For example, in the case of construction contracts, or other long-term service contracts, modifications are frequent. Has the entity transferred physical possession of the asset to the customer? 53 . The maximum number of documents that can be ed at once is 1000. Either people feel that this is A CHALLENGE and they ask me how IFRS 15 can possibly affect them; OR There are separate contracts for each of these two activities. No profit margin is recognised when the elevator is delivered but revenue is recognised to the extent of the costs of the elevator incurred as follows: Profit would be recognised on the delivery of the elevator at 31 December 2018, even though it had not been installed. Under IFRS 15, an entity recognises as an asset the incremental costs of obtaining a contract with a IFRS 15.IE.Ex36–37 customer only if it expects to recover those costs. Under IFRS 15, an entity recognises as an asset the incremental costs of obtaining a contract with a IFRS 15.IE.Ex36–37 customer only if it expects to recover those costs. What are the transition options under IFRS 15… A good or service which has been delivered may not be distinct if it cannot be used without another good or service that has not yet been delivered. ILLUSTRATIVE EXAMPLES (see separate booklet) APPENDIX Amendments to the guidance on other Standards IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS IFRS Foundation 4. International Financial Reporting Standard 15 Revenue from Contracts with Customers (IFRS 15) is set out in paragraphs 1–129 and Appendices A–D. Find out how we can help you succeed at every stage of Private Equity investment. This standard withdraws IAS 11 so that accounting for these onerous contracts will now need to be performed under IAS 37 Provisions, Contingent Assets, and Liabilities to determine whether a contract in the scope of IFRS 15 is onerous. CLARIFICATIONS TO IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS—APRIL 2016 Amendments to the Illustrative Examples on IFRS 15 Revenue from Contracts with Customers Paragraphs IE45, IE47, IE50–IE51, IE55–IE57, IE61, IE63, IE225–IE227, IE230–IE232, IE237–IE238, IE240–IE245, IE247–IE248, IE275, IE277–IE280, IE286–IE287, The refurbishment work is completed by 31 December 2019. IFRS 15 requires a series of distinct goods or services that are substantially the same with the same pattern of transfer, to be regarded as a single performance obligation. • IFRS 15 is principles-based, consistent with legacy revenue requirements, Backed by our significant practical experience, our team provides no-nonsense strategic advice, helping you make... BDO specialises in understanding the distinct needs of government and public sector organisations operating in an environment where policy, legislative and budgetary requirements can make delivering cost-effective services challenging. IFRS 15 also provides requirements for the accounting for contract modifications. IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers and SIC-31 Revenue – Barter Transaction involving Advertising Services. The session discusses the implications of contract modifications and accounting thereof IFRS 15 – Illustrative disclosures. However, Construction Co has agreed with the customer to first build and complete the house and then finish the garage within the next three months. The new revenue standard will replace the construction contract guidance and substantially all existing revenue recognition guidance under IFRS and US GAAP. Construction Co would have processed the following journal entry as they incurred the construction costs during the year ended 30 June 2017: The journal entries at 30 June 2017 in relation to the revenue recognised is as follows: There would be similar treatment under IAS 11, however, there are more specific requirements under IFRS 15. To make your more manageable, we have automatically split your selection into separate batches of up to 25 documents.. batch How should these be accounted for in the context of IFRS 15? 03 Revenue from Contracts with Customers | A guide to IFRS 15 Foreword. take stock – to pull together, in one place, what we have learned about this new world of revenue recognition. 25. The standalone selling prices of the house and garage are $500,000 and $80,000 respectively. (i think we should use ifrs 15 as it replaces ias 11)… so please answer to question 2&3 if we must use ifrs 15 in exam: 2-if a contract is a normal one without any extra cost(eg:contract price=$20m and cost=$15m) How should we use ifrs 15? These examples represent how some of the disclosures required by IFRS 15 (in paragraphs 114-115 and B87-B89) in relation to dissagregation of revenue from contracts with customers might be tagged using detailed XBRL tagging. Paragraphs 28 and 30 have not been amended but have been included for ease of … It includes the reasons for accepting particular views and rejecting others. Reporting revenue under IFRS 15 is now one of the ordinary activities of companies in the 100+ countries that use IFRS Standards. take stock – to pull together, in one place, what we have learned about this new world of revenue recognition. IFRS 15 Contracts with Customers introduced a huge change and a very difficult challenge for almost every single company. Question IFRS 15, policies, judgements, paras 110-128 certain disclosures, construction, support services; IFRS 15 adopted, revenue policies including lump sum royalties, returns, warranties; IFRS 15, policies, judgements and estimates, contract assets and liabilities, paras 110-129 certain disclosures, contracting Author: KPMG IFRG Limited Subject: IFRS Keywords: ifrs 15, revenue recognition, implementation, checklist, construction … Back to Course Next Lesson. The contracts were negotiated with the same customer, at the same time and pricing on one contract is dependent on the other. The percentage of completion method falls in-line with IFRS 15, which indicates that revenue from performance obligations recognized over a period of time should be based on the percentage of completion. Systems to recognise revenue and account for timing differences between payment/invoicing and revenue. Your essential guide to preparing financial statements under the new revenue standard Share; 1000. So your request will be limited to the first 1000 documents. Combination of contracts. This example is based on Example 37 accompanying IFRS 15. BDO understands the unique audit, tax and advisory requirements of the not-for-profit sector, which comes from our experience in acting for the sector over many years. Costs to fulfil a contract. This is because the vendor’s performance obligations are in connection with the construction of the building and the installation of items such as elevators; the supply of components does not result in any part of that service being provided. The general principle is that revenue is recognised at a point in time. If the contracts were accounted for separately, revenue would be recognised as follows: However, the entity needs to determine if the contracts for the building of the house and garage should be accounted for separately or as one combined contract. BDO is a specialised automotive service provider assisting franchised dealers, manufacturers and industry associations with a wide range of financial and consulting services. Simple explanation of IFRS 15 Construction Contracts that should cover most exam questions. The following decision tree is a useful tool to determine whether revenue should be recognised at a point in time or over time: If revenue is recognised at a point in time, the overall principle is that revenue should be recognised at the point in time at which it transfers control of the good or service to the customer. For companies with real estate development, property management or construction activities, IFRS 15 replaces several familiar standards and provides significant new guidance in a number of key areas. Example 2: (Contracts for which outcome is not reliably measurable) AB LTD is an entity engages in construction business. This site uses cookies. IFRS 15 for the construction industry – Multiple contracts that should be combined 05 June 2018. Free IFRS Quizzes IFRS 15 – Revenue from Contracts with Customers Quiz ) , () ) Previous Lesson. include specific guidance on the accounting for onerous contracts or on other contract losses. It started a contract for the construction of a school building for one of its client, spanning 2 years. BDO’s Natural Resources team has deep industry experience and global resources in all of the world’s mining, oil and gas centres to help you navigate complex landscapes, both at home and abroad. 53 EXAMPLE: MODIFICATION OF A CONTRACT FOR GOODS 55 EXAMPLE: MODIFICATION OF A CONTRACT TO CONSTRUCT A BUILDING56 Transition 57 25. Question Therefore, costs would be the most objective method of measuring completion. In addition to the substantially more detailed guidance for revenue recognition, IFRS... Legal, Privacy & Terms and Conditions of use, Identifying that there are two related contracts, Determining whether related contracts should be combined. Background understand how certain areas of IFRS 15 ‘Revenuefrom Contracts with Customers’ has been applied, and whether the accounting appeared appropriate in the circumstances. However, a practical expedient allows an entity to expense such costs as incurred if the amortisation period of the asset is one year or less. BDO’s Natural Resources team has deep industry experience and global resources in all of the world’s mining, oil and gas centres to help you navigate complex landscapes, both at home and abroad. Therefore, the contracts should be combined and accounted for as one contract for the purposes of IFRS 15. Big Bed enters in a contract with a customer to sell beds for $400 per bed on 1 January 2017. the cost of the elevator. In the construction industry it is very common for an entity to provide multiple goods or services to one customer or related parties of a customer. The ship has no alternative use as it has been built to Customer A’s specific requirements, and. How should these be accounted for in the context of IFRS 15? c. the customer pays a portion of the purchase price for the real estate unit as the unit is being constructed, and pays the remainder (a majority) after construction is complete. In some cases, IFRS 15 requires an entity to combine contracts and account for them as one contract. BDO has an extensive and diverse range of food and agribusiness clients, from producers to retailers and everything in between. 57 . All the paragraphs have equal authority. IFRS 15 permits either output or input methods to be used to calculate the amount of revenue to be recognised. The following decision should be used to determine whether multiple contracts should be combined or not: Question Answer Should the revenue from each of these contracts be kept separate and accounted for separately, or should the contracts be combined? IFRS 15 replaces the following standards and interpretations: IAS 18 Revenue, IAS 11 Construction Contracts SIC 31 Revenue – Barter Transaction Involving Advertising Services IFRIC 13 Customer Loyalty Programs IFRS 15 Agreements for the Construction IFRS 15 specifies how and when an IFRS reporter will recognise revenue as well as requiring such entities to provide users of financial statements with more informative, relevant disclosures. Construction Co also assesses that they have two separate performance obligations, because they will complete and handover the house 3 months before the completion of the garage. Transition . 53 . IFRS 15 for the construction industry – Timing of revenue recognition, Technology, Media & Entertainment and Telecommunications, Information Security and Privacy Statement, Legal, Privacy & Terms and Conditions of use. To find out more, see our Cookies Policy Terms & Conditions Articles. Free IFRS Quizzes IFRS 15 – Revenue from Contracts with Customers Quiz ) , () ) Previous Lesson. This may be described as a change order, a variation, or an amendment. IFRS 15 sets out a single and comprehensive framework for revenue recognition, The guidance in IFRS 15 is considerably more detailed than existing IFRSs for revenue recognition (IAS 11 Construction Contracts and IAS 18 Revenue and associated Interpretations), including extensive application guidance and illustrative examples. Global factors continue to impact efficiency and negatively influence margins. However, sometimes, entity needs to ascertain that whether a contract for the construction of group of assets will be treated as a single contract or each asset in group of assets will be treated as a separate contract; in such circumstances the entity should apply the following: 1. BDO’s technology specialists have deep experience in helping clients around the globe to navigate the various issues affecting the industry. You are attempting to documents.. How should Construction Co account for this arrangement as at 30 June 2017? IFRS 15 contains specific, and more precise guidance to be applied in determining whether revenue is recognised over time (often referred to as ‘percentage of completion’ under existing standards) or at a point in time. It established a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. Some of the practical implications on systems and processes for Construction Co include: Subscribe to receive the latest BDO News and Insights. For example, a construction company can be engaged to provide design and engineering services as well as the actual construction. Construction Co operates in a jurisdiction where if Customer A terminated the contract, Construction Co would be entitled to payment for the percentage they had completed (i.e. This site uses cookies. If the customer purchases more than 1000 beds in a calendar year, the contract states that the price per unit is … Alongside our key findings, we have identified examples of poorer, aswell better, disclosures to help preparers understand where information provided continues to fall short of the requirements and best practice. IFRS 15 example – sale of a product A company enters into a contract to sell 200 units of a product for £16,000 (£80 each) and will supply 50 units per month over a four month period (control over each unit passes to the customer on delivery). IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers and SIC-31 Revenue – Barter Transaction involving Advertising Services. For example, if the ship could be easily sold to another customer and/or the construction company’s legal framework did not allow for it to legally enforce payment; then revenue could not be recognised over time under IFRS 15. c. the customer pays a portion of the purchase price for the real estate unit as the unit is being constructed, and pays the remainder (a majority) after construction is complete. Over the past five years, we – like you – have wrestled with the many challenges of implementing IFRS 15. How would the timing of the revenue recognised differ if the contracts were accounted for separated and combined? Contents Executive summary 05 Dealing with transition 07 Detailed guide 11 Appendices 235 Appendix 1 IFRS 15 illustrative disclosures 236 Appendix 2 Comparison with US GAAP 244 Key Contacts 250. The maximum number of documents that can be ed at once is 1000. Under IFRS 15.18, contract modification is a change in the scope or price of a contract, or both. IFRS 15 requires a series of distinct goods or services that are substantially the same with the same pattern of transfer, to be regarded as a single performance obligation. The expected cost to construct the land and garage are $400,000 and $64,000 respectively. Construction Co should recognise its revenue over time because the third criterion in IFRS 15, paragraph 35(c) is met. • IFRS 15 is principles-based, consistent with legacy revenue requirements, EXAMPLE: MODIFICATION OF A CONTRACT FOR GOODS 55 EXAMPLE: MODIFICATION OF A CONTRACT TO CONSTRUCT A BUILDING 56 . Paragraphs in bold … The power of industry experience is perspective - perspective we bring to help you best leverage your own capabilities and resources. In the construction industry it is very common for an entity to provide multiple goods or services to one customer or related parties of a customer. This may be described as a change order, a variation, or an amendment. ILLUSTRATIVE EXAMPLES (see separate booklet) APPENDIX Amendments to the guidance on other Standards IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS IFRS Foundation 4. International Financial Reporting Standard 15 Revenue from Contracts with Customers (IFRS 15) is set out in paragraphs 1–129 and Appendices A–D. Answer Paragraphs in bold … BDO is the brand name for the BDO network and for each of the BDO member firms. For example, in the case of construction contracts, or other long-term service contracts, modifications are frequent. The ship has been designed specifically to suit the needs of Customer A and includes a number of features that may not be useful for other customers. BDO has an extensive and diverse range of food and agribusiness clients, from producers to retailers and everything in between. The requirements of IFRS 15 apply to each contract that has been agreed upon with a customer and meets specified criteria. The cost of the elevator would be included in Building Co’s calculation of percentage of completion using the input method. Does the customer have significant risks and rewards of ownership of the asset? BDO’s Real Estate and Construction professionals are ready to... It’s our job to stay on top of changes in the fast-paced retail sector. Find out how we can help you succeed at every stage of Private Equity investment. A customer engages Construction Co to provide construction services to build a house (contract price of $500,000) and a garage (contract price of $50,000). Amendments to IFRS 15 Revenue from Contracts with Customers Paragraphs 26, 27 and 29 are amended. It is noted explicitly that when input methods are used, there may not be a direct relationship between the inputs being used, and the transfer of goods or services to a customer. BDO refers to one or more of the independent member firms of BDO International Ltd, a UK company limited by guarantee. IFRS 15 specifies how and when an IFRS reporter will recognise revenue as well as requiring such entities to provide users of financial statements with more informative, relevant disclosures. So your request will be limited to the first 1000 documents. Accounting for contract costs, such as pre-contract costs and costs to fulfill a contract The revenue standards (ASC 606 and IFRS 15, Revenue from Contracts with Customers) will replace substantially all revenue guidance under US GAAP and IFRS, including the industry-specific guidance for construction-type and production-type contracts. If the customer purchases more than 1000 beds in a calendar year, the contract states that the price per unit is … Inline XBRL; ZIP; Example 19: Credit Risk Exposure . Live Webinar; On-Demand Webinar; Bundled Courses; CPE Courses; Live Webinar; On-Demand Webinar; Bundled Courses; CPE Courses In some cases, IFRS 15 requires an entity to combine contracts and account for them as one contract. However, timing of revenue recognition for both parts is not necessarily the same. Assume Building Co qualifies for ‘over time’ revenue recognition under IFRS 15, paragraph 35(c), and recognises revenue using an ‘input method’ to determine percentage of completion. A contract is an agreement between 2 parties that creates enforceable rights and obligations (IFRS 15, Appendix A). In addition to the five-step model, IFRS 15 sets out how to account for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract and provides guidance to assist entities in applying the model to licences, warranties, rights of return, principal-versus-agent considerations, options for additional goods or services and breakage. However, if any of the criteria in IFRS 15, paragraph 35 are met, revenue should be recognised over time. Our Tourism, Leisure & Hospitality (TLH) team provides specialist accountancy and business advisory expertise to a wide variety of businesses across the Sports and Leisure, Hotels and Tourism and Pubs and Clubs sectors. So this feels like the right time to . This is an adaptation from IFRS 15, Illustrative examples, Example 24. 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