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Brace Yourself for the New Revenue Standard

Theashen Vandiar CPA, CA

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2

Sink or Swim

Standards being taken over

IAS 11 – Construction contracts

IAS 18 – Revenue from sale of goods and services

IFRIC 13 – Customer loyalty programmes

IFRIC 15 – Agreements for construction of real estates

IFRIC 18 – Transfers of assets from customers

SIC-31 – Revenue-Barter transactions involving advertising services

IFRS 15

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3

Preparing for the change?

Source: ‘Is your business prepared for IFRS 15?’ by GAAPweb

Biggest impact

Industries with long-term contracts

Telecom

Software development

Real estate

Businesses that sell bundles of goods and services

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IFRS 15 – 5 step approach

5 step approach

1. Identify the contract

2. Identify the performance

obligation (PO)

3. Determine the transaction price

(TP)

4. Allocate the TP to the PO

5. Recognise revenue as or when

PO is satisfied

Telecom example

Yellow.Com is a telecommunications company.

Matthew took out a mobile contract with Yellow.com.

The details are as follows:

He would pay a fixed fee of $100 a month for 12 months

He will receive a uPhone for free as a sign up gift

Yellow.Com sells uPhones for $200

Monthly prepaid plans without the uPhones sells for $85 per month

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Revenue recognition – IAS 18

IAS 18 - apply the recognition criteria to the separately identifiable components of a single transaction.

Revenue recognition – IAS 18

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Revenue recognition – IAS 18

No revenueCost of acquiring

customerExpensed in P&L

Revenue recognition – IAS 18

No revenueCost of acquiring

customerExpensed in P&L

$100 recognised on a monthly

basis

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Telecom example – Under IFRS 15

5 step approach

1. Identify the contract

2. Identify the performance

obligation (PO)

3. Determine the transaction price

(TP)

4. Allocate the TP to the PO

5. Recognise revenue as or when

PO is satisfied

Telecom example – Under IFRS 15

5 step approach

1. Identify the contract

2. Identify the performance

obligation (PO)

3. Determine the transaction price

(TP)

4. Allocate the TP to the PO

5. Recognise revenue as or when

PO is satisfied

29/02/2016

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Telecom example – Under IFRS 15

5 step approach

1. Identify the contract

2. Identify the performance

obligation (PO)

3. Determine the transaction price

(TP)

4. Allocate the TP to the PO

5. Recognise revenue as or when

PO is satisfied

$100 x 12 months= $1,200

Telecom example – Under IFRS 15

5 step approach

1. Identify the contract

2. Identify the performance

obligation (PO)

3. Determine the transaction price

(TP)

4. Allocate the TP to the PO

5. Recognise revenue as or when

PO is satisfied

$1,200

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Telecom example – Under IFRS 15

PerformanceObligation

Selling Price

Per cent Allocation of TP

$200 16.39% $197

$1,020 83.61% $1,003

Total $1,220 100% $1,200

Telecom example – Under IFRS 15

5 step approach

1. Identify the contract

2. Identify the performance

obligation (PO)

3. Determine the transaction price

(TP)

4. Allocate the TP to the PO

5. Recognise revenue as or when

PO is satisfied

DR Asset – uninvoiced sale 197 CR Sale of goods 197

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Telecom example – Under IFRS 15

5 step approach

1. Identify the contract

2. Identify the performance

obligation (PO)

3. Determine the transaction price

(TP)

4. Allocate the TP to the PO

5. Recognise revenue as or when

PO is satisfied

DR Asset – uninvoiced sale 197 CR Sale of goods 197

Telecom example – Under IFRS 15

5 step approach

1. Identify the contract

2. Identify the performance

obligation (PO)

3. Determine the transaction price

(TP)

4. Allocate the TP to the PO

5. Recognise revenue as or when

PO is satisfied

DR Asset – uninvoiced sale 197 CR Sale of goods 197

DR Accounts receivable 100CR Revenue from services 84 CR Asset – uninvoiced sale 16

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Telecom example – Under IFRS 15

5 step approach

1. Identify the contract

2. Identify the performance

obligation (PO)

3. Determine the transaction price

(TP)

4. Allocate the TP to the PO

5. Recognise revenue as or when

PO is satisfied

DR Asset – uninvoiced sale 197 CR Sale of goods 197

DR Accounts receivable 100CR Revenue from services 84 CR Asset – uninvoiced sale 16

1,003 / 12

Telecom example – Under IFRS 15

5 step approach

1. Identify the contract

2. Identify the performance

obligation (PO)

3. Determine the transaction price

(TP)

4. Allocate the TP to the PO

5. Recognise revenue as or when

PO is satisfied

DR Asset – uninvoiced sale 197 CR Sale of goods 197

DR Accounts receivable 100CR Revenue from services 84 CR Asset – uninvoiced sale 16

1,003 / 12

197 / 12

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Action plan

Understand

Read IFRS 15

Discuss with business advisors

Consider training on IFRS 15

ReviewReview customer

contracts

Identify separate performance obligations

Identify contracts that should be

combined

Assess

Compare current revenue policy with

IFRS 15

Consider effects of IFRS 15 on

Contractual arrangements

Consider modifying agreements for

bonuses

Tax

Key financial ratios

Implement

Update accounting policy

Decide on a transition method

Communicate

Board and audit committee

Other stakeholders

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