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29/02/2016
1
Brace Yourself for the New Revenue Standard
Theashen Vandiar CPA, CA
29/02/2016
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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4
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
8
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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9
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
29/02/2016
10
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
29/02/2016
11
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
29/02/2016
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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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