PFRS 15

Revenue from contract with

customers.
Learning Outcomes
State the presentation of contract asset and contract liability.

Understand the accounting of Consideration payable to customers.

Describe the specific application of PFRS 15 for special transations

Presentation
Performance of either party to the contract give rise to a contract asset or contract liability.

Contract Liability If a customer pays consideration, or an entity has a right to an amount of consideration
that is unconditional before the entity transfers a good or service to the customer.

Contract Asset If an entity performs before the customer pays consideration or before payment is due
the entity shall present contract asset excluding the amount of contract receivable.

Entity may use alternative descriptions other than contract asset or contract liability.
Illustrative Example
On July 1, 2022 ABC Co. entered into a contract of sale with DEF Co. The contract is structured such that
ABC must deliver goods on August 25, 2022 and DEF must pay P100,000 on September 25, 2022.

Required: Provide necessary journal entries on:

July 1 No Journal Entry

Aug 25 Contract Asset/ AR 100,000

Sales Revenue 100,00

Sept 25 Cash 100,000

Contract Asset/ AR 100,00
Illustrative Example
On July 1, 2022 ABC Co. entered into a contract of sale with DEF Co. The contract is structured such that
ABC must deliver goods on September 25, 2022 and DEF must pay P100,000 on August 25, 2022.

Required: Provide necessary journal entries on:

July 1 No Journal Entry

Aug 25 Cash 100,000

Contract Liability 100,00

Sept 25 Contract Liability 100,000

Sales Revenue 100,00
Contract Asset vs Receivable

Contract Asset Is the entity’s right to consideration in exchange for goods or services transferred to a
customer.

Receivable Is the entity’s right to consideration that is unconditional.

Conditional Rights – the entity has satisfied one performance obligation but must satisfy another obligation in
the contract before it can bill the customer.
Illustrative Example
On January 1, 2022 Popoy entered into a contract to transfer Product X and Product Y to EJ Co. for 100,000
each. The contract specifies that payment of Product X will not occur until Product Y is also delivered. In
other words payment will not occur until both Product X and Product Y are transferred to EJ Co. Popoy
delivers Product X to EJ on February 1, 2022. On March 1, 2022 Popoy delivers Product Y to EJ.
Required: Provide necessary journal entries on:

Jan 1 No Journal Entry

Feb 1 Contract Asset 100,000

Sales 100,00

Mar 1 Accounts Receivable 200,000

Contact Asset 100,000
Sales 100,00
Consideration Payable to Customer
Consideration payable to a customer includes cash amounts that an entity pays, or expects to pay, to the
customer.

 Not distinct – accounted as reduction of the transaction price and therefore of revenue.

 Distinct – an entity shall account for the purchase of the good or service in the same way that it accounts for other
purchases from
Accounted as reduction of the transaction price when:
 The amount of consideration payable to customer exceeds the fair value of the goods or service
received from customers (Consideration > Fair Value).

 If the entity cannot reasonably estimate the fair value of the goods or service received from the
customer.
Illustrative Example
On March 1, 2022 Choco Co. sold merchandise to GMA Co., for P100,000 and received P100,000 for the sale
on April 1, 2022. On March 27, 2022, Choco Co. made P20,000 payment to GMA Co., for advertising
services.

Required:

A. How much revenue should Choco Co. record for the merchandise sold if the fair value of the advertising
services is P20,000. Answer: P100,000

B. How much revenue should Choco Co. record for the merchandise sold if the fair value of the advertising
services is P15,000.
Answer: P95,000
C. How much revenue should Choco Co. record for the merchandise sold if the fair value of the advertising
services cannot be reasonably estimated
Answer: P80,000
Right of Return
If a product is sold with a right of return then the consideration is variable.

The right to return does not create a performance obligation for the seller.
Bill and Hold Arrangements
A bill-and-hold arrangement exists when a customer purchases goods but request that the seller not ship the
product until a later date.

Revenue cannot be recognized until the customer obtains control of the product.

For a customer to have obtained control (bill-and-hold), all of the following criteria must be met:

 There must be a substantive reason for the bill-and-hold arrangement.

 The product has been separately identified as belonging to the customer.
 The product is currently ready for transfer to the customer.
 The entity cannot use the product or direct it to another customer.
Principal-Agent Relationship
Principal

 Performance obligation is to provide goods or service to customers.

 Records revenue equal to the total sales price paid by customers.
 Obtains control of the goods or services before they are transferred to customers.

Agent

 Performance obligation is facilitate a transaction between a principal and a customer to provide service..
 Records revenue only equal to the commission it receive on the transaction.
Warranties
Quality Assurance Warranties

 Not a performance obligation

 Guarantees that the product or service is free of defects and are a cost of satisfying the performance
obligation to deliver products of acceptable quality..
 Recognized as warranty expensed in the period of sale.

Extended Warranties/ Service Type Warranties

 The customer has the option to purchase the warranty separately from the seller, or..
 The warranty provides a service to the customer beyond only assuring that the seller delivered a product
or service that was free from defects.
 Price is recorded as deferred revenue and then recognized as revenue over the extended warranty.
Repurchase Agreements
A Repurchase agreement is where an entity sells an asset but retains a right to repurchase the asset.

Not recognized as sale but as secured loan against the asset.

Types of Repurchase Agreement

 Obligation to repurchase (Forward).
 Right to repurchase the asset. (Call option)
 Obligation to repurchase at customer’s request. (Put Option)
Forward or Call option
Repurchase Price < Original Selling Price
The transaction is accounted as lease.

Repurchase Price more than or equal to Original selling price.

The transaction is accounted as financing agreement
Put option
Repurchase Price < Original Selling Price
 The transaction is accounted as lease if the customer has significant economic incentive to exercise the
right.
 A sale with a right to return if the customer does not have economic incentive to exercise the right.
Repurchase Price more than or equal to Original selling price.
 Financing agreement if the repurchase price is more than the expected market value.
 A sale with a right to repurchase if repurchase price is less than or equal to the expected market value of
the asset and the customer does not significant incentive to exercise the right.