INTERMEDIATE ACCOUNTING ONE
Summary of IFRS 15
Objective
The objective of IFRS 15 is to establish the principles that an entity shall apply to report useful information
to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows
arising from a contract with a customer. [IFRS 15:1] Application of the standard is mandatory for annual
reporting periods starting from 1 January 2018 onwards. Earlier application is permitted.
Scope
IFRS 15 Revenue from Contracts with Customers applies to all contracts with customers except for: leases
within the scope of IAS 17 Leases; financial instruments and other contractual rights or obligations within
the scope of IFRS 9 Financial Instruments, IFRS 10 Consolidated Financial Statements, IFRS 11 Joint
Arrangements, IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint
Ventures; insurance contracts within the scope of IFRS 4 Insurance Contracts; and non-monetary
exchanges between entities in the same line of business to facilitate sales to customers or potential
customers. [IFRS 15:5]
A contract with a customer may be partially within the scope of IFRS 15 and partially within the scope of
another standard. In that scenario: [IFRS 15:7]
if other standards specify how to separate and/or initially measure one or more parts of the contract, then
those separation and measurement requirements are applied first. The transaction price is then reduced by
the amounts that are initially measured under other standards; if no other standard provides guidance on
how to separate and/or initially measure one or more parts of the contract, then IFRS 15 will be applied.
Key definitions
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 an output of
the entity’s ordinary activities in exchange for consideration.
INCOMES Increases in economic benefits during the accounting period in the form of inflows or
enhancements of assets or decreases of liabilities that result in an increase in equity, other than those
relating to contributions from equity participants.
PERFORMANCE OBLIGATION A promise in a contract with a customer to transfer to the customer
either:
CPA. Dr. Fred Sporta; KCAU 1
, a good or service (or a bundle of goods or services) that is distinct; or a series of distinct goods or services
that are substantially the same and that have the same pattern of transfer to the customer.
REVENUE Income arising in the course of an entity’s ordinary activities.
TRANSACTION PRICE The amount of consideration to which an entity expects to be entitled in
exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf
of third parties.
Accounting requirements for revenue
The five-step model framework
The core principle of IFRS 15 is that an entity will recognise 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. This core principle is delivered in a five-step model
framework: [IFRS 15:IN7]
Identify the contract(s) with a customer Identify the performance obligations in the contract Determine the
transaction price Allocate the transaction price to the performance obligations in the contract Recognise
revenue when (or as) the entity satisfies a performance obligation.
Application of this guidance will depend on the facts and circumstances present in a contract with a
customer and will require the exercise of judgment.
Step 1: Identify the contract with the customer
A contract with a customer will be within the scope of IFRS 15 if all the following conditions are met:
[IFRS 15:9]
The contract has been approved by the parties to the contract; each party’s rights in relation to the goods or
services to be transferred can be identified; the payment terms for the goods or services to be transferred
can be identified; the contract has commercial substance; and it is probable that the consideration to which
the entity is entitled to in exchange for the goods or services will be collected.
If a contract with a customer does not yet meet all of the above criteria, the entity will continue to re-assess
the contract going forward to determine whether it subsequently meets the above criteria. From that point,
the entity will apply IFRS 15 to the contract. [IFRS 15:14]
The standard provides detailed guidance on how to account for approved contract modifications. If certain
conditions are met, a contract modification will be accounted for as a separate contract with the customer.
If not, it will be accounted for by modifying the accounting for the current contract with the customer.
Whether the latter type of modification is accounted for prospectively or retrospectively depends on
whether the remaining goods or services to be delivered after the modification are distinct from those
delivered prior to the modification. Further details on accounting for contract modifications can be found in
the Standard. [IFRS 15:18-21].
Step 2: Identify the performance obligations in the contract
CPA. Dr. Fred Sporta; KCAU 2
Summary of IFRS 15
Objective
The objective of IFRS 15 is to establish the principles that an entity shall apply to report useful information
to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows
arising from a contract with a customer. [IFRS 15:1] Application of the standard is mandatory for annual
reporting periods starting from 1 January 2018 onwards. Earlier application is permitted.
Scope
IFRS 15 Revenue from Contracts with Customers applies to all contracts with customers except for: leases
within the scope of IAS 17 Leases; financial instruments and other contractual rights or obligations within
the scope of IFRS 9 Financial Instruments, IFRS 10 Consolidated Financial Statements, IFRS 11 Joint
Arrangements, IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint
Ventures; insurance contracts within the scope of IFRS 4 Insurance Contracts; and non-monetary
exchanges between entities in the same line of business to facilitate sales to customers or potential
customers. [IFRS 15:5]
A contract with a customer may be partially within the scope of IFRS 15 and partially within the scope of
another standard. In that scenario: [IFRS 15:7]
if other standards specify how to separate and/or initially measure one or more parts of the contract, then
those separation and measurement requirements are applied first. The transaction price is then reduced by
the amounts that are initially measured under other standards; if no other standard provides guidance on
how to separate and/or initially measure one or more parts of the contract, then IFRS 15 will be applied.
Key definitions
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 an output of
the entity’s ordinary activities in exchange for consideration.
INCOMES Increases in economic benefits during the accounting period in the form of inflows or
enhancements of assets or decreases of liabilities that result in an increase in equity, other than those
relating to contributions from equity participants.
PERFORMANCE OBLIGATION A promise in a contract with a customer to transfer to the customer
either:
CPA. Dr. Fred Sporta; KCAU 1
, a good or service (or a bundle of goods or services) that is distinct; or a series of distinct goods or services
that are substantially the same and that have the same pattern of transfer to the customer.
REVENUE Income arising in the course of an entity’s ordinary activities.
TRANSACTION PRICE The amount of consideration to which an entity expects to be entitled in
exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf
of third parties.
Accounting requirements for revenue
The five-step model framework
The core principle of IFRS 15 is that an entity will recognise 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. This core principle is delivered in a five-step model
framework: [IFRS 15:IN7]
Identify the contract(s) with a customer Identify the performance obligations in the contract Determine the
transaction price Allocate the transaction price to the performance obligations in the contract Recognise
revenue when (or as) the entity satisfies a performance obligation.
Application of this guidance will depend on the facts and circumstances present in a contract with a
customer and will require the exercise of judgment.
Step 1: Identify the contract with the customer
A contract with a customer will be within the scope of IFRS 15 if all the following conditions are met:
[IFRS 15:9]
The contract has been approved by the parties to the contract; each party’s rights in relation to the goods or
services to be transferred can be identified; the payment terms for the goods or services to be transferred
can be identified; the contract has commercial substance; and it is probable that the consideration to which
the entity is entitled to in exchange for the goods or services will be collected.
If a contract with a customer does not yet meet all of the above criteria, the entity will continue to re-assess
the contract going forward to determine whether it subsequently meets the above criteria. From that point,
the entity will apply IFRS 15 to the contract. [IFRS 15:14]
The standard provides detailed guidance on how to account for approved contract modifications. If certain
conditions are met, a contract modification will be accounted for as a separate contract with the customer.
If not, it will be accounted for by modifying the accounting for the current contract with the customer.
Whether the latter type of modification is accounted for prospectively or retrospectively depends on
whether the remaining goods or services to be delivered after the modification are distinct from those
delivered prior to the modification. Further details on accounting for contract modifications can be found in
the Standard. [IFRS 15:18-21].
Step 2: Identify the performance obligations in the contract
CPA. Dr. Fred Sporta; KCAU 2
