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)
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