UNIT 2

IFRS 15

REVENUE FROM CONTRACTS WITH

CUSTOMERS

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 Learning outcome
• Revenue from contracts with customers in terms of IFRS 15 should be
defined, calculated and recorded.

• Assessment Criteria: The student should be able to:

1.Define different terms within IFRS 15.
2. Determine how and when should the IFRS 15 transaction be
measured and recoded in the general journal.

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 INTRODUCTION
• IFRS 15 was released in May 2014.
• Effective for financial years beginning on or after 1 January
2018.
• This standard explains when to recognise revenue, how to
measure it, how present and disclose revenue-related
transactions .
• Five steps approach to recognise and measure revenue.
• It does not only explain how present revenue only but,
explain how to present any related assets and liabilities.

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 INCOME VERSES REVENUE

INCOME
• Increase in economic benefits during the accounting period
• in the form of inflow, enhancement of assets or decrease in
liabilities
• that result in increases in equity other than those relating
to contributions from equity participants.

REVENUE
• Income arising in the ordinary course of an entity

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 SCOPE
• Contract
• an agreement between two or more parties
• that creates enforceable rights and obligations
• Customer
• a party that has contracted with an entity
• to obtain goods or services
• that are output of the entity’s ordinary activities
• in exchange of consideration.

• IFRS 15 does not apply to contract falling within scope of certain other
specified standards.
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 REVENUE RECOGNITION AND MEASUREMENT
For the revenue from contracts with customers to be recognised and
measured the following 5-step process needs to be followed:

1. Identify the contract/s with a customer;

2. Identify the performance obligations in the contract;
3. Determine the transaction price;
4. Allocate the transaction price to the performance obligations in the
contract; and
5. Recognise revenue when/as the entity satisfies a performance
obligation.

NB: All the above must be meet before revenue can be in existence.
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 RECOGNITION OF IFRS 15
When deciding if and when to recognise revenue, steps 1, 2 and 5
should be considered.
Step 1- Contract may be written or verbal.
-These contracts need to be enforced by law.
Step 2- Performance obligation must be identified.
-Contract may include a commitment to provide a variety of goods or a
variety of services or a combination thereof.
- Each goods, services or bundle of both must be recognised separately.
Step 5 - As and when the entity satisfied/completes its performance obligation. -
-This happens when the customer has a control over the goods and/or
services.

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 MEASUREMENT OF IFRS 15
• Once the entity has decided to recognise revenue,
• based on steps 1,2 and 3,
• the journal entries need to be processed.
• In order to process these entries,
• the amount of the journals need to be known.
• This referred as measurement.
• When deciding on the measurement of revenue, IFRS 15
considers step 3 and step 4.

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 MEASUREMENT OF IFRS 15
Step 3
• The amount of consideration to which the entity expect to be entitled for having transferred
the good s and services to a customer is transaction price.
• This price must exclude any amount to be collected on behalf of the third party, i.e., VAT.
Step 4
• Allocation of transaction price.

• If a contract involves more than one performance obligation, the transaction price will need to
be allocated to each separate obligation.

• If the contract involves only a single performance obligation, the contract’s entire transaction
price will apply to that single obligation.

• If the obligation performance will be completed in an instant, the related revenue will be
recognised at that point in time.

• If the obligation performance will be completed over time, then the related revenue will be
measured based on the progress towards complete satisfaction of the performance obligation.

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 PRESENTATION OF IFRS 15
• Revenue must be presented as a line-item in SOCI.
• A customer contract may also lead to the presentation in SOFP as a
contract asset or contract liability and/or as a receivable (rights and
obligation).
Contract asset is defined as:
• an entity’s rights to consideration
• in exchange for good or services that the entity
transferred to a customer
• when that right is conditional on something other than the
passing of time. (e.g., the entity future performance)

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 PRESENTATION OF IFRS 15

Receivable is defined as:

• an entity’s rights to consideration that is unconditional

Contract liability is defined as:

• an entity’s obligation to transfer goods or services to a customer
for which
• the entity has received consideration from the customer, or the
amount of consideration is due from the customer.

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 PRESENTATION OF IFRS 15
• Unconditional right to consideration arises only when the performance obligation
has been satisfied.
• However, unconditional right can arise before the performance obligation is being
met (before we are able to recognise revenue).
• This happens, if the contract is non-cancellable.
• If the entity enterers into a non-cancellable contract, the date on which the
customer is required to make payment is the date on which the entity obtains an
unconditional right to the consideration, even if the entity has not performed
their obligation.
• The due date for payment is very important if the contract is non-cancellable, as
it becomes the date on which the entity obtains an unconditional right to receive
the consideration.

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 DISCLOSURE

• The objective is that there must be enough that the users can assess
the ‘nature, amount, timing and uncertainty’ of the revenue and cash
flow from entity’s customer contracts.
• To achieve this, we must disclose both qualitative and quantitative
information regarding
• Contract with customers
• Assets recognised relating to cost to obtain and cost to fulfil a contract
• Significant judgments made when applying IFRS 15

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THANK YOU

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