and equipment.
*Franchisee promises to pay continuing fee of 1% of its annual sales (payable every January 31
of the following year). Sales for the year 2018 amounted to P4,987,500.
JOURNAL ENTRIES
 12/31/17 Cash P190,000
Notes receivable 285,000
Unearned interest income (285,000-227,430) P 57,570
Unearned franchise revenue 190,000
Unearned service revenue 94,430
Unearned sales revenue 133,000
 02/04/18 Unearned franchise revenue P190,000
Unearned service revenue 94,430
Unearned sales revenue 133,000
Franchise revenue P190,000
Service revenue 94,430 Sales revenue
133,000

Cost of goods sold P95,000

Merchandise inventory P95,000

 12/31/18 Accounts receivable (4,987,500 x 1%) P49,875

Franchise revenue P49,875
Cash P57,000
Notes receivable P57,000
Unearned interest income P18,194
Interest income (227,430 x 8%) P18,194