Part 3 Chapter 2 Revenue (IFRS 15).docx - Part 3 Chapter 2...

Part 3 - Chapter 2: Revenue from contracts with customers (IFRS 15)
IFRS 15 – R
EVENUE FROM CONTRACTS WITH CUSTOMERS
Core principle: The entity shall recognize revenue to depict the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods
or services.
IFRS 15 is applicable to all contracts with customers, except when another standard is applicable (IFRS 16 for leases,
IFRS 17 for insurance contracts, IFRS 9 for financial instruments). A customer is a party that has contracted with an
entity to obtain goods and services that are an output of the entity’s ordinary activities in exchange for
consideration.
To do this 5 steps have to be taken:
- Step 1: Identifying the contract
- Step 2: Identifying the separate performance obligations in the contract
- Step 3: Determining the transaction price
- Step 4: Allocating the transaction price to the separate performance obligations
- Step 5: Recognising revenue.
S
TEP
1: I
DENTIFYING THE CONTRACT
An entity applies IFRS 15 to a contract with a customer only if the following 5 criteria are met (IFRS 15.9):
- The parties to the contract have approved the contract and are committed to perform their respective
obligations;
- The entity can identify each party’s rights regarding the goods or services to be transferred;
- The entity can identify the payment terms for the goods or services to be transferred;
- The contract has commercial substance; and
- It is probable that the entity will collect the consideration to which it will be entitled in exchange for the
goods and services that will be transferred to the customer. The amount of consideration to which the
entity will be entitled may be less than the price stated in the contract.
When these criteria are not met and an entity receives consideration from the customer, the entity shall recognize
the consideration received as revenue only when either of the following events has occurred (IAS 15.15):
a) The entity has no remaining obligations to transfer goods or services to the customer and all, or
substantially all, of the consideration promised by the customer has been received by the entity and is non-
refundable; or
b) The contract has been terminated and the consideration received from the customer is non refundable
Otherwise, the entity shall recognize a liability until one of these events occur or until the criteria to apply IFRS 15
are met (IFRS 15.16).
A contract does not exist if each party to the contract has the unilateral enforceable right terminate a wholly
unperformed contract without compensating the other party.
Page | 1

Part 3 - Chapter 2: Revenue from contracts with customers (IFRS 15)
S
TEP
2: I
DENTIFYING THE PERFORMANCE OBLIGATIONS
At contract inception, an entity shall assess the goods or services promised in a contract with customer and shall
identify as a performance obligation each promise to transfer to the customer either (IFRS 15.22):
a) a good or service (or a bundle of goods or services) that is distinct; or
b)