IFRS in Practice Magazine

The vast majority of current IFRS regulate changes in the financial position of reporting entities. However, IAS 18 Revenue was an exception as it regulated the amounts in the income statement. The new IFRS 15 Revenue from Contracts with Customers, adopted in 2014, changed the concept of recognition of income (performance) to the concept of recognition of changes in assets and liabilities (position). Let's figure out what's what.

IFRS 15 is the product of a shared effort to converge international standards and US GAAP through the convergence project. The new standard is intended to establish principles for the disclosure of information about the nature, amount, distribution over time and uncertainty of revenue and cash flows arising from a contract with a customer.

The key principle is to recognize revenue as reflecting the transfer of promised goods or services to a customer in an amount that reflects the consideration to which the seller expects to be entitled in exchange for such goods or services.

Basic definitions

Contract - an agreement between two or more parties that creates enforceable rights and obligations (meets the definition of Civil Code RF).

Contract asset Is an entity's right to reimbursement in exchange for goods or services that the entity has transferred to a customer when that right is contingent on something other than the expiration of a specified period of time (for example, the entity has fulfilled certain obligations in the future).

Obligation by contract Is an entity's obligation to transfer goods or services to a customer for which the entity has received reimbursement (or the amount of reimbursement for which is already due) from the customer.

Income- this is an increase in economic benefits during the reporting period in the form of receipts or an improvement in the quality of assets or a decrease in the amount of liabilities, which lead to an increase in equity, not related to contributions by capital participants.

Revenue Is income that arises in the normal course of business of an entity.

Let's consider two situations: 1) when the payment under the contract is made after receiving the goods, and 2) the option with an advance payment.

Example

The organization enters into an agreement for the total amount of 4000 thousand rubles. for the supply of tiles and tile glue (3000 thousand rubles and 1000 thousand rubles, respectively).

1. Under the terms of the contract, the obligation to pay arises after the receipt of all the materials provided for by the contract.

Dt "Asset under the contract" 3000 rubles.

Kt "Revenue" 3000 thousand rubles.

On January 10, the tile adhesive is shipped and the right to claim compensation arises under the contract:

Dt "Accounts receivable" 4000 thousand rubles;

CT "Revenue" 1000 thousand rubles.

Kt "Asset under the contract" 3000 thousand rubles.

CT "Accounts receivable" 4000 thousand rubles;

2. In the event of receiving an advance payment, the seller has a “contractual obligation” to supply the goods, which ceases at the time of delivery, simultaneously with the recognition of revenue.

Dt "Cash" 4000 thousand rubles;

CT "Obligations under the contract" 4000 thousand rubles.

Upon delivery of the goods, the obligations are extinguished simultaneously with the recognition of revenue:

Дт "Obligations under the contract" 4000 thousand rubles;

Kt "Revenue" 4000 thousand rubles.

This example illustrates that revenue does not necessarily correspond to the receivable, but may correspond to the Contract Asset account in the event that, after shipment, the customer has not yet become liable to pay. Similarly, when receiving Money from the buyer in the form of an advance payment, the company already has a "Obligation under the contract".

Obligation to perform(performance obligation)– a promise in the contract with the buyer to transfer to the buyer

The standard introduces the term« obligation to perform "– those. a promise in a contract with the buyer to transfer to the buyer (not to be confused with a contractual obligation):

• a product or service (or a package of goods or services) that is distinct;

Important!

This is the key point of the standard - to break down the contract into separate performance obligations and measure them.

Let's consider a classic example that illustrates the application of the standard in general and this concept in particular.

Example

IT company - developer software transfers to the buyer: the license for the program, services for installing the program, software updates for three years, and providing technical support for users for three years.

First of all, the software is transferred. Installation services are voluntary and are provided depending on the technical ability of the program user. These services do not change the program itself. In addition, regardless of regular updates and technical support, the program performs its functionality.

Thus, this contract contains four performance obligations, so for each you need to determine its price and the moment of recognition of revenue.

Stand-alone selling price represents the price at which an entity would sell a promised good or service separately to a customer. Information about the price can be obtained in the tariffs or the price list of the organization.

Customer Is a party that contracts with an entity to receive goods or services that are a result of the entity's ordinary activities in exchange for consideration.

Types of contracts excluded from IFRS 15

The new revenue recognition model does not apply to:

• leases that are accounted for under IAS 17 Leases;
• insurance contracts that are accounted for under IFRS 4 Insurance Contracts;
• financial instruments and other contractual rights or obligations within the scope of IFRS 9 Financial Instruments, IFRS 10 Consolidated Financial Statements, IFRS 11 “ Team work”, IAS 27“ Separate financial statements ”and IAS 28“ Investments in associates and joint ventures ”;
• contracts providing for non-monetary exchanges between organizations of the same line of business in order to facilitate sales to buyers or potential buyers;
• income in the form of interest or dividends. This exception follows from the objective of the standard to regulate contractual relationships with customers, while income in the form of interest and dividends arises on other legal grounds.

Note!

If the contract implies the performance of obligations, some of which are governed by other standards, the requirements of other standards (in terms of separating the components of the transaction and the initial measurement of their cost) apply first, and the remaining amount is credited to the results falling within the scope of IFRS 15. When In this way, the transaction price is reduced by an amount that is estimated in accordance with other IFRS. IFRS 15 applies unless otherwise required.

Example

The organization concludes a contract for the supply of agricultural machinery with payment in installments for 10 years. Throughout the entire contract, the organization provides free service maintenance of equipment. This contract obviously includes two components, one of which - “finance lease” - must be accounted for under IAS 17 Leases, and the other component, dedicated to servicing, is accounted for under IFRS 15, with the transaction price being allocated on a separate sales price basis.

Analysis model

The standard does not establish specific rules for the recognition and measurement of revenue, it contains a set of principles for making independent decisions, which experts called the "model of five-step (five-step) analysis" (see figure).

According to this model, revenue should be recognized at the time (or to the extent) that the entity transfers control over the goods (services) to the customer and in the amount that the entity estimates it will be entitled to receive. With this in mind, revenue is recognized over time (in the order that reflects the results of the company) or at a specific point in time (the moment of transfer of control).

Each of the five steps requires the entity's management to exercise significant judgment, in agreement with its auditors, on the application of a key revenue recognition principle, especially in determining when control is transferred when assessing the appropriateness of revenue recognition. According to the author, the previously used approach to assessing the transfer of “risks and benefits” associated with a product or service is no longer a key indicator for revenue recognition.

Step 1. Identification of the contract. A contract is deemed to have been entered into for the purposes of IFRS 15 when:

• the parties to the agreement have approved the agreement (in writing, orally or in accordance with other normal business practice) and undertake to comply with the contractual obligations;
• the organization can identify the rights of each party with respect to the goods or services to be transferred;
• the organization can identify the terms of payment for the goods or services to be transferred;
• the contract has commercial substance (i.e. the risks, timing, or the amount of the entity's future cash flows are expected to change as a result of the contract);
• It is probable that the entity will receive the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer. When assessing the likelihood that the consideration will be received, an entity should consider only the customer's ability and intent to pay that consideration when it becomes due.

In some cases, for revenue recognition purposes, several contracts with similar characteristics must be combined and accounted for as one (single) contract if one or more of the following criteria are met:

• if the contracts were concluded in a package with a single commercial purpose;
• if the amount of remuneration payable under one contract depends on the price or performance of other contracts;
• if the goods or services promised under the contract, or some of the goods or services promised in each contract within the package of contracts, are a single enforceable obligation.

IFRS 15 defines the approach to accounting for changes (modifications) to the contract, which, depending on their terms, can be accounted for as a new contract or as a change in the original contract. Modification means a change in the price or the subject of the contract. A contract is recognized as new if:

• in accordance with its terms, the additional volume of goods or services is separable and increases the volume of the contract;
• the price of the goods or services under the contract is increased by the amount of consideration reflecting the stand-alone selling price of the additional volume of goods or services and any related adjustment to that price reflecting the circumstances of the particular contract.

Otherwise, the change in the contract is taken into account:

• prospectively (by allocating the remaining revised transaction price to the remaining contractual obligations);
• retrospectively (for obligations that are satisfied over a period of time and are partially fulfilled at the date of modification, resulting in a cumulative adjustment to revenue at the date of modification of the contract).

The choice of accounting option depends on whether the remaining and not yet delivered goods or services under the contract differ from those that were delivered before the modification of the contract. If the remaining goods are distinguishable, then prospective accounting should be applied, if indistinguishable, then retrospective.

If the modification relates to both distinct and indistinguishable goods or services, then the modification is recognized for only outstanding obligations (undelivered goods or services).

Example

The agreement provides for the transfer of 1000 sq. m of tiles for 500,000 rubles. (500 rubles per 1 sq. M). Delivery is carried out according to the schedule (100 sq. M. Per week for three months). During the delivery process, the need for another 400 sq. M. Tile was found out. m (600 rubles per 1 sq. m). The additional volume will be delivered on the same schedule.

Since the additional volume of deliveries is sold at a separate price and is distinguishable from the original product, proceeds from the modification of the contract are accounted for as a separate contract and do not affect the accounting for proceeds under the original contract. Thus, after the fulfillment of obligations under the contract, the organization recognizes revenue in the amount of RUB 500,000. under the original contract and 240,000 rubles. by modification.
If a discount is provided for a certain volume of goods (say, when ordering a volume of more than 1000 sq. M. The price is 480 rubles per 1 sq. M. Of tiles), then the price will change for the entire volume of delivery and amount to 672,000 rubles. (1400 sq. M. X 480 rubles), because additional supply occurs within the framework of one contract. Consequently, revenue will be recognized, respectively, in the amount of RUB 480,000. (1,000 sq. M. X 480 rubles) and 192,000 rubles. (400 sq. M. X 480 rubles). Although the item under the new contract is distinct, the revenue adjustments are cumulative.

Step 2. Identification of performance obligations. The identification of a performance obligation is the identification of the units of account to which the transaction price should be allocated and for which revenue should be recognized. At the conclusion of the contract, it is necessary to evaluate all goods or services promised to the customer and identify as a performance obligation each promise to convey:

• a product or service (or a package of goods or services) that is distinct or
• a set of distinct goods or services that are substantially the same and that are transferred to the customer in the same manner.

A number of distinct goods or services goods or services with the same transfer patterns are accounted for as fulfillment of a single contractual obligation if the following conditions are met:

• each distinct merchandise promised and consistently delivered to a customer is a liability enforceable over a period of time;
• The same measurement method will be used to assess the progress of contractual performance in order to fully meet the obligation to transfer to the customer each distinct good or service in the batch.

Note!

The decisive feature is the “distinctness” of a good or service (a package of goods or services): if the goods or services are separable from each other, the obligations to transfer them are accounted for separately for the purpose of revenue recognition. A product or service is distinguishable if the customer can use (benefit) the product or service on its own or in conjunction with other resources that are readily available to the customer, and the entity's promise to transfer the product or service to the customer is separately identified from other contractual promises.

Example

An IT company - a software developer transfers to the buyer a license for the program, services for installing the program, software updates for three years, as well as technical support for users for three years. In this case, all goods and services are separable, since each of them can be purchased separately and they are not components of a complex object.

Another example: the system integrator hands over to the customer a powerful server customized to the customer's needs. The object includes the equipment itself, assembled on an individual request and software adapted to the customer. In addition, in order to comply with the terms of the guarantee, the integrator independently installs the object and maintains it for three years.

In this case, the sale of the server is not separable from the installation services, since the customer will not be able to use the equipment without installation and, accordingly, revenue is recognized after the transfer of the equipment and the provision of installation services, taking into account subsequent maintenance. Warranty obligations and maintenance also cannot be separated from of this equipment because another integrator will not undertake this kind of service without supplying the equipment itself.

To conduct an inseparability test, you need to ask the following questions:

• the goods and / or services are strongly interrelated and their transfer to the buyer requires the supplier to provide individual service for the delivered goods and / or in a complex, which is stipulated by the terms of the contract?
• has the package of goods and / or services been substantially modified or adjusted in order to fulfill the contract?

Determination of the price of the operation. The transaction price is the consideration the entity expects to be entitled to in exchange for transferring the promised goods or services to the customer. The price excludes taxes and amounts received on behalf of third parties (for example, value added tax, sales tax). The consideration promised under a contract with a customer may include fixed amounts, variable amounts, or both.

When determining the price of the operation, the following are taken into account:

1. Variable compensation. Changes due to discounts, special discounts, refunds, credits, price concessions, incentives, performance bonuses, penalties or other similar items, as well as depending on the occurrence of a future event (eligibility for refund, stage completion bonus, etc.) P.). For example, a company provides services to promote a website on the Internet, and the contract provides for variable remuneration depending on site traffic;
2. Limiting estimates of variable consideration. Variable consideration is recognized subject to the condition that, if the uncertainty is resolved, there will be no significant decrease in the revenue recognized;
3. The presence of a significant financing component in the contract. The transaction price is adjusted for the effect of the time value of money if the payment terms agreed by the parties to the contract (explicitly or implicitly) provide the buyer or entity with a significant benefit from financing the transfer of goods or services to the buyer;
4. Non-monetary compensation. Non-cash consideration is measured at fair value. But if it does not lend itself to such a reasonable estimate, then the compensation is estimated indirectly, through the determination of the stand-alone selling price of the goods or services;
5. Refund payable to buyer. Refunds (direct transfer of funds, as well as credit, coupon, voucher, etc.) reduce the transaction price, and therefore the revenue. The date in this case will be the latest of two events: the transfer of goods and / or services; the organization pays / promises to pay compensation.

As noted above, the transaction price is adjusted for the effect of the value of money over time if the contract includes a significant financial component. Indicators of the presence of such a component are the difference between the promised remuneration and the “cash” selling price and the expected time between delivery and payment in excess of one year.

In order to adjust the amount of consideration, an entity should use a discount rate that should reflect the recipient's specific credit risk and the potential collateral for the financial liability. This discount rate is fixed and is not adjusted as a result of changes in interest rates or other circumstances.

Allocation of the transaction price to performance obligations. The most sensitive to this issue are the IT industries: software, telecommunications, etc. If there are more than one contractual component (performance obligation), the entire transaction price must be allocated to each component in an amount that reflects the amount of consideration to which the entity expects to be entitled. The basis for this allocation is primarily the relative price of the individual sale, taking into account the allocation of discounts and the allocation of variable consideration.

The stand-alone selling price is primarily based on the observed price of a good or service when an entity sells that good or service separately in similar circumstances and to similar customers. If this is not available, then, taking into account the analysis of market conditions, factors specific to the organization, information about the buyer or class of buyers, the following approaches are used:

• adjusted approach market valuation... An entity may analyze the market in which it sells goods or services and determine the price that a customer in that market would agree to pay for those goods or services. Such an approach may also involve using the prices of the organization's competitors for similar goods or services and adjusting those prices to the extent necessary to reflect the costs and margins of the organization;
• approach based on expected costs taking into account the margin. An entity can project its expected cost to meet a performance obligation and then add an appropriate margin for that good or service;
• residual approach. An entity may estimate the stand-alone selling price based on the total transaction price less the sum of the observed stand-alone selling prices of other goods or services promised under the contract. This approach is applied only if, upon sale, the compensation for the product or service differs significantly or the price for it has not been set.

A discount is the excess of stand-alone sales prices over the promised refund. It is distributed in proportion to all obligations under the contract, unless you can be sure that it relates to a specific one.

The allocation of variable consideration, on the contrary, occurs in the first place, to a specific obligation under the contract, and only if this is not possible, then proportionally to all obligations.

Note!

In the event of a price change without contract modification (for example, due to the resolution of uncertainty), the distribution of the change follows the same principles as the initial distribution.

Change can be allocated to one or more, but not all, responsibilities only if there is evidence of a direct relationship to them. In all other cases, the price change without contract modification is prorated and recognized in the period in which the price change took place.

Revenue recognition. An entity recognizes revenue when or as a performance obligation is satisfied by transferring control of a good or service to a customer.

Note!

At the time of their receipt and use, goods and services are assets, even if they exist for only one instant (as is the case with many services). Control of an asset refers to the ability to determine how it is used and to obtain substantially all of the remaining benefits from the asset.

At the stage of transfer of control, it is necessary to determine whether control is transferred at a particular moment or over a certain period of time. Revenue is recognized over the period if any of the following criteria are met:

• the customer simultaneously receives and consumes the benefits associated with the entity's performance of the obligation as it is fulfilled. For example, revenue from an annual magazine subscription is recognized monthly at 1 / 12th of its value;
• In the process of fulfilling its performance obligation, an asset is created or improved (for example, a work in progress) that the acquirer gains control of as the asset is created or improved (for example, the construction of a property);
• an entity's fulfillment of its obligation does not create an asset that it can use for alternative purposes, and the entity has a protected right to receive payment for a portion of the contractual work completed to date (for example, development engineering project for a specific building).

For each performance obligation satisfied over a period, revenue is recognized over that period based on the stage of fulfillment of the obligation.

Contract costs

Distinguish between the costs of the conclusion and the implementation of the contract.

The cost to enter into a contract is recognized as an asset if it is expected to be recovered.

The cost of fulfilling the contract (unless it falls within the scope of another standard, such as IAS 2 Inventories) is recognized as an asset only if all of the following conditions are met:

• relate to a specific contract (existing or highly probable);
• create or improve the quality of resources for fulfilling contractual obligations;
• is expected to be reimbursed.

The organization carries out different kinds costs in the course of their activities. Some of them are recognized as assets until revenue is recognized, and some as expenses as they arise:

Example

Organization - supplier of building materials won the tender for the supply. Participation in the tender was accompanied by the costs:

design documentation - 100 thousand rubles;

securing the application and the contract - 500 thousand rubles;

remuneration for a specialist in the sales department - 50 thousand rubles.

According to IFRS 15, the organization recognizes an asset in the amount of RUB 50 thousand. as additional costs associated with the conclusion of the contract, which will be reimbursed based on the delivery of materials. Development costs project documentation will be recognized as an expense, since they do not depend on winning the tender. The collateral for the application and the contract will be accounted for in the asset in accordance with IAS 39 “Financial Instruments: Recognition and Measurement” paragraph 37.

Amortization and impairment

An asset recognized under the terms described earlier is amortized (ie, expensed) on a systematic basis relative to the contractual good or service transferred to the customer.

An entity recognizes an impairment of such an asset if its carrying amount exceeds:

• the remaining cost of compensation (losses under the contract);
• the amount of costs directly related to the provision of goods or services that were not previously recognized as an expense (incorrectly formed cost of an asset).

To estimate the amount of consideration, the transaction price is taken into account, adjusted for the buyer's credit risk.

The impairment of a contract asset is made following an impairment test for assets governed by other standards (IAS 2 Inventories, IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets). A previously recognized loss is reversed in whole or in part in profit or loss if the impairment terms cease, and the carrying amount of the asset is not expected to exceed that which would have been if no impairment was recognized.

Presentation of the contract with the buyer in the reporting

As mentioned at the beginning of the article, the standard translated the recognition of revenue into the statement of financial position, in which, as one of the parties fulfills any obligations under the contract, the company presents the contract as either an asset or a liability under the contract. Separately, receivables are presented as unconditional rights to reimbursement (i.e. dependent only on the passage of time).

It is common to recognize a contractual obligation upon receipt of consideration (receipt of an advance). An important point, albeit one that existed in IAS 18, is the entity's obligation to recognize a contract liability when the unconditional right to consideration is recognized.

Example

According to the agreement, the buyer is obliged to transfer the advance payment within a month. For delay, penalties are provided, and for termination of the contract - a large fine. The obligation under the contract is recognized by the organization after this month, regardless of the receipt of the advance payment. A contractual obligation is an entity's obligation to transfer to a customer the goods or services for which the entity has received consideration (or consideration for which is payable) from the customer.

The transfer of a good or service before consideration is received or before an unconditional right to consideration is presented as a contract asset, which is the entity's right to receive consideration in exchange for the goods or services that the entity has transferred to the customer. An entity shall assess, present and disclose a contract asset for impairment in accordance with AASB 9.

Subsequent to the initial recognition of a receivable under a contract, any difference between the measurement of the receivable in accordance with IFRS 9 and the corresponding amount of revenue recognized shall be presented as an expense (for example, as an impairment loss).

In order to understand the difference between an asset under a contract and a receivable, it is necessary to separately analyze and assess the rights and obligations of the parties to the contract. In other words,. the emergence and performance of the company's obligations to transfer a good or service results in the recognition of an asset or liability. The emergence and fulfillment of the buyer's obligations under the contract leads to the emergence of accounts receivable or to its repayment.

The standard requires organizations to disclose sufficient information to enable users to financial statements understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

In conclusion, it should be noted that not all industries will be subject to significant changes due to the entry into force of IFRS 15. However, all organizations should independently analyze the degree of such impact, including:

• the most significant types of revenue streams and the main types of contracts that generate this revenue, with a focus on long-term carryover contracts, including their material terms affecting the recognition of assets and liabilities under the contract, as well as revenue;
• national and international law governing the performance of obligations under contracts with customers;
• the need to amend Information Systems data on contracts that are relevant for the purposes of revenue recognition in accordance with IFRS 15, as well as in internal control systems, key performance indicators (KPI), remuneration, bonus and loyalty programs;
• the need to change business processes for the exchange of information between accounting employees and those responsible for sales for the correct and timely recognition of revenue, assets and liabilities under the contract;
• the impact of new approaches to revenue recognition on financial results, assets and liabilities, performance indicators, including from the point of view of investors, as well as the fulfillment of covenants.

Despite the fact that after lengthy discussions, the IASB postponed the entry into force of the standard to January 1, 2018, while retaining the possibility of its early use, it is advisable for companies to develop approaches to its application in advance.

2015-02-24 30

IFRS 15 Revenue from Contracts with Customers: short review provisions of the new standard

KFO No. 9 2014
Asadova E.V.,
Director of PwC Russia

The article was provided by the editors of the magazine "Corporate financial reporting. International Standards "within the framework of the joint project" IFRS Methodology for Companies and Experts "by the Publishing House" Methodology "and the Financial Academy" Aktiv "for experts in the field of IFRS.

All IFRS methodology, expert comments, practical developments, industry recommendations are available with an annual and semi-annual subscription to the magazine.

IFRS 15 Revenue from Contracts with Customers (hereinafter referred to as IFRS 15) contains a new revenue recognition model and involves a significant increase in the scope of disclosure requirements. The standard will certainly affect and in many cases significantly change the current approaches of companies to revenue recognition. The purpose of this article is to consider certain theoretical provisions of the standard and analyze how they will affect the existing approaches of companies to revenue recognition.

IFRS 15 assumes, in principle, new concept revenue recognition. A number of new concepts and new guidance are introduced to address some of the revenue recognition issues, for example:

• separate obligations for the performance of the contract;
• new guidance on when revenue is recognized;
• the concept of variable consideration, which is used to determine the amount of revenue recognized when the amount of revenue may change;
• new guidance on the allocation of transaction prices to individual liabilities;
• accounting for the time value of money.

REFERENCE

The new 15th IFRS is the result of years of efforts to converge IFRS and US GAAP. This is probably why the new revenue standard has turned out to be quite voluminous - it is about 350 pages, which is an order of magnitude more impressive than the current guidance in terms of revenue recognition.

The current guidance on revenue recognition is contained in two standards: IAS 18 Revenue and IAS 11 Construction Contracts - and a number of clarifications: IFRIC 13 Customer Loyalty Programs, IFRIC ( IFRIC 15 Real Estate Construction Agreements, SIC 31 Revenue - Barter Transactions Including Advertising Services.

Given the large volume of work, working group on the transition to IFRS 15, which will monitor the implementation practice, determine the need to develop additional guidance, play the role of a platform for discussing complex issues of practical application of the new standard between various user groups, etc.

The standard is effective for annual periods. starting January 1, 2017 , and requires retrospective application; however, the standard provides for a number of practical exceptions. Alternatively, a simplified retrospective application approach is possible.

In accordance with the simplified approach, comparative data are revised only for contracts in force (in progress) as of January 1, 2017.

Thus, companies are given considerable time to prepare and transition to the new standard. This is primarily due to a completely different revenue recognition model, which could potentially entail the need for significant changes in existing IT solutions and business processes.

The table summarizes the main changes in the revenue recognition model from the current guidance.

The current guidance provides for different approaches to revenue recognition depending on the type of transactions (supply of goods, rendering of services, construction contracts). IFRS 15 introduces a single model for accounting and determining when revenue is recognized regardless of the type of transaction. This model should be applied for each individual performance obligation under a contract.

The determination of when revenue is recognized in accordance with the guidance of IAS 18 is based on the transfer of risks and rewards criterion. The new standard introduces the concept of transfer of control. The standard states that professional judgment is required to determine when control is transferred, and one of the indicators of the transfer of control is the transfer of risks and rewards. At the same time, there are other indicators that must be considered in order to resolve the issue of the moment of transfer of control: the right to payment, the right to physical use, the fact of acceptance of the goods / services by the client. In general, the concept of control is broader, and in theory, when the new guidance is applied to a number of transactions, the timing of revenue recognition may be different from that of the current guidance.

Another distinguishing feature of the new standard is the large number of detailed guidelines on specific issues, for example: how to distinguish individual performance obligations; how to allocate the transaction price between individual performance obligations; what to do when the amount of remuneration may change (approach to the so-called variable consideration); how to account for proceeds from the transfer of licenses, etc.

Scope of IFRS 15

The new revenue standard applies to all contracts with customers. In doing so, the standard provides guidance on what constitutes a contract and introduces a definition of a customer.

It establishes a closed list of operations that are outside the scope of the new standard, namely:

• rent;
• insurance;
• financial instruments;
• financial guarantees;
• exchange of a homogeneous product between companies in the same industry for the purpose of simplifying the logistics of selling to customers.

In practice, difficult cases are possible when the same agreement has elements that fall under the new revenue standard and elements that should be regulated by the requirements of other standards.

New model

The new revenue recognition model under IFRS 15 is a mandatory five steps:

Step 1. Determination of the relevant contract with the client

Step 2. Determination of individual obligations for the performance of the contract

Step 3. Determining the price of the operation

Step 4. Transaction price distribution

Step 5. Revenue recognition when a performance obligation is fulfilled (or as it is fulfilled)

Step 1. Determination of the contract with the client

The new standard introduces the concept of a customer.

Customer is the party who receives goods or services that are a result of the ordinary activities of the company.

Let's look at an example.

Example 1

A pharmaceutical company has entered into an agreement with a biotech company to jointly develop a new drug. As part of the application of the new standard, the question arises as to what the essence of the transaction is:

1. that a biotechnology company sells a substance and provides R&D services, or
2. that the parties have entered into a cooperation agreement under which they share the risks of developing a new drug?

The second type of agreement is outside the scope of the new revenue standard, as the parties to the agreement are not the supplier and the customer, but the cooperating parties. In contrast, in the first option, the pharmaceutical company is a customer of the biotech company, so the contract must be accounted for in accordance with IFRS 15.

Consolidation of contracts

At this stage, it is also necessary to determine whether it is necessary to combine several contracts into one. It is important to consider the following factors:

• contracts are negotiated within the entire package in order to achieve a single commercial goal;
• the price is interrelated, i.e. the remuneration under one contract depends on the price or the result under another contract;
• goods, works and services under different contracts constitute a single performance obligation.

Changes to the terms of contracts

In practice, it is not uncommon for agreements to change: new services are added, volumes and prices change. In this regard, the question arises as to whether it is necessary to treat the amendment to the contract as a new contract and reflect the revenue on it separately or as a continuation of the old contract (in this case, it is possible to recalculate the revenue and immediately recognize the results of the change as an adjustment catch-up adjustment). Changes to the terms of the contract are subject to consideration as a new separate contract if both conditions are met:

• the volume of goods / services under the contract is increasing;
• additional contractual remuneration reflects the adjusted for the specific agreement separate cost sales of additional goods / services.

Step 2. Determination of individual performance obligations (or individual components in accordance with current guidance)

Often, a single contract can contain several components (for example, sale of goods with installation or maintenance services).

In doing so, it is necessary to determine whether the various elements of the contract are separate performance obligations. The importance of this decision is also due to the fact that different timing of revenue recognition can be determined for different performance obligations.

A separate obligation to perform the contract is allocated in cases where the product / service:

• provides benefits to the client alone or in conjunction with other resources available to the client, and
• does not depend on other elements (goods / services) under the contract and is not interconnected with them - in other words, it is a separately identifiable product / service.

A number of substantially similar goods or services can also be considered as a separate performance obligation if there is a consistent, systematic procedure for transferring results to the client, for example: daily cleaning of the premises, call center services.

To determine whether a product / service is separately identifiable, the standard uses indicators, for example, it is necessary to establish whether integration services.

It should be noted that in many cases professional judgment is required to resolve this issue.

Example 2

The company is building a compressor station. In this case, the contract describes certain types works that involve the development of the necessary technical characteristics and parameters, delivery of individual units of equipment, assembly. The key question here is the following: does the company provide services for the integration of individual parts in order to deliver the facility on a turnkey basis? If so, this is one commitment.

Another indicator is customization level ... If a company is implementing customized software that requires a license to use, then selling the license is unlikely to be a separate performance obligation.

And finally, how interconnected are the elements, can they be bought separately? For example, a guarantee: if it can be bought separately, then we most likely have a separate obligation.

When, under an existing contract, the client is granted the right to purchase additional goods, works, services (for example, within the framework of loyalty programs), then a separate obligation to perform the contract arises only if the buyer receives a substantive right that he would not have received in another situation ( i.e., without the primary transaction for the purchase of goods / services).

Step 3. Determining the price of the operation

The transaction price is how much the company will receive as a result of the transaction in exchange for the work and services provided. One of the key decisions in determining the price of a transaction is to determine the amount of variable consideration.

There are many cases where the amount of compensation may vary, for example:

• discounts;
• fines;
• bonuses, incentives;
• performance bonuses;
• other.

To determine the amount of variable consideration, the most probable cost, or the estimated cost using expectations, is used, whichever is more applicable in the particular case.

For variable consideration, the standard is conservative: the amount of variable consideration should be recognized as revenue in an amount for which it is highly probable that it will not need to be reversed in subsequent periods. At the same time, the standard describes a number of factors that may adversely affect the assessment of the likelihood of receiving variable remuneration, for example: the presence of uncertainty over a long period, limited experience with similar contracts, exposure to uncontrollable factors, a wide range of prices and results.

Example 3

When it comes to discounts on a new product line in a new market, which involves limited experience and a wide range of outcomes, you need to determine minimum amount that will be safe to recognize and will not have to be reversed in the future.

Therefore, it should be recognized "Minimum amount" proceeds from high degree the likelihood that it will not lead to a reversal, and conduct reassessment amounts at the end of each reporting period.

Note that in many cases professional judgment is required to resolve this issue.

Example 4

The company sells equipment for 100 million conventional units (cu) with a bonus of up to 5% depending on the achievement of future performance targets. Bonus is taken into account if it exists high probability that there will be no significant reversal in relation to the bonus amount.

On initial recognition, there is evidence that it is highly probable that the bonus will be at least 3%. The price of the deal is $ 103 million. That is, that amount is recognized as revenue when control is transferred.

On revaluation at the balance sheet date, it is highly probable that the bonus will be received in full. The price of the deal is $ 105 million. e. At the reporting date, additional CU2 million is recognized. That is, revenue, even though some uncertainty persists.

An exception! By general rule variable consideration is recognized in an amount that is unlikely to need to be reversed. However, there is an exception - for intellectual property licenses.

For intellectual property licenses for which royalties are based on sales or use, revenue is recognized only when the sale or use occurs. Thus, the “high likelihood” limitation does not apply for intellectual property licenses. It should be noted that this exemption is not intended to be applied by analogy.

Example 5

Film screening rights. Impression royalties will only be recognized when revenue is generated from end users (viewers) from ticket sales.

The next component that can affect the amount of remuneration is the financial component. Revenue should be adjusted if there is a material financial component.

It should be noted that in many cases professional judgment is required to resolve this issue.

Note! IAS 18 also assumes that the effect of discounting is taken into account when revenue is recognized if the deferred payment implies a significant financial component. However, the effect of discounting was not taken into account in situations where the company received an advance payment.

Under IFRS 15, revenue is adjusted for the effect of discounting and if an advance payment is received (provided that there is a material financial component). In this case, the total revenue recognized in respect of the performance obligation under the guidance of the new standard may be higher than the transaction consideration because the this financial component.

Step 4. Distribution of the transaction price

The distribution of the transaction price between individual obligations for the performance of the contract must be performed according to the following algorithm:

1. Define a separate selling price:
   • actual or calculated;
   • The “residual” method if the selling price is very uncertain or variable (change from current practice). The residual method involves not proportionally allocating the transaction price to the individual components, but determining the fair value of one component (for example, the fair value of loyalty points) and allocating the difference between the transaction price and the fair value of the above component to the cost of the remaining component.
2. Distribute the transaction price based on the relative individual selling prices, as if the products were sold separately. However, if there are compelling reasons, the amount of the contract discount (the difference between the transaction price and the sum of the individual selling prices for the individual components) can be attributed to a specific performance obligation.

Step 5. Revenue recognition

The key question at this stage is: when does the transfer of control take place - simultaneously or over a period? When should revenue be recognized?

In accordance with the new guidance, it is first necessary to analyze whether revenue is to be recognized over the period (in fact, this is an analogue of the revenue recognition model by percentage of completion in the terminology of the current management). There are three clear criteria for this. If none of these are met, revenue is recognized immediately when control is transferred.

REFERENCE

Three criteria for recognizing revenue during a period:

• the client receives benefits as the activity progresses, for example, from the provision of transportation services, cleaning;
• the activity creates or improves an asset controlled by the client, for example: in the case of the construction of a building or structure on the client's land plot, the right to an unfinished building almost always remains with the client (unless under the terms of the contract, if the contract is not completed, this structure cannot be dismantled and the right to it does not pass to the contractor);
• an asset is created for which there is no possibility of alternative use (that is, only the customer can use it) and the company has the right to receive payment for work performed at any time (and not only the right to reimbursement of the actual costs incurred).

Chart 1 provides an algorithm for determining when revenue is recognized in accordance with IFRS 15.

Figure 1: Separate guidance for the recognition of license revenue

The new standard has separate guidelines for recording revenue from licenses: franchises, software rights, films, patents, etc.

If the license is a separate performance obligation, then it must be determined whether the license gives the holder a right of use or a right of access.

The right to use is taken into account at once. Access right - during the period. The granting license assumes that:

1. the object of the license - intellectual property - changes over time due to the actions of the company that provides the license;
2. the client is exposed to risks associated with the consequences of the activities of the licensor company;
3. the activities of the licensing company are not a separate product or service.

Example 6

Granting the right to use the logo of a sports team during the period is an access right, since the intellectual property changes: sport Team plays and is gaining popularity.

In contrast, the right to use an existing music library is rather a right to use.

Impact of IFRS 15 on an organization's business processes

The impact of the new standard on the organization's business processes is shown in Figure 2.

Diagram 2. Impact of the new standard on the organization's business processes

The impact of the standard in different industries depends on existing business models and will at least be expressed in the following:

• influence on information disclosure;
• the need for training and education of personnel;
• the need to analyze all contracts or major types of contracts;
• assessment of revenue collection, time value of money and other factors.

The expected impact of the standard on companies in various industries is presented in the table:

Impact of IFRS 15 on companies in various industries

Key Considerations to Consider When Applying IFRS 15

In preparing for the application of the new revenue standard, attention should be paid to the following aspects:

P.S. You can see the full record

In 2014, the IASB approved a new revenue accounting standard IFRS 15 “Revenue from Contracts with Customers”. This standard introduces the so-called “five-step” revenue recognition model. In other words, to recognize revenue, you need to do 5 specific actions. To understand how this works, let's look at a simple example of accounting for revenue from the supply of serviced equipment. This example was invented by the examiner Dipyfr Paul Robins and took it to the exam in December 2015.

Five-step revenue recognition model in IFRS

Step 1. Identify the contract

A contract is an agreement between two or more parties that creates enforceable rights and obligations. In some cases, IFRS 15 requires an entity to combine contracts and account for them as a single contract. The standard also defines the accounting requirements for previously concluded contracts.

Step 2. Identify performance obligations.

The contract includes a promise to transfer goods or services. If the goods and services are distinguishable(distinct), these promises are performance obligations (term) and must be accounted for separately.

Step 3. Determine the transaction price.

The transaction price is the amount of the contractual consideration that the company expects to receive for the goods or services transferred.

Step 4. Allocation of the transaction price to performance obligations.

isolated

Step 5. Revenue recognition

Revenue should be recognized either at a point in time or as the entity meets the performance obligations.

Let us consider the application of this model using the example of revenue recognition for the supply of serviced equipment. I made small additions to the condition in bold italics.

Example 1. Sale of equipment with service.

On September 1, 2015, Kappa sold (and passed) equipment for the buyer (machine) ... Kappa also agreed to service the equipment for a two-year period commencing September 1, 2015, at no additional charge. The total amount payable by the buyer for this transaction has been agreed in the amount as shown below:

• $ 800k if buyer pays by December 31, 2015.
• $ 810k if buyer pays by January 31, 2016.
• $ 820K if buyer pays by February 28, 2016.

Kappa's management believes that it is highly probable that the buyer will make payment under the contract in January 2016. If the equipment were sold separately without service, then its price would be equal to 700 thousand dollars. For servicing the equipment over two years (without delivery), Kappa would have received a refund of $ 140,000. Alternative receivables ($ 800,000, $ 810,000, $ 820,000) should be treated as variable consideration.

How to show the revenue from this transaction for the year ended 30 September 2015?

Step 1. Identify the contract

IFRS 15 sets out certain contract requirements that must be accounted for in accordance with the standard. This is done in order to filter out invalid or bogus contracts that do not represent real transactions.

According to IFRS 15, clause 9, the contract is taken into account only if ALL conditions are met:

• 1) the agreement was approved, and each of the parties undertakes to fulfill the obligations under the contract
• 2) defined parties' rights in relation to goods and services
• 3) identified terms of payment
• 4) the contract must have commercial content
• 5) receiving reimbursement likely(the buyer is able and willing to pay the refund)

The requirement in clause 4 (clause 4) that the contract has commercial content is necessary to prevent an artificial increase in revenue. Without this requirement, it would be possible to transfer goods back and forth.

Essentially, all of the above criteria require the seller to assess whether the contract is valid and whether it constitutes a real deal. Assessment of the buyer's credit risk (clause 5) is also related to the assessment of the validity of the contract, since the transaction is real only if the buyer capable of and has intention pay the promised reward (have ability and intention to pay). Companies generally only enter into contracts in which it is likely that they will receive reimbursement. And if not, then such an agreement would be a fictitious transaction.

The contract with the customer must give rise to enforceable rights and obligations. The contract does not exist if each party has the right to terminate the contract unilaterally, without fulfilling it, and without paying compensation.

It can be assumed that in this task, Kappa and the purchaser of the equipment have entered into a contract for which all the criteria listed in IFRS 15 are met: the contract has commercial substance, the payment terms are defined, and it is very likely that Kappa will receive reimbursement.

Step 2. Identify performance obligations.

The unit of account for revenue recognition is performance obligation(performance obligation). This term was implied in the old revenue standard, but there was no precise definition. I use the word obligation as a translation of the English word obligation, because this term is contained in the Russian translation of IFRS 15. The word obligation can also be translated as a liability.

Obligation to perform- it distinguishable(distinct) product or service that the seller promises to deliver to the buyer.

In essence, distinguishable goods means that a good can be distinguished from other goods: the seller supplies it separately, and the buyer can use it (= benefit from) it separately from the other goods of the seller. The same applies to services.

The standard says much more about this (clauses of the standard 27-30), but here for simplicity of explanation we will limit ourselves to this.

Goods and services that are not distinct are combined with other contractually promised goods or services until a package of goods or services is received that is distinct. In some cases, this will result in the entity accounting for all the goods or services promised under the contract as a single performance obligation.

In our example, Kappa has two performance obligations:

• provide equipment
• provide maintenance services.

This is a distinguishable product and service, since the buyer can benefit from the product or service separately, because the task specifies the possibility of selling service by Kappa without the supply of equipment (there is a stand-alone price).

In IFRS 15 - transfer of control, in IFRS 18 - transfer of risks and benefits of ownership

To fulfill a performance obligation means to transfer an asset (good or service) to a customer. Goods and services are assets at the time of their receipt and use (in the case of services, an asset exists in an instant - it is consumed immediately). An asset is transferred when (or as) the acquirer gains control of that asset.

Control over an asset is:

• 1) the ability to determine how an asset is used
• 2) the ability to receive virtually all of the remaining benefits from the asset.
• 3) the ability to prevent other parties from obtaining benefits from the asset.

IMPORTANT: under the new IFRS 15, revenue is recognized when control is transferred from the seller to the buyer. In IAS 18, revenue is recognized on the transfer of the risks and rewards of ownership.

Why transfer control rather than risks and rewards as in the old revenue standard?

What is written in the Basis for Conclusions BC.118 on this matter:

1) IFRS 15 defines revenue as income arising from the ordinary course of business of an entity. Income (see definition) arises from an increase in a contract asset or a decrease in a contract liability. And the existing definition of an asset in the Conceptual Framework describes an asset as a resource, controlled company. Consequently, it is methodologically more correct to associate an increase in assets with the transfer of control.

The definition of income in the standard is as follows:

Income * - an increase in economic benefits during the reporting period in the form of receipts or an improvement in the quality of assets or a decrease in the value of liabilities, which lead to an increase in equity that is not related to contributions by capital participants.

2) Sometimes it is difficult to determine the moment of transfer of risks and benefits, if part of the risks and benefits remains with the seller (see point 3 of the list). In this case, the use of the transfer of control criterion for revenue recognition leads to more reasonable conclusions.

3) The method of risks and rewards may conflict with the concept of performance obligations. If the product requires subsequent maintenance by the seller, then part of the risks associated with the product remains with the seller. Based on the concept of transfer of risks and rewards, a company may conclude that it has only one performance obligation: the sale of the product along with the service. In this case, revenue will be recognized only after all risks have been eliminated. When applying the concept of transfer of control, the seller will be identified with two responsibilities: 1) the supply of goods and 2) the provision of maintenance services. These performance obligations will be fulfilled in different time and revenue will be recognized accordingly.

Step 3. Determine the transaction price.

Operation price Is the amount to be refunded in exchange for transferring the promised goods or services to the customer.

In the simplest case, the amount of compensation is fixed and directly indicated in the contract, and it is not difficult to complete this step. But, of course, in real life everything can be much more complicated. The following complications are detailed in IAS 15:

• a) variable consideration;
• b) the presence of a significant financing component in the contract
• c) non-monetary compensation;
• d) refunds payable to the buyer

In our case, we have variable consideration: The amount to be paid will be $ 800,000, $ 810,000, or $ 820,000 depending on the due date.

Generally speaking, the amount of reimbursement may vary due to discounts, refunds, credits, price concessions, incentives, performance bonuses, penalties or other similar items. The promised refund may also vary if the company's eligibility for refund is contingent on the occurrence or non-occurrence of a future event. For example, the reimbursement amount would be variable if the product was sold with a return option or if a fixed amount was promised as a performance bonus if a certain stage of work is completed ahead of schedule.

Variable consideration should be estimated using one of two methods:

• Expected value method(The expected value) The expected return, weighted by the probability of possible values ​​out of the range.
• Most probable value method(The most likely amount) - the single most likely value of the expected reimbursement from the range of its possible values

To estimate variable consideration, an entity should use the method that best predicts the amount to which the entity will be entitled.

Important note

The variable portion of the reimbursement is included in the transaction price only in the amount that will not need to be reversed later (highly probable that a significant reversal of revenue will not occur) . That is, if the selling company is confident about the amount of the reimbursement, this amount can be recognized as revenue. The rest of the variable consideration can only be recognized after the uncertainty has been resolved.

Information from the problem statement allows using only the second method - the method of the most probable value. Insofar as:

"Kappa's management believes that it is highly probable that the buyer will make payment under the contract in January 2016,"

then, the estimate of the reimbursement is $ 810,000. It is this amount that was agreed with the buyer according to the terms of the task when paid in January 2016.

Step 4. Allocation of the transaction price to performance obligations.

The distribution is based on isolated(stand alone) prices for goods or services. If there is a discount, it can be allocated either to all obligations pro rata, or only to some obligations.

Since Kappa has two performance responsibilities, it is necessary to determine how much of the $ 810,000 each is due. To do this, you need to make a proportion:

• 810 x 700/840 = 675 - equipment revenue
• 810 x 140/840 = 135 - the total amount of revenue for services

Step 5. Revenue recognition

Revenue must be recognized either over time or at a point in time. The IFRS 15 standard defines the criteria for recognizing revenue over time. If none of the criteria is met, then revenue is recognized at a point in time (that is, immediately).

The company transfers control of the good or service and recognizes revenue over the period if satisfied ANY (ONE) of the following criteria:

• customer simultaneously receives andconsumesbenefits as the seller fulfills the performance obligation (an asset is a service);
• the seller creates or improves an asset (for example, work in progress), over which the purchaser gains control as the asset is created or improved(tangible asset);
• fulfillment by the seller of the performance obligation a) does not lead to the creation of an asset that he can use for alternative purposes (resell to another buyer), and wherein b) the seller has the right to receive payment for the part of the contractual work completed to date.

This topic is discussed in more detail in the article about construction contracts ().

In our example, service revenue should be recognized over time because the first criterion is met. And the sale of equipment should be recognized immediately when control is transferred to the buyer.

Kappa recognizes all proceeds from the sale of equipment on September 1, 2015, as on that date control over the equipment was transferred (the machine was delivered to the buyer's plant). The maintenance service is performed over a two-year period, 1/24 of this amount should be recognized at the reporting date.

Therefore, Kappa will make postings in accounting:

At the time of transfer of control over the equipment:

• Dr Accounts receivable Cr Revenue (goods) - 675,000
• Dr Accounts receivable Cr Contractual commitment (service) - 135,000

Dr Contractual commitment Cr Revenue - 5,625 (135,000 / 24 months = 5,625)

Extracts from financial statements of Kappa

Accounts receivable - 810,000
Contractual commitment - 129.375 = 135,000 - 5.625

Equipment sales revenue - 675,000
Service revenue - 5.625

This article is of an overview nature, IFRS 15 describes in much more detail many aspects of revenue accounting. The articles on this site are intended to arouse interest in an in-depth study of IFRS, but certainly cannot replace a detailed independent analysis of the provisions of the standards. If you are building a career in the field of international accounting standards, then, by and large, for this you need to read the original texts of IFRS on English language.

With the introduction of IFRS 15, the accounting for long-term contracts has changed. The most significant changes are in the definition of which contracts are to be revenues recognized as work is performed. This is described in detail in the previous article. This article will discuss how to calculate revenue from such contracts in accordance with the new standard (two examples). In this case, IFRS 15 requires revenue for the reporting period to be recognized at an amount that reflects progress in meeting the performance obligation. Use or to measure this progress.

It will be a little boring theory at first, but it is necessary. Those who want to immediately delve into the practice can follow the link to at the end of the article.

Basics of IFRS 15 "Revenue from Contracts with Customers"

The new IFRS 15 introduces the concept of a “performance obligation”. The word “obligation” can be translated as “obligation” and “obligation”. The official translation into Russian uses the term “obligation to perform”. I will use both translations.

Obligation to perform Is a distinct product or service (or set of goods and services) that the selling company promises to deliver to the buyer.

A performance obligation is the unit of account for revenue recognition. This term was implied in the old revenue standard, but there was no precise definition.

The term “distinguishable goods” means that a good can be distinguished from other goods: the seller supplies it separately, and the buyer can use it (= benefit) separately from other goods of the seller. The same applies to services.

The selling company recognizes revenue if and when it satisfies the performance obligation. It can happen or at a certain point in time, or as the company performs work under the contract. In the second case, the seller recognizes revenue gradually over time using a suitable method to measure the degree of fulfillment of the contractual obligation. This will be discussed in this article.

The recognition of revenue over time (in different reporting periods) does not depend on the length of the contract, as it was before when IFRS 11. Now certain must be met. If they are not met, then all contract revenue is recognized when the obligation under the contract has been fully fulfilled.

If the criteria are met, then revenue is recognized based on progress towards complete satisfaction of that performance obligation. That is, the revenue for the reporting period is multiplied by the percentage of fulfillment of the obligation under the contract. The question is how to calculate this percentage.

Methods for measuring progress

IFRS 15 provides two methods for measuring progress in meeting a contractual obligation:

• output method
• resource method (input method)

It is these terms that are used when translating the standard into Russian. The clearer names are method of work performed and method of cost incurred. Later in this article, both names will be used.

Results method recognizes revenue based on direct measurement of the results of work performed at the reporting date. Possible methods are listed in the standard in clause B15:

To be honest, I don't understand the practical difference between surveys and appraisals. Interestingly, in the old IAS 11 Work Contracts, paragraph 30 (b), the name of the method “surveys of work performed” was translated into Russian as “ expert review executed works".

The developers of the standard point out that the method chosen should reflect as best as possible the extent to which the contractor has fulfilled its contractual obligations. If some results are not included in the calculation, then the amount of revenue will be underestimated. For example, a method based on counting units produced or delivered does not take into account work in progress. In the event that the work in progress is significant, these methods will lead to a distortion of the results of work performed and an underestimation of revenue, since the calculation will not take into account revenue from work in progress, which is controlled by the client.

In some cases, for the sake of simplicity, the contractor may recognize revenue in the amount for which he was entitled to invoice (has a right to invoice). This is possible if there is a direct relationship between the value of the results for the buyer and the amount of compensation to which the seller is entitled. For example, if in the contract for the provision of services, the seller issues an invoice for each hour of his work.

Only this method was specified in the original draft version. This is not surprising, since there is a direct logical connection between the results of activities and the revenue due. The main disadvantage of this method is the complexity and cost of obtaining information. Therefore, after the initial discussion of the draft version of the standard, a second method was added, which was widely used in the past when IAS 11 was in force. This is the cost method or the resource method.

Resource Method provides for the recognition of revenue based on the efforts made by the seller to fulfill the obligation under the contract, or the resources consumed for this. That is, we take the costs incurred and see what percentage they represent from the total expected costs of the contract. It remains to determine in what units to measure the costs incurred: in hours, in money, in the amount of materials or other resources. In the standard, the options are listed in clause B18:

English in standard	Official translation
resources consumed	consumed resources
labor hours expended	spent work time
costs incurred	costs incurred
time elapsed	elapsed time
machine hours used	used machine time

Here, too, something is not clear. How does the “elapsed time” in the resource method differ from the “elapsed time” in the results method? In the method of incurred costs, the time spent on the work of personnel or equipment is allocated separately. What, then, is meant by "elapsed time"?

Elapsed time in the results method is also not a very clear term. Since leases are outside the scope of IFRS 15, the timing of the rental or lease of the asset is not appropriate here. I think this is how you can measure the results of service contracts, the responsibilities of which are measured in terms of time. Let's say 100 hours consulting services or an annual membership to a fitness club or sporting event.

The resource method is less costly to use, since it is much easier to estimate the amount of resources expended than the amount of results obtained. This is its advantage. The disadvantage is that there may not be a direct relationship between costs and results. Indeed, costs and revenues are not always directly correlated with each other. This is especially obvious in the event that there are ineffective costs, defects in work, losses. In this case, the costs will be incurred, but they will not lead to the fulfillment of the obligation under the contract.

To recognize revenue, it is necessary to estimate the volume of assets (goods and services), control over which was transferred to the customer during the reporting period. And if there is no direct relationship, then the use of the method of incurred costs may lead to a distortion in the amount of revenue under the contract for the reporting period.

Therefore, when applying the method of resources (method of incurred costs), the contractor company must exclude the impact on the estimate of revenue of those consumed resources that did not affect the results of operations. Therefore, if the company chooses the cost method, then it must adjust the calculation of the% from which the revenue will be calculated:

• 1) in case of loss of materials, labor and other resources (inefficiency, marriage)
• 2) if the costs are not proportional to the results

In these cases, such costs are simply not included in the calculations. But in the second case, if certain conditions are met, revenue can be recognized in the amount of the costs incurred (see example 1 below). These conditions are listed in paragraph B19 (b):

If at the time of the conclusion of the contract, the fulfillment of all the conditions below is expected:

• (i) the goods are not distinguishable *;
• (ii) the buyer is expected to gain control of the goods significantly prior to receiving services related to the goods;
• (iii) the actual cost of the transferred good is significant relative to the total expected cost of meeting the full performance obligation; and
• (iv) the company purchases a product from a third party and does not significantly participate in the development and production of the product (but it acts as a principal, not an agent, i.e. it controls the promised product or service before it is transferred to the buyer).

* the term “distinguishable” means that a product can be distinguished from other products: the seller supplies it separately, and the buyer can use it (= benefit) separately from other products of the seller.

Important note. The Basis for Conclusions to the standard states that having two methods does not mean that a company has “free choice”. The contractor should select the measurement method that best represents the performance of the company in the performance of the contractual obligation. To do this, the company must analyze the nature of its activities, what is the created asset or the service provided, and do the most suitable choice method based on this analysis. (BC 159). For those who know English, I will give this item in English:

BC 159 Accordingly, an entity should use judgment when selecting an appropriate method of measuring towards complete satisfaction of a performance progress obligation. That does not mean that an entity has a ‘free choice’. The requirements state that an entity should select a method of measuring progress that is consistent with the clearly stated objective of depicting the entity’s performance-that is, the satisfaction of an entity’s performance obligation-in transferring control of goods or services to the customer.

The company must apply the chosen method for the specific performance obligation consistently throughout the contract. This same method should be applied for all contracts with similar performance obligations.

Examples of revenue recognition over time

The first example is taken from the illustrative examples for IFRS 15, the second from the P2 exam of the main ACCA course.

Example 1. Illustrative example for IFRS IFRS 15.

In November 2012, Omega entered into a contract with a client for the renovation and refurbishment of a three-story building, including the installation of new elevators. Omega buys elevators from the manufacturer elevator equipment and installs them as they are (without modification) in the client's building. The contract price is $ 5 million. The expected cost of the work is 4 million, of which 1.5 million is the cost of the elevators.

Contract price - 5,000,000 (expected revenue from the contract)

Elevators - 1,500,000
Other costs - 2,500,000
Total expected contract costs - 4,000,000

At 31 December 2012, Omega incurred costs in the amount of 500,000 excluding the cost of the elevators. The elevators were delivered to the building in early December 2012, but their installation is not expected until June 2013. Omega uses the resource method (the ratio of costs incurred to total contract costs) to estimate intermediate results for similar projects.

Solution

1) Omega has one commitment - home remodeling

2) This performance obligation is fulfilled over time because

• a) the buyer simultaneously receives and consumes the benefits from the promised asset (work is carried out at the buyer's site)
• b) the asset created by Omega has no alternative use for it (cannot be sold to another buyer) and Omega is entitled to payment under the contract.

3) Omega acts as a principal in the elevators as it gains control of them before transferring them to the customer.

4) Control of the elevators passed to the buyer as they were delivered to the site in December 2012. The cost of the elevators is significant relative to the overall project costs. However, Omega has nothing to do with elevator manufacturing, so the purchase cost of the elevators ($ 1.5 million) does not reflect the extent to which Omega has met the performance obligation. Thus, 1.5 million should be excluded from the percentage of fulfillment of the contractual obligation.

5) Omega recognizes revenue from the transfer of elevators in an amount equal to their purchase value (with zero profit).

6) Calculations
Degree of fulfillment of obligations under the contract: 500,000 / 2,500,000 = 20%
Revenue (no elevators): 20% x (5,000,000 - 1,500,000) = 700,000
Elevator handover revenue: 1,500,000

OSD for the year ended 31.12.12

Revenue: 1,500,000 + 700,000 = 2,200,000
Cost: 1,500,000 + 500,000 = 2,000,000
Profit for the project: 200,000

This example illustrates the accounting treatment for material resources that were not installed in the process of work (uninstalled materials). If the client obtains control over the asset (goods) before it is installed / assembled by the contractor, then it would be inappropriate to recognize such goods as inventory on the contractor's balance sheet. Instead, the contractor must recognize revenue for the goods transferred in accordance with the core principle of IFRS 15. But recognizing all profits on these goods before they are installed could overstate revenue. And the recognition of profit (margin) on these goods, which differs from the indicator of profitability (margin) as a whole under the contract can be a difficult exercise.

Therefore, the drafters of the standard decided that in certain circumstances, an entity should recognize revenue from the transfer of goods, but only on the basis of the costs incurred. In this case, the value of these costs should be excluded from the calculations by the resource method.

The second task was on the P2 Corporate Reporting exam of the main ACCA program. As a rule, the tasks on this exam test the knowledge of several provisions of international standards at once. In this case, the P2 examiner tested knowledge of IFRS 15 in terms of revenue recognition over time, variable consideration and contract modification. This topic (revenue over time) has not yet been tested for the Dipifr exam through December 2016.

On December 1, 2014, Delta entered into a contract for the construction of printing equipment at the client's site. The contract value is $ 1,500,000 plus a $ 100,000 bonus if the equipment is built in 24 months. At the time of inception of the contract, Delta correctly chose to account for the manufacture of the equipment as the only performance obligation in accordance with IFRS 15. The contract costs are expected to be $ 800,000. Since the manufacture of printing equipment is sensitive to external factors (due to the supply of many components by third parties), there is a high probability that the equipment will not be manufactured in 24 months and Delta will not be eligible for the bonus.

As of November 30, 2015, Delta had incurred contract execution costs in the amount of $ 520,000. As of this date, Delta management still believes that it is unlikely that the conditions will be met to receive the bonus. However, on December 4, 2015, the contract was changed. As a result, fixed consideration and expected contract costs increased by $ 110,000 and $ 60,000, respectively. The time required to receive the bonus has also been increased by 6 months. As a result, Delta management now believes that the conditions for the bonus are likely to be met. The contract continues to have a single performance obligation.

How this contract should be reported in Delta's accounts as of November 30, 2015 and December 4, 2015?

Solution.

The condition explicitly states that the only performance obligation is the manufacture of printing equipment.

The bonus in the amount of $ 100,000 is not included in the remuneration under the agreement, since at the time of its conclusion there is no certainty that this bonus will not have to be canceled in the future.

• Expected revenue: $ 1,500,000
• Expected Cost: $ 800,000

The percentage of completion of the contract obligation can be calculated using the cost incurred method:

520,000/800,000 = 65%

• Revenue - $ 975,000 (1,500,000 x 65%)
• Costs - $ 520,000 (all costs incurred)

Since the contract was amended on December 4, 2015, contract fees and expected costs have increased. In addition, the eligible time for receiving the bonus was extended by six months, with the result that Delta's management concluded that the inclusion of the bonus in the contract price would not reverse this amount in the future. Consequently, the $ 100,000 premium can be included in the transaction price.

Delta management also concluded that printing equipment manufacturing remains the only performance obligation. Therefore, a change to a contract in accordance with IFRS 15 must be accounted for as part of the original contract. There is a separate article.

After the modification of the contract:

• The expected revenue under the contract is 1,710,000 (1,500,000 + 110,000 + 100,000 bonus)
• Expected contract costs 860,000 (800,000 + 60,000)

Since the change in the contract took place after the reporting date, this will not affect the reporting as of November 30, 2015 (non-adjusting event).

But on December 4, 2015, additional revenue of $ 59,550 must be recorded.

• new percentage of fulfillment of the obligation: 520,000 / 860,000 = 60.5%
• revenue under the contract as of December 4, 2015: 1,710,000 x 60.5% = 1,034,550
• adjustment less previously recognized revenue: 1,034,500 - 975,000 = 59,550

Difference between IFRS IFRS 15 and IFRS 11

The old standard IAS 11 Work Contracts required long-term contracts to be accounted for by percentage of completion: to be recognized in the income statement, the total expected revenue and expenses of the contract were multiplied by the percentage of completion at the reporting date. The balance sheet reflected the amounts for settlements with customers, calculated according to the formula prescribed in the standard.

IFRS 11 proposed such methods for assessing the stage of completion of work under a contract.

• (a) comparing the contract costs incurred to complete the work to date to the total contract costs;
• (b) expert assessment of the work performed; or
• (c) an estimate of the proportion of work performed under the contract in kind.

Mathematically, the new IFRS 15 uses the same methods as before. However, the calculated percentage is applied only to revenue, and the cost is recognized at the cost incurred. The difference in figures will appear when using the results method, as the costs incurred may not be directly correlated with the progress in fulfilling the contractual obligation.

In general, the approaches to accounting for long-term contracts in the old IFRS 11 and in the new IFRS 15 differ markedly. Therefore, for those who have been studying for a long time international standards and knows IFRS 11, you should carefully read the provisions of the new revenue standard, and not rely on old knowledge.

Welcome to the ninth edition (2016) of IFRS textbooks released by the TACIS project with the support of the European Union! The first release took place in 2003. Thanks to our friend and colleague Sylvia Makhutova (silvia.mahutova@ifrsbox.com), major updates to IFRS 9 and IFRS 15, as well as a new book on IFRS 16 Leases, have been made. In this issue, the books are supplemented with the articles: Deferred taxes: the only way to study them is an important article for practitioners, teachers, trainers and students and IFRS. Myth Busting - addresses various aspects of teaching IFRS for each standard, including a range of opinions and topics for discussion.

The toolkit offers a separate book for each standard, plus three books on consolidation. Accounting financial instruments dealt with in IAS 32/39 (Book 3) and in IFRS 9. IFRS 7 is supplemented by the FINREP approach, which illustrates practical use of this standard and the formats for its presentation. The entire set is supplemented by an introduction to IFRS and the transformational model of Russian accounting reporting in accordance with IFRS. Each book includes Information, Examples, Self Test Questions and Answers.

We express our sincere gratitude to those who made these publications possible, as well as to you, our readers from many countries, for your continued support. I would like to express special gratitude to Igor Sukharev from the Ministry of Finance, who recommended our manuals with a link on the Ministry's website, Mark Finas for providing links to publications, Gulnara Makhmutova for translation into Russian and editorial staff, Marina Korf and Anton Arnautov (bankir.ru) for providing help, advice and promotion of materials on your site. Sergey Dorozhkov and Elina Buzina from the Institute of Banking of the Association of Russian Banks (http://finprioritet.ru/) conducted excellent IFRS courses according to all standards, which allowed us to test this material and find, together with the participants A New Look on him.

Robin joyce

Professor of the Financial University under the Government of the Russian Federation

Honorary Professor of the Siberian Academy of Finance and Banking Moscow, Russia 2016 Authors: Gulnara Makhmutova and Robin Joyce

Introduction

IFRS 15 replaces the following standards and interpretations:

• IAS 18 Revenue,
• IAS 11 Accounting for construction contracts
• SIC Interpretation 31 Revenue - Barter Transactions, Including Advertising Services
• IFRIC Interpretation 13 Customer Loyalty Programs
• IFRS 15 Contracts for the construction of real estate and
• IFRIC Interpretation 18 Transfers of Assets from Customers

Key features

Transfer of control

Revenue recognition occurs when a customer obtains control of a product or service. The customer gains control when he is able to dispose of a product or service and benefit from it.

Transfer of control is not the same as transferring risks and rewards, and this is not necessarily the culmination of the earning process.

Entities must also determine whether to recognize revenue. over a period of time, or such recognition is made for a specific moment.

Variable Conditions

Businesses may agree to supply goods or services on terms that change depending on whether certain events occur or do not occur in the future. Examples are return rights, performance bonuses, and fines.

Such amounts were often not recognized in income as long as conditions were uncertain. The variable condition estimate is now taken into account in the transaction price calculation if it is probable that the variable conditions will not significantly change revenues when the estimates change.

Even if the total amount attributable to variable conditions does not reach this threshold, management should assess that the portion of the amount (minimum value) meets this criterion. This amount is recognized as revenue when goods or services are transferred to a customer.

This approach can affect enterprises in various industries where variable conditions are currently not considered until all contingencies are resolved. The management of such enterprises will have to make revaluations for each reporting period with a corresponding revision of revenue.

There is a highly specialized exception for intellectual property (IP) licenses where sales are based on variable terms or royalty payments.

Allocation (allocation) of the transaction price based on a relatively autonomous selling price

Businesses that sell a variety of goods or services must have a unified approach to highlighting each product or service. This consideration is based on the price that the business could autonomously charge the customer for each product or service.

Management should initially review existing information at an independent market price. In the absence of such information, estimated prices apply. In some cases, it will be necessary to determine an independent selling price for goods or services that did not previously require such estimates, for example, in enterprises that prepared US GAAP statements and issued customer loyalty reports.

Licenses

Organizations licensing customers' intellectual property (IP) must determine whether issuing such a license constitutes a transfer to the customer over a period of time or at a specific point in time. A license that is transferable for a period of time gives the client access to intellectual property for the period of validity of such a license.

Licenses that are transferable at a specific point in time give the client the right to use the intellectual property at the time for which this license was issued... The customer must be able to receive and use all the benefits of the licensed recognized revenue for the period for which the license is issued. IFRS 15 provides examples of this.

Time value of money

Some contracts provide the client - physical or legal entity- significant financial preferences (explicit or implicit). This occurs due to time lags between the transfer of goods or services and their payment.

The company needs to adjust the value of the contract, taking into account the change in the value of money over time, if the contract contains a significant financial component.

The standard provides for certain exceptions and the practicality of applying this rule, which allows companies to ignore the time value of money if the time between the transfer of goods or services and their payment is less than one year.

Contract costs

When concluding or executing contracts, sometimes costs arise (for example, commissions from the sale or from transactions to attract).

Eligible contract costs are capitalized as an asset and amortized as revenue recognized. In some cases, capitalized costs are expected to increase.

Management of the entity determines the accounting for expenses under contracts that are not settled after the effective date of IFRS 15.

Information disclosure

Extensive disclosures should provide a deeper understanding of the revenue already recognized and the revenue expected to be recognized under existing contracts.

Disclosures are judged by professional judgment, taking into account changes in those judgments, and supported by quantitative and qualitative information that enables management to determine the amount of reported revenue.

Definitions

Contract- an agreement between two or more parties that creates rights and obligations

Contract assets- the organization's right to compensation in exchange for the transferred to the buyer goods or services when that right is conditional on something other than the expiration of a period of time (for example, the entity has fulfilled certain obligations in the future).

Obligation by contract- the obligation of the organization to transfer goods or services to the buyer for which the entity has received reimbursement from the customer (or the amount of this reimbursement is already due).

Customer- a party that has entered into a contract with an entity to receive, in exchange for consideration, goods or services that are a result of the ordinary activities of the entity.

Income- an increase in economic benefits for the reporting period in the form of an increase in the volume or improvement of the quality of assets, or a decrease in liabilities, which leads to an increase in equity capital, not related to contributions by capital participants

Performance obligation

Promise in treaty With by the buyer give him either:

(1) certain commodity or a service (or a package of goods or services); or

(2) a number of certain products or services of the same type, which are transferred to the buyer according to the same type of template.

Revenue- increase gross income in the normal course of business of the organization.

Offline Selling Price(good or service) - The price at which an entity will sell separately promised goods or services to a customer.

Transaction price(by contract with a customer) - the amount of consideration to which the entity expects to be entitled from client in exchange for the transfer of promised goods or services, except for amounts received on behalf of third parties.

Application of IFRS 15 in banks

Summary

Banks and companies operating in the market valuable papers will need to consider:

• influence on variable condition estimates
• whether the costs associated with accepting the contract should be capitalized
• compulsory keeping of separate records for different goods or services provided
• the moment advance payments are recognized in revenue
• relevant accounting policies for credit card loyalty schemes
• maximum disclosure of information on revenue

When assessing and analyzing the impact on the market of the standard, other changes are possible for consideration:

• the change key indicators efficiency
• changes in the profile of tax payments
• availability of profit for distribution
• influence on the choice of the evaluation period for compensations and bonuses
• potential non-compliance

Banks need to consider the impact of applying this standard on financial performance clients and their fulfillment of the terms of loan agreements.

Detailed disclosures by banks and the securities sector in accordance with IFRS 15 may require changes to current accounting procedures.

Impact of IFRS (IFRS) 15 on revenue

IFRS 15 affects revenue that arises from contracts with customers, excluding interest income and dividend income (currently regulated by the standards for financial instruments).

The most significant changes

Is it possible to recognize variable or uncertain revenue?

Significant variable elements may be included in contracts, such as performance bonuses,

fines and structured payments.

The bonus can be paid on specific tasks or based on assets under management.

IFRS 15 introduces specific new requirements for considering variable components that are included in the transaction price when it is probable that, when the uncertainty is removed, there will be no material changes in estimates.

The volumes of proceeds in this case are estimated by professional judgment. For some businesses, the revenue profile may change.

What expenses will need to be capitalized?

A characteristic feature of many businesses is that they have various loyalty programs. Credit card holders can earn points when making purchases. Subsequently, customers can use these points in payments for goods and services. Issuers of such cards will need to determine to which part of their programs IFRS 15 applies.

Such fees will need to be presented as separate performance obligations. At the time of transition to the opportunity cardholder to take advantage of their benefits, a portion of the operating price will need to be allocated and recognized as revenue. (This may differ from current practice.)

IFRS 15 Executive Summary

The basic principle is that an entity should recognize revenue that shows the transfer of promised goods or services to customers in the amount that the entity expects to be consistent with those goods and services.

To achieve this position, the enterprise must perform the following actions:

Step 1: Determine the contractual relationship with the client.

Step 2: Determine the performance obligation in the contract.

Step 3: Determine the price of the operation.

Step 4: Determine the transaction price in relation to the performance obligation in the contract.

Step 5: Recognize revenue that is consistent with the discharged obligation.

Step 1: Define the contractual relationship with the client

A contract is an agreement between two or more parties and creates effective rights and obligations. Each contract must meet the following criteria:

1. Be approved and binding by the parties
2. Reveal the rights of the parties
3. Define payment terms
4. Be of a commercial nature
5. May include additional conditions on which goods and services will be transferred

In some cases, an entity may combine a contract and its invoices as one contract. In this case, there should be a procedure for accounting for the amended agreement.

Step 2: Define the performance obligations in the contract

A performance obligation is a promise in a contract with a customer to transfer a product or service to the customer. If the contract provides for the transfer of more than one good or service to a customer, each such good or service is accounted for as a performance obligation provided:

• (1) if these goods or services are different,
• or (2) groups of goods or services that are the same in substance and method of transmission are different from each other.

The product or service is considered various while the following conditions are met:

1. Ability to be different - the client can benefit directly from this product or service, or using other resources readily available to him.

1. Difference in the context of the contract - the obligation to deliver a given product or service is identified separately from other obligations in the contract.

Goods or services that do not differ should be combined with other goods or services until they are identified as different.

Step 3: Determine the price of the operation

Transaction price is the estimated amount (for example, a payment) that an entity expects in exchange for transferring goods or services to a customer, excluding amounts received on behalf of a third party.

When determining the price of the operation, it is necessary to take into account the influence of the following factors:

1. Variable condition - If the amount implied by the contract is a variable amount, the amount included in the transaction price must be determined either as an expected value (that is, as a probabilistic amount) or as a most probable amount, depending on the method that the entity considers best to use in forecasting the estimated value. magnitudes.

1. Constraint in estimates of variables - an entity should only partially or fully include a variable in the transaction price if it is highly probable that fluctuations in the variable will not significantly affect the change in recognized income. (With the possibility of payments)

1. Existence of a significant element of financing - the enterprise must adjust the promised amount of payments caused by a change in the time value of money if the payment terms agreed by the parties to the contract (explicitly or implicitly) provide the buyer or the enterprise with a significant financial advantage in transferring goods or services to the buyer. Various factors must be considered when evaluating a contract for the availability and significance of a funding component.

The valuation of the financing component in the contract is considered impractical if the period between payment by the customer for the goods or services and their transfer is less than one year inclusive.

1. Non-cash settlement condition - if the buyer offers to make settlements in a non-cash way, it is necessary to assess such a condition (or its possibility) at fair value.

If the company cannot accurately determine fair value in the case of non-cash payments, it is necessary to make indirect assessments on the market for those goods or services that are offered as payment under the contract.

1. Estimating Potential Payments to a Customer - If it is possible for a customer (or others who purchase the business's goods or services from that customer) to pay cash or other consideration (such as a credit, coupon, or voucher) that the customer (or others who purchase from of this buyer the goods or services) may present to the enterprise and demand payment, such payments ( as well as their possibility ) should be considered as cost-cutting operations or as payment for separate item or a service (or both).

Step 4: Determine the transaction price in relation to the contractual performance obligation

In isolating and valuing each obligation, an entity needs to determine the selling price for each product or service underlying each obligation based on independent market prices. In the absence of an independent market price, the company makes an independent assessment.

In some cases, the transaction price includes a discount or variable in respect of only one contractual obligation. In this case, an indication is required that the entity allocates a discount or variable not for all, but for one or more of the obligations in the contract.

An entity shall determine the contractual obligation for any subsequent changes in the transaction price in the same way as it did when entering into the agreement. Funds committed to meet the obligation are recognized as an increase or decrease in income in the period in which the transaction price has changed.

Step 5: Recognize revenue when the contractual obligation is fulfilled

An entity shall recognize revenue when it discharges the obligation by transferring the requested good or service to a customer. A product or service is considered transferred when the customer gains control over it.

For each commitment, it is necessary to determine whether the obligation was fulfilled by transferring control over the product or service for a sufficiently long time.

An entity transfers control of a good or service over an extended period of time and therefore fulfills a contractual obligation and recognizes revenue over an extended period if one of the following criteria is met:

1. The buyer simultaneously with the fulfillment of the obligation by the enterprise receives and consumes the benefits obtained in this case.

1. Enterprise activities create or augment assets (such as a work process) that the customer manages as these assets are created or augmented.

1. The entity's work does not create an asset with alternative use by the entity itself, and the entity has an enforceable right to payment for work completed to date.

If the obligation is not considered fulfilled for a long period of time, it is considered fulfilled at a certain point in time. To determine the point in time when the acquirer gains control of the asset and the contractual obligation is settled, an entity should consider the following, but not the only, indicators of a transfer of control:

1. The entity at this point has the right to pay for the asset.

1. The buyer owns the ownership of the asset.

1. The entity has transferred the actual ownership of the asset.

1. The buyer has significant risks and rewards of ownership of the asset.

1. The buyer took over the asset.

For each contractual obligation that is fulfilled by the entity for an extended period of time, revenue should be recognized over time by consistently applying a method that measures whether the obligation is fully satisfied.

Appropriate methods for assessing full performance are input and output methods. Because conditions change over a long period of time, an entity needs to update its performance estimates to reflect the results of its activities that have been completed to date.

Costs when concluding or executing a contract with a buyer

The rules of that standard also govern the accounting for certain costs when entering into or performing a contract with a customer.

Incremental costs at the conclusion of the contract - the expected incremental costs that will be reversed, the company must recognize as an asset. Additional costs are those costs that the company would not have incurred if the contract had not been concluded.

In practice, it is assumed that an entity can record these costs as an expense if the amortization period is less than one year.

Performance Costs — When accounting for performance costs, other standards should apply to the extent possible.

Otherwise, the cost of fulfilling the contract should be recognized as an asset if it meets all of the following criteria:

1. Are directly related to an existing (or specific expected) contract

1. Creates or augments enterprise resources that will be used to meet future commitments

1. They are expected to be restored.

Information disclosure

An entity is required to disclose sufficient information to enable users of its financial statements to understand the nature, quantity, frequency and uncertainty of income and cash flows arising from contracts with customers.

Information on:

1. Contracts with customers - including revenue and its recognized declines and unbundling, information on balances and contractual obligations (including the transaction price attributable to the remaining after the obligation has been fulfilled).

1. Significant professional judgment, taking into account the additions - determining the timing of the satisfaction of obligations (within a period of time or at a certain point in time) and the price of the transaction, as well as the amounts attributable to the performance of obligations.

1. Costs recognized as assets in obtaining or performing a contract.

Forecast of results from the application of IFRS 15

The greatest impact IFRS 15 has on industries such as telecommunications, software development, real estate transactions and other areas of business with long-term contracts.

If you work in an area where combined product + service contracts are common, applying IFRS 15 may change your income profile.

Particularly in the areas of software development or telecommunications - usually customers purchase tariff telephone plans or programs on a prepaid basis, when the sale is a package that includes delivery services and other similar conditions.

Businesses in the telecommunications or software development industries are more likely to produce recognition of revenue at an earlier date than before

According to IFRS 15, the transaction price should be allocated accordingly separate obligations in the contract and will be recognized upon delivery or performance of those obligations.

This means that in accordance with IFRS 15, telecom operators must separate out a portion of the proceeds from the sale of prepaid tariff plans and from the transfer of telephones to free use.

According to IFRS ( IAS) 18 , revenue is defined as the gross revenue stream from standard operating activities.

This means that if an operator provides a telephone set for free for a prepaid tariff plan, the proceeds from the sale of the telephone set will be 0.

Example: comparative analysis IAS 18 and IFRS 15

Pavel acquires a 12-month telecom plan from a local mobile operator TTT. The terms of this plan are as follows:

• Pavel makes a monthly payment of 100 units.
• Pavel immediately gets a telephone set for free.

TTT sells such phones in 300 units and receives payments for tariff plans without the condition of transferring the phone in 80 units.

How, in this case, is revenue recognition under IAS 18 and IFRS 15?

In accordance with the current rules of IAS 18 TTT does not recognize revenue from the sale of the phone as the phone is provided free of charge. The cost of the phone is recognized in profit or loss and is actually considered by TTT as a new customer acquisition expense.

Recognition of revenue from monthly payment tariff plan produced monthly. In accounting, a posting is made to accounts receivable or cash in correspondence on credit to income in the amount of 100 units.

Revenue under IFRS (IFRS) 15

According to the new rules of IFRS 15 TTT, it is necessary to define the contractual relationship (step 1), which in this example looks obvious if there is a clear 12-month plan with Pavel.

Then TTT is necessary identify all performance obligations in agreement with Paul ( step 2 in a 5-step model), namely:

• Obligation to provide a telephone
• Commitment to provide network services for more than 1 year

Operation price (step 3) will be equal to 1,200 and is calculated as the sum of monthly payments of 100 over 12 months.

Now, TTT is necessary operation price total 1,200 correlate proportionally each obligation in the contract, taking into account independent market prices (or their estimate), is step 4.

Step 5 represents recognition of revenue that is consistent with the performed TTT commitments ... In this example:

• When TTT hands over the phone to Pavel, TTT must recognize revenue in the amount of 285.60;

When TTT provides network services to Pavel, total revenue of 914.40 must be recognized. In reality, the receipt of proceeds occurs once a month when the payment is made. In reality, Pavel pays not only for network services, but also for his phone.

The most important change in the new standard is the change in the accounting for revenue and income structures .

In our example, telecommunications company TTT at the beginning of the contract reported a loss and then showed a stable income under IAS 18 because it recognized income in accordance with invoices to customers.

According to IFRS 15, the total profit in the report shows the same, but its structure will change after a while.

Consider the case when the term of the contract exceeds one accounting period .

Profit on such contracts reported under IFRS 15 for a particular reporting period may differ from profit for the same period under earlier standards. IFRS 15 should be applied retrospectively on the principle that these the new rules have always been in effect ... This could mean changes in comparative figures for prior years (see. tutorial according to IAS 8).

Why are the revenue recognition requirements changing?

(source: IFRS 15 Revenue from contracts with customers - Summary and Feedback (IASB) May 2014)

Disadvantages and weaknesses of previous revenue standards

The peculiarities of revenue recognition for the previous period gave rise to a wide variety of methods in the practice of IFRS.

The standards provided limited guidance on many important points, such as the treatment of complex contracts with multiple elements. In addition, the limited number of rules that were in place were often difficult to apply to complex transactions, as the reporting standards were not reflected in the revenue standards.

In these circumstances, some entities supplemented the limited IFRS rules by selectively applying separate rules from US GAAP.

US GAAP general order Revenue recognition is broadly complemented by numerous industry-specific and operating rules, often resulting in different accounting for economically similar transactions.

In addition, all of these different rules are constantly being supplemented as new types of transactions emerge.

There were insufficient disclosure requirements. The disclosure requirements of previous IFRS and US GAAP were often insufficient for investors in terms of understanding the revenue generation process, as well as professional judgments and estimates of revenue recognition made by the entity itself.

For example, investors were dissatisfied with often “stereotyped” disclosures about the nature of revenue, or presenting information in isolation and without explaining the relationship between the revenue recognized and other information in the financial statements.

A comprehensive and robust IFRS revenue recognition, measurement and disclosure policy addresses these deficiencies. In particular, IFRS 15:

• improves the comparability of revenue from contracts with customers;
• reduces the need for individual interpretations by the management of the enterprise on the recognition of revenue on a case-by-case basis; and
• in connection with the improvement of requirements for information disclosure provides more useful information.

For many contracts, such as those used in ordinary retail operations, IFRS 15 will have little impact on the amount and timing of revenue recognition.

For other contracts, such as long-term service contracts and complex agreements with multiple elements, the application of IFRS 15 may change the amount or timing of revenue recognition by the entity.

Current Practice: Contingencies and Incentives to Increase Sales

For some businesses, it is not possible to separately recognize revenue from the transfer of goods or services to a customer, which in some sense is an incentive for sales or is incidental or ancillary to other obligations in the contract.

In practice, entities recognize all operating amounts as revenue, although they may be remaining performance obligations.

This sometimes happens in the automotive industry when a manufacturer sells a vehicle with an added bonus, such as maintenance, which will be provided at a later date.

IFRS requirements (IFRS) 15

The entity will need to assess to what extent the promised goods or services, whether they arise as contingent liabilities or sales incentives, are different in nature.

If these goods or services differ from one another, an entity must recognize revenue when (or how) each individual good or service is transferred to a customer.

Existing practice: Limiting incidental proceeds

In some practical cases, for the operating price, there is a limitation of the amount of the performance obligation that can be allocated to the amount that does not depend on the performance of the obligation in the future.

This practice is widely used when accounting for telecommunications contracts, which are concluded with the sale of a mobile phone and the provision of network services for a specially limited period (most often one or two years).

IFRS requirements (IFRS) 15

IFRS 15 does not permit the transaction price to be allocated to a performance obligation where there is a limit on incidental proceeds.

Instead, IFRS 15 requires the transaction price to be allocated - this can be any amount a customer pays when entering into a contract with monthly payments for network services - for mobile phone and network services - based on standard independent market prices.

Existing practice: Lack of information on market prices

In some cases, such requirements prevent an entity from recognizing revenue when goods or services are transferred to a customer in the absence of information at independent market prices for each good or service under the contract.

This arrangement often results in a delay in revenue recognition because revenue is not recognized when a good or service is first transferred to a customer.

This happens regularly in the field of software provision, when there is no information on independent market prices when upgrading and further expanding the functions of computer software.

IFRS requirements (IFRS) 15

In the absence of information on independent market prices, the entity should allocate the transaction price based on the estimated independent market prices for these goods or services.

An entity recognizes revenue for each individual product or service transferred to a customer.

Current Practice: Licenses

The procedure for recognizing and accounting for proceeds from licenses for intellectual property is quite broad. Different interpretations of this order have resulted in a significant variety of license accounting rules.

IFRS requirements (IFRS) 15

IFRS 15 requires the application of the guidance to show the structure of revenue for different types of intellectual property licenses.

Existing practice: Timing of revenue recognition

Due to the lack of clear and comprehensive rules, in practice there are different approaches to whether an entity recognizes revenue for some goods or services at a particular point in time or over a specified period.

For example, some businesses that sell residential real estate in apartment buildings are faced with the challenge of determining whether the construction of such assets is a service that is provided over an extended period of time (and therefore revenue is recognized over an extended period of time), or whether it is a commodity that is passed on to the customer upon completion of construction (and therefore revenue is recognized at that point in time).

IFRS requirements (IFRS) 15

An entity is only able to recognize revenue over an extended period of time if the criteria in IFRS 15 are met. In all other cases, revenue must be recognized when the customer gains control of the good or service.

Existing practice: evaluating variable clause agreements

The revenue recognition policy does not provide detailed rules for estimating the amount of revenue in the case of agreements with variable terms.

IFRS requirements (IFRS) 15

If the contract with the customer includes a variable, the entity should measure it using either the expected or the most probable amount, depending on the most appropriate and acceptable way for the entity.

Some or all of the estimated variable amount is included in the transaction price only if it is probable that the amount will be important in the total annual revenue and it is certain that the revenue will be recognized.

Existing practice: The emergence of the element of financing

When a customer pays for goods or services up front or on debt, some businesses may not consider the fact that financing elements appear in the contract when recognizing revenue and determining its amount.

IFRS requirements (IFRS) 15

An entity should consider the implications of any significant financing components in determining the transaction price (and thus the revenue recognized).

This can have an impact on long-term contracts in which payment by the purchaser and performance by the entity occur with significant time lags.

Current Practice: Disclosure

Disclosures about revenue are inappropriate and insufficient compared to other items in the financial statements

For example, many investors state that some enterprises reflect information on revenue in isolation from other indicators, and investors cannot relate revenue to financial condition enterprises.

IFRS requirements (IFRS) 15

IFRS 15 contains a comprehensive set of disclosure requirements that requires an entity to disclose qualitative and quantitative information about its contracts with customers to help investors understand the nature, volume, timing and uncertainty of revenue.

IFRS 15 Examples: The Impact of IFRS on Your Company

Another consequence of this approach is that the period of revenue recognition does not match the month of billing customers as there are deferred accounts.

This is really difficult because it requires significant changes in IT systems to automate the calculation and accounting of the revenue recognized in each month.

Other challenges facing the field of telecommunications technology:

• changes in contracts:

what happens when customers change their contracts with operators, for example, the number of prepaid minutes changes or new services are added?

In such cases, it is necessary to assess whether these changes will be accounted for retrospectively (as a one-off adjustment) or prospectively (catch-up adjustments to future revenue), or even as a separate contract. Since IFRS 15 contains clearer rules than IAS 18, this may cause a change in the accounting system.

• Time value of money and discounting:

IFRS 15 strictly defines "Financial component" and requires that such a component be distinguished separately when accounting for revenue.

As a result, you may need more careful accounting of the time value of funds in received or paid long-term advances, as well as in contracts concluded for a period of more than 12 months.

• Customer acquisition costs:

In any industry, not only in telecommunications, so-called "luck bonuses" or commissions are paid to attract a client. Prior to that, such payments were considered an ordinary expense and recognized in profit or loss.

However, IFRS 15 requires them to be capitalized and recognized in profit or loss only together with revenue recognition. What will the operators do in this case? What will the picture of the write-off of these costs in profit and loss look like?

# 2 Manufacturing company

There is a wide range of production and types of production contracts.

If you are producing the same type of product in large quantities, you can still apply IFRS 15 - just see the example below.

However, the changes may greatly affect manufacturers of special equipment or ordinary goods, but with a long production cycle.

What you need to check:

• Did you recognize the proceeds for a period or at a point in time ? If for the period, how do you estimate progress towards completion of the contract (completion stage)?
• How should you consider changes in contracts , such as the supply of additional items?
• You suggest discounts after delivery? Wholesale discounts? Bonuses at last customers, based on the total volume of ordered goods during the year? If so, you are likely to be affected by IFRS 15.
• You should divide Is your contract for multiple commitments? In the event that you provide any warranty period for your products - should the warranty be kept separately? Do you offer any additional services for your products?
• You incur certain costs to obtain a contract, as well as sales bonuses ? Maybe you should capitalize them right away, and not take them into expenses, as before.

Let me give you an example to illustrate the potential impact of IFRS 15. In this case, we consider a subsequent order for the same items with the same customer.
Example: Production and changes in contracts

Ball PC, a computer manufacturer, contracts with Forward University to supply 300 computers for a total cost of 600,000 USD ($ 2,000 per computer).

Due to the need for preparatory work, the university undertakes to accept computers In 3 separate lots within the next 3 months (100 computers in each batch). The university takes control of the computers upon delivery.

After delivery of the first batch, Forward University and Ball PC change the terms of the contract ... Firm will additionally supply 200 computers (a total of 500).

How would Ball PC account for revenue under this contract at the year end on 31 December 20X1 if:

• Scenario 1: The price for an additional 200 computers was agreed at $ 388,000, that is, $ 1940. for one computer. Ball PC offers a discount of 3% for an additional batch, which is the norm for such a volume in similar contracts with other customers.
• Scenario 2: The price for the additional 200 computers was agreed at $ 280,000, that is, $ 1,400. for one computer. The firm offers a discount of 30% for an additional party, because she hopes for further cooperation with the University (this has not yet been discussed).

At 31 December 20X1, the firm Ball PC put 400 computers (300 - on the original terms and 100 - on the amended contract).

Revenue according to the previous rules ( IAS (IFRS) 18)

Nothing special arises here. According to the definition of revenue in accordance with IAS 18, revenue was recognized at the time of delivery. at the fair value of the consideration received for computers - in accordance with the two scenarios described above.

You do not need to study IAS 18 to determine whether to reflect an additional supply of computers on an individual basis. selling price or not.

• Scenario 1:$ 600,000 (for the first batch of 300 computers) + $ 194,000 (for an additional batch of 100 computers) = $ 794,000 (for all 400 computers already delivered).
• Scenario 2:$ 600,000 (for the first batch of 300 computers) + 140,000 USD (additionally for 100 computers) = $ 740,000 (for all 400 computers already delivered)

Will IFRS 15 be the same? NO!

Revenue under IFRS ( IFRS) 15

Here the additional contract is treated as typical contract change since there has been a change in both the number of computers and the price of the transaction.

IFRS 15 provides clear guidance how to take into account changes to contracts based on modified terms. There are 2 main types of contract amendments:

1. Amendments to the agreement are formalized in a separate contract.

A change to the contract is accounted for as a separate contract (this means that the original contract remains unchanged) by doing 2 criteria :

• Additional goods and services in case of changes must differ from the goods and services in the original contract.

In both scenarios, this will be fulfilled, since the conditions for the additional batch of computers are very different from the conditions for the original batch.

• The expected amount of remuneration for additional goods / services must be reflected at the original price for these goods / services.

1. Change of the agreement is not formalized in a separate contract

If the above criteria are not met (or one of these criteria is missing), then the change to the contract not considered as a separate contract and the procedure for its accounting depends on further analysis.

Let's take a look at our situation. In it, we came to the conclusion that additional products are different, the main question is whether they will be reflected at the original price.
Scenario 1: Additional supply negotiated with 3% discount

The price for an additional batch is valid reflects the stand-alone selling price because Ball PC usually offers a 3% discount on the order volume.

In this case, the change to the contract is taken into account as a separate agreement and the revenue for the year will be (for a delivered batch of 400 computers):

• $ 600,000 for a batch of 300 computers according to initial conditions;
• $ 194,000 for an additional batch of 100 computers according to the change in the contract.

In this case, the total revenue for the year will be $ 794,000 - exactly according to IAS 18.

Scenario 2: Additional supply negotiated with 30% discount

In this case, it is obvious that the price for an additional supply does not reflect stand-alone selling value as the 30% discount is exclusive and linked to the general agreement with Forward University.

This means that the second criterion is not met.

As a result, a change in the contract NOT a separate contract and is considered included with the original contract.

How?

Since the additional item is different in this case, you must terminate the original contract and start accounting for the new contract .

Still not clear?

For a shipment already delivered, you simply recognize the proceeds of the original contract prior to its changes.

For the rest of the goods from the original contract and additional deliveries, you recognize revenue in the total amount:

• A portion of the still unrecognized revenue from the original contract (in other words, the price for goods that have not yet been delivered); A PLUS
• Revenue for additional delivery according to the change in the contract.

You need to allocate amounts for individual commitments or, in this case, for batches of computers.

In scenario 2, changes to the contract passed after the first delivery , and thus Ball PC must recognize revenue for the first batch of 100 computers under the terms of the original contract:

100 computers x 2,000 c.u. for 1 computer = 200,000 USD

Allocated amounts from the total price after the change of the contract :

• 400,000 USD , as part of the proceeds under the original conditions attributed to the under-delivered 200 computers (300 under the contract minus the 100 delivered; $ 2,000 per unit);
• 280,000 USD as proceeds for additionally delivered 200 computers;
• Total: 680,000 USD

We have to allocate 680,000 USD for 400 computers in the total amount (200 undelivered before the changes in the contract + 200 for an additional batch), which means that Ball PC considers $ 1,700 on one computer (680 000/400).

Which total revenue will be recognized for 20 X1 year, during which 400 computers were delivered? Let's count:

• Revenue for 100 computers delivered before the change in the contract: $ 200,000 (2000 USD / computer)
• Revenue for 300 computers delivered after contract change: 510,000 USD ($ 1,700 / computer);
• Total: 710 000 cu

Here you can clearly see that in the second scenario (additional delivery with 30% discount):

• According to IFRS ( IAS) 18 , revenue for the year is $ 740,000
  For the remaining 100 computers, revenue will be recognized in the next period at $ 1,400. = 140,000; which gives us a total of $ 880,000. per contract.
• According to IFRS ( IFRS) 15 , the revenue for the year is $ 710,000
  For the remaining 100 computers, revenue will be recognized in the next period at $ 1,700. = 170,000; which gives us a total of $ 880,000. per contract.

Hmm, but the totals are the same!

Yes, sure. But the periods of reflection of this revenue differ ... And it is these periods that can affect taxes, dividends, financial payments, and more. Just be more careful about it!

# 3 Real estate - construction companies and developers

Real estate developers and construction companies are a typical example long-term contracts with buyers.

The most a big problem- this is the decision when the company should recognize revenue - for a period of time (distributed by year of construction) or at a point in time (at the time of completion of the contract).

IFRS 15 lists 3 criteria for recognizing revenue over time:

One criterion is especially critical for developers and construction companies:

When the manufacturer does not create an asset with alternative use within its enterprise and the company has legal right to pay for the volume performed as of the current date, then revenue is recognized over a period of time .

For example, when a company is building or refurbishing a specific asset for a specific client, it would be very expensive or impracticable to implement it for another client (eg highly specialized properties). At the same time, the client is obliged to pay a reasonable amount for the work completed on a specific date.

Since “no alternative use” can be achieved on a contractual basis, this means that the contract prevents the transfer of assets to another customer.

For real estate companies, it is decisive for an asset whether the developer has the right to pay for the work done so far or not.

This is not the only criterion for deciding on real estate, but it is predominant.

If a particular contract does not meet this criterion (as well as two others), then revenue is recognized at the point in time: that is, when the asset is transferred to the customer.

Even a small change in the terms of the contract may necessitate recognition of revenue at a point in time rather than in a period - or vice versa.

Let's take a look at an example to illustrate this point.

Example: Developer and revenue over time / point in time

The construction company RE, the developer, is building a residential complex of 50 apartments. The apartments are of the same size and layout - however, they can be redesigned to suit the needs of the clients.

The RE construction company enters into 2 contracts with 2 different clients (A and B). Both clients want to buy almost identical apartments and agree on the total price in $ 100,000 for the apartment. The payment schedule is as follows: upon signing the contract, each of the clients pays a deposit in the amount of $ 10,000.

• Step-by-step payment: 1 year before the planned completion of construction, the developer must provide his clients with reports, after which each of the clients pays $ 50,000.
• Stage of completion: Upon completion of construction, legal title to the apartments is transferred to the clients, after which each of them makes the remaining payment of 40,000 USD.

The estimated construction period is 2 years from the date of the contract. The developer has the right to withhold payments from clients in a situation where the client delays payment under the contract until full settlement under it.

The terms of contracts with clients A and B are NOT identical. Other conditions under these contracts have the following features:

• There are no special conditions under the agreement with client A.
• The specificity of the contract with client B lies in the fact that the developer has no right to transfer or realize this apartment to another client, and customer B cannot terminate this contract.

If client B does not fulfill the terms of the contract before its completion (in other words, violates the schedule of his payments), the developer the rights to all payments under the contract are transferred if the developer decides to terminate the contract.

What are the differences here?

For customer A, revenue would be recognized at a point in time; for customer B, over a period of time.

We have to assess 3 criteria for recognizing revenue over time. As I mentioned above, we will not come across the first two here (let's say they do not occur here), so let's focus on the third criterion (there is no alternative use and the right to payments is legally secured).
A - at the moment in time

Agreement with client A does not answer third criterion.

The reason for this is that the developer is building an apartment that can easy to sell or transfer to another customer in case of non-payment.

Even if this could have been prevented (having specially stipulated in writing in the contract), the developer Is NOT eligible to execute the payment for the work done for today.

The developer, in the event of the client's termination of payment, retains Milestone payments ONLY, which can cover the existing costs of the enterprise for the work performed.

As a result, the developer must recognize point-in-time revenue - that is, when the apartment is transferred to the client (at the end of the second year).

Revenue from a contract with a client A - for a period of time

Agreement with client B MEETS the third criterion.

The reason is that our developer cannot channel the constructed asset for alternative use, because the contract with client B does not allow the transfer of the apartment to another client.

In addition, the developer has a legally enforceable right to be paid for work done to date .

Therefore, in this case, the developer recognizes revenue over a period of time - that is, within 2 years of building an apartment using the methods of approximate volume estimation.

Simplifying this, let's say that in the first year of operation, the Developer will master 45% of the total cost of building an apartment, and the remaining 55% will go to the second year of construction.

As a result, the developer recognizes revenue:

• For the first year: 45,000 USD (45% of $ 100,000)
• For the second year: 55,000 USD (55% of $ 100,000)

This example illustrates how a change in contractual terms can materially affect an entity's revenue.

A comparison of the revenue levels for contracts A and B in accordance with IFRS 15 is shown in the following table:

Time period	Revenue from contract A	Revenue under contract B
Year 1	0	45 000
Year 2	100 000	55 000
Total	100 000	100 000

When does it matter?

The periods of revenue recognition in connection with your payments of taxes, dividends, financial bonuses, etc.

Also note that you are likely to keep the same accounting records for these two contracts (as contract B) in accordance with IAS 11, but NOT in accordance with IFRS 15.

Perhaps you should review your contracts and see if they need certain changes in order to prevent this situation.

# 4 Technology and software development

For companies in the field of technology development, and especially software, the implementation of software licenses and related services are renowned for the variety of its operations and long-term contracts .

The main problems are as follows:

• Definition individual performance obligations (for example, sale of licenses + setup + follow-up support) and distribution of the transaction price between them
• Grade degree of performance contract
• Grade licenses for products sold by suppliers and software developers.

IFRS 15 recognizes 2 types of licenses: licenses for use and licenses for access. They have a different accounting method and you will need to determine what type of license is being considered.

Other difficulties arise on issues common to all industries: working with contract changes, how to account for contract costs (for example, commissions for attracting a client), etc.

Let's take a look at an example in which a software company needs to split the contract and consider performance separately.

Example: Software development and splitting a contract into 2 separate obligations

Many Bits, a software company, entered into a contract with a client effective July 1, 20X1. Under this agreement, Many Bits is obligated to:

• Provide professional services consisting of the implementation, development and testing of software. Customer C purchased a software license from a third party.
• Provide post-implementation, implementation and customization support for 1 software.

The total contract price is 55,000 USD.

Many Bits estimated the total cost of performing the contract as follows:

• Expenses for developers and consultants in the development and testing of existing software: 43,000 USD;
• Post-implementation support consultant costs: $ 2,000;
• Estimated total costs to fulfill the contract: 45,000 USD .

As of at 31 December 20X1 Many Bits incurred the following costs to fulfill this contract:

• Expenses for developers and consultants for the development, implementation and testing of custom modules: 13,000 USD

How should Many Bits recognize revenue from this contract in accordance with IAS 18 and IFRS 15?

Revenue under the previous rules ( IAS 18)

It is clear that Many Bits provides professional services here and the related revenue falls within the scope of IAS 18. IAS 18 requires revenue from such services to be recognized. near completion, including post-delivery service .

This means that Many Bits treats software development and post-delivery services for revenue accounting purposes as one great service .

Suppose Many Bits calculates the stage of completion based on the costs incurred to fulfill the contract.

Finally in 20X1 the cost of the costs was CU13,000, which was 29% of the total cost of 45,000 USD

Therefore, under IAS 18, the revenue of Many Bits in 20X1 for this particular contract is 29% (completion stage) x $ 55,000. (total contract value) = 15 950 USD ... I used rounding of course, but you get the exact picture.

Is the same expected under IFRS 15?

Revenue under the new rules (IFRS ( IFRS 15)

IFRS 15 provides a very clear and detailed manual About, whether the goods or services declared in the contract differ from each other and may or not they are treated as separate performance obligations .

Of course, you need to do your analysis, and I declare to you - your conclusions may be quite different from this example due to the specifics of the contract.

Assuming that the software development and post-delivery support services meet the definition of different performance obligations, they are therefore to be treated separately.

How?

We should consider them as separate components with a separation from the total cost of 55,000 USD. ... based on their relatively autonomous selling prices.

Note: the contract price is optional in this case, but let's not complicate it now.

Suppose that the cost of a software development service is usually 10% of the cost of a package from Many Bits, regardless of whether this "package" is the purchase of a ready-made license or an order for specific software.

This would mean that the relationship between software development and post-deployment maintenance is 100: 10, of which:

• $ 50,000 (55 000 cu / (100 + 10) * 100) goes to the development and implementation services, and
• 5,000 USD ($ 5,000 / (100 + 10) * 10) goes to support after delivery.

Again, this is just an example, and in your case it might be better to take some other approach.

In 20X1 Many Bits assesses the level of completion stage separately for each commitment , based on information on the performance of the contract (in this case, on costs).

Many Bits estimated the total cost of the contract at 45,000 USD ., of which 43,000 USD accounts for the payment of wages to software developers and $ 2,000. accounts for the salaries of consultants who provide follow-up support (costing was based on an analysis of person-days).

Let's estimate the completion rate of these two separate commitments as of December 31, 20 X1 :

• Software development: 13,000 USD (incurred expenses) / 43,000 USD (total assessed value) = 30%
• Post-delivery support: $ 0 (costs incurred) / 2,000 (total appraised value) = 0%

As a result, the revenue recognized under this contract will be :

• Software development: 30% (execution level) * 50,000 USD (share of revenue attributable to (allocated) to software) = $ 15,000;
• Post-delivery support: 0% (fulfillment level) * 5,000 c.u. (share of revenue allocated to support) = $ 0

Total revenue from the same contract under IFRS 15: 15,000 USD

For convenience, you can see the totals in tabular form:

Commitment	Estimated total cost (A)	Costs incurred on 31-Dec- X1 ( B)	Performance level% (C) = (B) / (A)	Allocation of total cost (D)	Revenue recognized at 20 X1 ( D) * ( C)
Professional services	43 000	13 000	30%	50 000	15 000
Post-delivery support	2 000	0	0%	5 000	0
Total	45 000	13 000		55 000	15 000

This is just one of the options for the impact of the new rules in IFRS 15 on software developers, as well as on other companies with long-term contracts.

The exact calculation, in addition to this, will greatly depend on the content of your contracts, as well as the method of calculation, systems and estimates. There is no general solution that applies to all cases.

The last warning

As you can see from the examples above, the new IFRS 15 can make a lot of things worse in your work.

But - you need to analyze, plan and execute everything.

My goal is not to give you a complete solution here, because this is simply impossible without knowing the specifics.

I wanted you to know that it will take you much longer than you anticipate to get ready to implement IFRS 15.

We can say that this very much reminds me of a similar situation a few years ago, when enterprises needed to implement IFRS. It seemed that everyone had enough time - about 1-2 years - before moving to the starting date of such accounting.

However, the start was painful. Many finance and accounting professionals realized then that it would take much longer for them to transition to new order accounting, and they had to start this process several months earlier.

Don't make the same mistake and start NOW .

Performance obligations satisfied over time

An entity transfers goods or services over a period of time and therefore performs

performance obligations and and recognizes revenue over time if one of the following criteria is met:

(1) the client simultaneously receives and uses the advantages that the organization provides in the performance of its obligations

(2) an asset created or improved in the course of the organization's activities (for example, design work) passes under the control of the buyer when it is created; or

(3) an asset created in the course of the organization's activities does not have an alternative use at that organization, and the organization has a legally enforceable right to payment for work performed to date.

An asset created in the course of an entity's activities does not have an alternative use in that entity if the entity has contractual or practical restrictions on using the asset for another use in the process of its creation or improvement.

An assessment of the possibility of an alternative use of an asset is carried out at the stage of concluding a contract.

After the contract enters into force, the entity does not reassess the alternative use of the asset until the parties approve changes to the contract that significantly affect the performance obligations.

An entity should take into account the terms of the contract and any laws applicable to that contract when assessing whether it has the legal ability to pay for completed contracts. the current moment works.

The right to payment for completed works should not extend only to a certain fixed number of them.

However, for the entire duration of the contract, the organization should be entitled to receive an amount that at least compensates for the obligation to perform the completed work if the contract is terminated by the customer or another party, unless the reason for the termination is the organization's failure to perform its obligations.

Point-in-time performance obligations

If a performance obligation is not satisfied within a period of time, an entity is required to discharge that obligation at a point in time.

An entity should consider the following transfer of control metrics, which include, but

are not limited to only this:

(1) The entity is currently entitled to receive payment for the asset - if the customer is currently required to pay for the asset, this could be evidenced that the customer has been able to directly use the asset and have largely received all the benefits of the asset.

(2) The buyer has a legal right to the asset - the legal right can specify which parties to the contract have the ability to directly use and derive substantially all other benefits from the asset, or to restrict other entities' access to those benefits

Thus, a transfer of ownership of an asset may indicate that the customer has gained control of the asset. If the entity retains legal title solely as a defense against the customer's default on payments, the entity will not preclude the customer from gaining control of the asset.

(3) An entity has transferred physical ownership of an asset to a customer - physical possession of an asset may indicate that the customer has the ability to directly use the asset and to a significant extent receive all the remaining benefits from the asset, or the ability to prevent other entities from accessing those benefits.

However, physical ownership of an asset may not always mean control over it.

For example, in some buy-and-hold agreements, the buyer or consignee may physically own an asset that the entity retains control.

Conversely, in some custody agreements, the entity may physically own the asset, but the customer retains control of the asset.

(4) The acquirer has significant risks and rewards from owning an asset - the transfer of significant risks and rewards from owning an asset to a customer may mean that he has received the direct use of the asset and also received all other benefits from the asset.

However, in assessing the risks and rewards of transferring ownership of an asset, an entity shall exclude any risks that result in the fulfillment of additional obligations other than the obligation to transfer the asset.

For example, an entity may transfer control of an asset to a customer, but it has not yet satisfied an additional obligation to provide services for maintenance associated with the transferred asset.

(V) The acquirer took over the asset - Acceptance of the asset by the acquirer may indicate that he has received the direct use of the asset, as well as receive, in essence, all other benefits of the asset.

Assessment of the degree of complete fulfillment of the performance obligation

For each obligation that is settled over a period of time, an entity shall recognize revenue over a period of time by assessing the extent to which the obligation has been fully satisfied.

The objective of a performance review is to assess the entity's actions in transferring control of the goods or services promised to a customer (ie, satisfying the performance obligation).

An entity shall apply a single method for assessing progress over time for each liability, and that method shall be applied consistently for similar obligations and similar conditions.

At the end of each reporting period, an entity shall reassess the extent to which the obligation has been fully satisfied over time.

Methods for assessing the degree of fulfillment of an obligation

Appropriate methods for assessing the degree of fulfillment of an obligation are performance and cost. In determining the appropriate measurement method, an entity should consider the nature of the good or service that it is expected to transfer to a customer.

When applying a method for measuring the degree of fulfillment of a liability, an entity shall exclude from the measurement those goods or services for which it has not transferred control to a customer.

On the other hand, an entity shall include in its measure of fulfillment of a liability those goods or services for which it has transferred control to a customer.

As circumstances change over time, an entity shall update its estimate of the degree of fulfillment of the obligation to reflect any changes in the performance of the obligation.

Such changes in the measurement of the entity's degree of fulfillment of the obligation shall be accounted for as a change in an accounting estimate in accordance with IAS 8. Accounting policies, changes in accounting estimates and errors.

Reasonable estimate of the degree of fulfillment of the obligation

An entity shall recognize revenue for a obligation discharged over time if it can reasonably estimate the level of complete fulfillment of the obligation.

An entity will not be able to reasonably estimate the level of complete fulfillment of an obligation if it lacks the reliable information that would be required to apply the appropriate valuation technique.

In some cases (for example, in the early stages of a contract), an entity may not be able to reasonably assess the results of fulfilling the obligation, but expects to be reimbursed for the costs incurred.

In such cases, an entity recognizes revenue to the extent of the expense incurred over a period of time over which it can reasonably be able to estimate the outcome of the obligation.

Limitation of estimates of variable consideration

An entity shall include in the transaction price the amount of a variable consideration only if it is probable that, given the uncertainty of the variable, there will be no significant outflow of the total recognized revenue.

In assessing the likelihood that, given the uncertainty of this variable, there will be no significant outflow of the cumulative revenue recognized, an entity should consider both the likelihood and the magnitude of the decrease in revenue.

Factors that may increase the likelihood or magnitude of a decrease in revenue include, but are not limited to:

(1) the amount of compensation is highly susceptible to external factors that are beyond the organization's influence on them. Such factors may represent market volatility, judgment or actions of third parties, weather and a high risk of obsolescence of manufactured products.

(2) continuing uncertainty in the amount of consideration over a long period of time.

(3) limited experience (or other confirmation) of the organization's work with similar types of contracts, or limited experience (or other confirmation) of forecasting volumes.

(4) the organization has a practice of offering a wide range of price discounts or changes to conditions under similar contracts.

(5) the contract provides for a large number of conditions and a wide range of possibilities for determining compensation.

Revaluation of variable consideration

An entity shall reassess the value of a transaction at the end of each reporting period (including revising its measurement of the constraints on variable consideration), providing reliable judgments at the end of the reporting period and if the terms of the transaction change.

Significant financing component in the contract

In determining the transaction price, the entity shall adjust the projected income for the time value of money if the timing of payments agreed upon by the parties to the contract (explicitly or implicitly) provides the customer or entity with a significant financing benefit in the transfer of goods or services to the customer.

In such a case, the contract is deemed to contain a significant financing component.

A significant financing component may be present in a contract regardless of whether this is explicitly indicated in the contract or implied by the terms of payment agreed by the parties.

The objective of adjusting the expected amounts in measuring the financing component is for the entity to recognize revenue to the extent that it reflects the price that a customer would pay for the goods or services if the customer were to pay cash for them when (or as) the cash is transferred. (i.e. the money selling price).

When assessing a contract to determine whether it contains a financial component and is material to the contract, an entity shall consider all relevant facts and circumstances, including:

(1) the difference, if any, between the amount expected to be received and the money price of the sale of the goods and services; and

(2) cumulative impact:

(1) the expected length of time between the time the organization transfers the promised goods or services to the customer and the time the customer pays for those goods or services; as well as

(2) the prevailing interest rates in the relevant market.

Notwithstanding the above assessment, the contract with the purchaser will not have a significant financing component if any of the following factors are present:

(1) the buyer has paid for the goods or services in advance and the timing of the transfer of these goods or services is determined by the buyer.

(2) a significant portion of the customer's promised consideration is variable and the amount or timing of the consideration varies with the occurrence or non-occurrence of future events and is not substantially under the control of the customer or entity (for example, if the consideration is royalty-based).

(3) the difference between the promised refund and the cash price of the sale of the good or service arises for reasons other than providing financing to the buyer or entity, and the amount of the difference depends on the reason. For example, payment terms can protect an entity or a customer from another party that is unable to adequately fulfill some or all of its contractual obligations.

In practice, an entity may not adjust a promised consideration for the effect of a significant financing component if the entity expects, at the time of contract inception, that the period between the transfer of the promised good or service to the customer and the date of payment for that good or service will not be more than one year.

To achieve this objective, when adjusting the promised amount of consideration for the impact of an important financing component, an entity should use the discount rate that would apply in a separate financing transaction between the entity and the customer from the date of the contract. This rate will reflect the credit characteristics of the party to the contract receiving the financing, as well as any collateral or security provided by the acquirer or entity, including the assets transferred under the contract.

An entity shall be able to determine that rate by identifying the discount rate for the nominal amount of the promised consideration to the price that would have been paid by the customer in cash for the goods or services when (or as) they pass to the customer.

After inception of the contract, the entity does not revise the discount rate for changes in interest rates or other circumstances (for example, a change in the customer's credit risk assessment).

An entity shall present the results of financing in the statement of comprehensive income (interest revenue or interest expense) separately from revenue from contracts with customers.

Interest income or expense is recognized only to the extent that it recognizes in accounting for the contract with the customer. contract assets(or receivable) or contractual obligation.

Payment of refunds to the buyer

Consideration payable to a customer includes amounts of money that the entity pays or is expected to pay to the customer (or other parties who purchase the entity's goods and services from the customer).

The consideration payable to a customer also includes credit or other items (such as a coupon or voucher) that can be set off against amounts due to the entity (or other parties who purchase the entity's goods and services from the customer).

An entity shall account for the consideration payable to a customer as a reduction in the transaction price and therefore revenue, unless the payment to the customer is made in exchange for a distinct good or service that the customer transfers to the entity.

If the consideration payable to the customer includes a variable amount, the entity must estimate the transaction price (including assessing whether the estimate of the variable consideration is limited).

If the consideration payable to a customer is payment for a distinct customer supplied good or service, an entity shall account for that purchase in the same way as for other purchases from suppliers.

If the consideration payable to the customer exceeds the fair value of the distinct good or service received from the customer, the entity shall account for the excess as a transaction deduction.

If an entity is unable to reasonably estimate the fair value of a good or service received from a customer, it shall account for all consideration payable to the customer as a reduction in the transaction price.

If consideration is given to a customer as a decrease in the transaction price, an entity shall recognize a decrease in revenue when (or as) the later of the following events occurs:

(1) the entity recognizes the revenue of the related goods or services transferred to the customer; and

(2) the entity pays or promises to pay consideration (even if the payment is conditional on a future event). Such a promise may be implicit in the organization's normal business practice.

Discount distribution

The client receives a discount for the purchase of a package of goods or services if the sum of the prices for the stand-alone sale of the promised goods or services exceeds the promised compensation under the contract.

Unless an entity has observable evidence that the entire rebate relates to only one or more, but not all, performance obligations in a contract, the entity shall allocate the rebate in proportion to all performance obligations in the contract.

The proportional allocation of the discount in such an environment is a consequence of the entity's allocation of the transaction price to each performance obligation based on the relative stand-alone selling prices of the distinct goods or services.

An entity shall allocate the discount in full to one or more, but not all, performance obligations under the contract, if all of the following criteria are met:

(1) the entity regularly sells each distinct good or service (or each bundle of distinct goods or services) on a stand-alone contract basis;

(2) the entity also regularly sells a bundle (or bundles) of certain distinct goods or services at a discount to the stand-alone selling price of the goods or service in each bundle; and

(3) the discount related to each bundle of goods or services is substantially the same as the discount in the contract, and analysis of the goods or services in each bundle provides observable evidence of the existence (or performance) of an obligation to which the entire discount provided for in the contract relates.

If a discount is fully allocated to one or more performance obligations in a contract, the entity must allocate the discount before applying the residual approach in estimating the stand-alone selling price of the good or service.

Disclosure

The purpose of disclosure requirements for an entity is to provide users of financial statements with information to understand the nature, volume, timing and likelihood of cash flows from contracts with customers.

In order to achieve this objective, an entity is required to disclose all qualitative and quantitative information for the following items:

(1) contracts with customers;

(2) significant decisions and changes thereon regarding these contracts and falling within the scope of IFRS (IFRS) 15; and

(3) any assets that are incurred in servicing the contract with a customer and are recognized as costs.

To satisfy the disclosure objectives, an entity must determine the level of detail required for the disclosures and how much attention should be paid to each item.

The organization should choose an aggregated or detailed presentation of information based on the fact that helpful information did not hide behind a large volume of details, insignificant or different in their characteristics.

An entity is not required to disclose the disclosures required by IFRS 15 if it has provided that information in accordance with the requirements of other standards.

Contracts with buyers

An entity shall disclose all of the following amounts for the reporting period, unless those amounts have been presented separately in accordance with other standards in the statement of comprehensive income:

(a) revenue recognized from contracts with customers is disclosed by the entity separately from revenue from other sources; and

(b) any recognized (in accordance with IFRS 9) impairment losses on receivables or assets from contracts with customers are disclosed by the entity separately from impairment losses on other contracts.

Breakdown of revenue

An entity shall categorize revenue recognized from contracts with customers that reflect the nature, volume, timing and likelihood of revenue and cash flows, depending on economic factors.

In addition, an entity shall disclose sufficient disclosures to enable users of financial statements to understand the relationship between the disclosures by revenue breakdown with the revenue disclosures that are disclosed for each reportable segment if the entity applies IFSR 8. Operating segments.

Balances under the agreement

An entity shall disclose all of the following:

(1) Balances of receivables, assets and liabilities under contracts with customers, if not separately presented and disclosed;

(2) revenue recognized in reporting period that was included in the balance of the liability under contracts with customers at the beginning of the period; and

(3) revenue recognized in the period relating to performance obligations fulfilled (or partially fulfilled) in previous periods (for example, changes in the transaction price).

An entity shall explain how the timing of fulfillment obligations relates to normal payment terms and what effect they have on the asset and liability balances of the contract. Qualitative information can be used in these explanations.

An entity shall explain significant changes during the reporting period in the balances of assets and liabilities in a contract. These explanations should use qualitative and quantitative information.

Examples of changes in the balances of assets and liabilities under the contracts of the organization:

(1) changes related to the business combination;

(2) cumulative adjustments to revenue that affect the related asset or liability in the contract, including adjustments for changes in the degree of fulfillment of the obligation, estimates of the transaction price (including any changes in the estimates for the limitation of variable consideration), or changes in the terms of the contract;

(3) impairment of the contract asset;

(4) a change in the period of time required for the right to reimbursement to become unconditional (that is, for the contract asset to be reclassified as a receivable);

(5) a change in the time period over which the performance obligation is due (ie, revenue is recognized arising from the contract liability).

Performance obligations

An entity shall disclose information about its performance obligations under contracts with customers, including a description of all of the following:

(1) the date the entity fulfills its obligations (for example, after shipment, after delivery, as services are rendered, or after services have been provided), including the fulfillment of obligations under post-payment deferred delivery agreements;

(2) material terms of payment (for example, when payment is due, whether there is a significant financing component in the contract, whether the amount of the consideration is variable and whether estimates of variable consideration are limited);

(3) the nature of the goods or services that the entity has promised to transfer, highlighting the performance obligations for the transfer of goods and services to another party (ie, if the entity is acting as an agent);

(4) obligations to return and other similar obligations; and

(5) types of guarantees and related obligations.

Transaction price allocated to remaining performance obligations

An entity shall disclose the following information about the remaining performance obligations:

(1) the total amount of the transaction price allocated to unfulfilled (or partially unfulfilled) obligations at the end of the reporting period; and

(2) an explanation of when an entity expects to recognize as revenue an amount disclosed in one of the following ways:

(a) on a quantifiable basis using the time intervals most appropriate for the period in which the remaining performance obligations are satisfied; or

(b) using quality information.

For practical purposes, an entity may not disclose performance information provided that one of the following conditions is met:

(a) a performance obligation is part of a contract with an original expected life of not more than one year; or

(b) the entity recognizes revenue from the fulfillment of the obligation

An entity shall provide a qualitative explanation as to whether it is applying the practical expedients and whether any consideration received from a contract with a customer will not be included in the transaction price and therefore not included in the disclosures.

For example, the estimate of the transaction price would not include the estimated variable consideration, which is limited.

Significant Judgments in Applying IFRS (IFRS) 15

An entity shall disclose judgments, as well as changes in judgments made using AASB 15, that have a significant effect on the determination of the amount and timing of revenue from contracts with customers.

In particular, an entity shall disclose the judgments, as well as changes in judgments, that were used in determining both positions:

(a) the timing of the satisfaction of performance obligations; and

(b) transaction prices and amounts allocated to the performance obligation.

Determination of terms of satisfaction of obligations to fulfill

For obligations that are settled over time, an entity shall disclose:

(a) the methods used to recognize revenue (for example, a description of the effectiveness or cost method and how those methods are applied); and

(b) an explanation of why the methods used provide accurate depiction

transfer of goods or services. The methods used to recognize revenue (for example, a description of the output and resource methods used and how those methods are applied); and

For a point-in-time performance obligation, an entity discloses the significant judgments it makes in assessing when a customer obtains control of the promised goods or services.

Determination of the transaction price and the amounts allocated to performance obligations

An entity shall disclose information about the methods, inputs and assumptions applied in all of the following cases:

(1) determining the transaction price, which includes, but is not limited to, estimating variable consideration, adjusting the consideration for the effect of cash time value and estimating non-cash consideration;

(2) an estimate of the extent to which variable consideration is limited;

(3) allocating the transaction price, including estimating stand-alone selling prices for the promised goods or services and allocating discounts and variable consideration to a specific portion of the contract (if applicable);

(4) assessment of obligations for refunds and other similar obligations.

Assets recognized in connection with the costs of entering into or fulfilling a contract with a customer

The organization should describe the following:

(1) the judgments used in determining the amount of costs in the conclusion or performance of a contract with a buyer; as well as

(2) the method used to determine depreciation in each reporting period.

An entity shall disclose all of the following information:

(1) balances at the end of the period for assets recognized for costs incurred in entering into or fulfilling a contract with a customer, broken down by major asset category (for example, costs incurred to enter into a contract with a customer, pre-contract costs and preparatory costs); as well as

(2) the amount of amortization and impairment losses recognized in the period.

Practical simplifications

If an entity decides to apply the practicability principle when there is a significant financing component (about additional costs at the conclusion of the contract), it should disclose this fact.

Methods for assessing the degree of fulfillment of a performance obligation

Methods that can be used to estimate the degree of fulfillment of a performance obligation over a period of time consist of:

(I) method of results; and

(B) resource method.

Results Methods

Outcome methods provide for the recognition of revenue based on direct estimates of the value of the goods or services transferred to the customer to date in relation to the remaining amount of the promised goods or services under the contract.

Results methods include methods such as reviewing the results of activities completed to date, evaluating the results achieved, the milestones completed, the time consumed, and the units produced or delivered.

When an organization determines whether it is appropriate to apply a results method to assess progress, it should be based on the principle of the most accurate reflection. production activities organizations for the fulfillment of a performance obligation.

Using the results method will not accurately represent the organization's performance unless the selected outcome measures the goods or services that have passed control to the customer.

For example, output methods based on units produced or delivered may not accurately represent the entity's performance in meeting obligations if the entity's performance at the end of the reporting period is work in progress or customer controlled. finished products that are not included in the evaluation of the result.

As a practical expedient, if an entity is entitled to reimbursement from a customer for an amount that directly corresponds to the cost to the customer of the results of operations completed to date (for example, a service contract for which the entity records a fixed amount for each hour of service provided), then an entity may recognize revenue in an amount for which it is entitled to invoice.

The disadvantages of these methods are that the results used to measure performance cannot be directly observable and the organization may be costly to obtain the information needed to apply them.

Thus, the resource method may need to be applied.

Resource methods

Resource methods provide for the recognition of revenue based on an entity's effort or resources spent on meeting its obligations (for example, resources consumed, labor time expended, costs incurred, time elapsed or machine time used) relative to the total expected amount of resources required to meet of this performance obligation.

If an entity's efforts or resources are expended on a straight-line basis over the life of the obligation, the entity may recognize revenue on a straight-line basis.

The disadvantage of this method is the lack of a direct relationship between the resources consumed by the organization and the transfer of control of goods or services to the customer.

To eliminate this discrepancy, the organization must exclude the impact of the resources consumed, which, in accordance with the purpose of assessing the degree of fulfillment of the obligation, do not reflect the results of the organization's activities in transferring control over the goods or services to the customer.

For example, when applying the resource method based on actual cost, you may need to adjust the degree of completion in the following cases:

(1) When costs incurred by an entity have failed to achieve a degree of fulfillment of a performance obligation.

For example, an entity would not recognize revenue on the basis of costs incurred for a significant decrease in production efficiency that were not reflected in the contract price (for example, unforeseen waste of material, labor or other resources used to meet a performance obligation).

(2) When the costs incurred are not proportional to the extent to which the entity has fulfilled the obligation. In such cases, adjusting the resource method to recognize revenue only to the extent of the costs incurred may be the best indication of the performance results.

For example, a fair reflection of the entity's performance in fulfilling the obligation may be the recognition of revenue in an amount equal to the cost of the goods used to fulfill the obligation if, at the time of the conclusion of the contract, the entity expects to meet all of the following conditions:

(1) the product is not distinguishable;

(2) the purchaser is expected to gain control of the product much earlier than receiving the related services;

(3) the actual costs associated with the transferred goods are significant enough relative to the total expected costs of fully fulfilling the obligation;

(4) the entity purchases a product from a third party and does not significantly participate in the design and manufacture of that product (but the entity acts as a principal).

Role of Principal and Agent

In cases where a third party is involved in the provision of goods or services to a customer, an entity must determine whether the nature of its obligation to provide the goods or services implies that it must fulfill the obligation itself (that is, the entity is the principal), or whether it must engage in performance. obligations to the other party (i.e. the organization is the agent).

An entity is a principal if it controls a promised good or service prior to transferring it to a customer.

However, an entity does not necessarily act as a principal if title to a good or service transfers to it immediately prior to transferring it to a customer.

Organization - the principal can fulfill the obligation independently, or involve another party (for example, a subcontractor) to participate in the performance of all or part of the obligations on behalf of this organization.

When a performance obligation is satisfied, the entity-principal recognizes revenue at the gross amount of the consideration it expects to receive in exchange for the goods or services transferred.

An organization is an agent if it involves another party to fulfill an obligation.

When a performance obligation is satisfied, an agent entity recognizes revenue in the amount of the fee or commission to which it expects to be entitled in exchange for arranging for the provision of goods or services by another party.

An entity's fee or commission is the net consideration that remains with the entity after the fee is paid to the other party in exchange for the goods or services received from that party.

Indicators that the entity is an agent (and therefore does not control the good or service prior to its provision to the customer):

(1) the other party is primarily responsible for the performance of the contract;

(2) the entity is not exposed to inventory impairment risk before or after the goods have been ordered by a customer, during transit, or after they have been returned;

(3) the organization does not have the right to independently set prices for goods or services to the other party and, therefore, the benefits that the organization can obtain from such goods or services are limited;

(4) the organization's compensation is in the form of a commission; and

(5) the entity is not exposed to credit risk in respect of expected receivables from a customer in exchange for goods or services from another party.

If another party assumes performance obligations and rights under an entity’s contract, and as a result, the entity is not required to fulfill the obligation and transfer the promised good or service to a customer (i.e., the entity ceases to be the principal), the entity shall not recognize revenue for that entity. obligations.

Instead, the entity must assess whether revenue recognition is necessary in relation to the fulfillment of the obligation to enter into a contract by another party (ie whether the entity is acting as an agent).

When working on this manual, material was used from the following sources:

IFRS industry insights - Revenue - Banking and securities - Deloitte

IFRS 15 Revenue from Contracts with Customers - Project Summary and Feedback Statement (IASB) May 2014)

IFRS 15 Examples: How IFRS 15 Affects Your Company

TRAINING GUIDES FOR IFRS (history and copyright)

This is the latest version legendary teaching aids in Russian and English prepared in the framework of three TACIS projects under financial support European Union(2003-2009), which were carried out under the leadership PricewaterhouseCoopers. These tutorials are also available on the website Ministry of Finance of the Russian Federation.

This series covers all IFRS-based standards. It is intended as a practical guide for professional accountants who wish to acquire additional knowledge, information and skills on their own.

Each collection is an independent short course, designed for no more than three hours of lessons. Although these books are part of a series of materials, each is a self-contained course. Each tutorial includes Information, Examples, Self Test Questions and Answers... Users are assumed to have basic accounting knowledge; if the tutorial requires additional knowledge, it is noted at the beginning of the section.

The first three issues are constantly updated by us and are available for free download. Please let your friends and colleagues know about it. With regard to the first three editions and updated texts, the copyright in the materials of each collection belongs to the European Union, in accordance with the policy of which free of charge use for non-commercial purposes is allowed. We own and are responsible for the copyright for later releases and revisions. Our copyright policy is the same as that of the European Union.

We want to express a special thanks to Elizabeth Apraksin(European Union), curator of the aforementioned TACIS projects , Richard J. Gregson(Partner, PricewaterhouseCoopers), Project Manager, and to all our friends from bankir.ru, who posted these tutorials.

TACIS project partners: Rosexpertiza (Russia), ACCA (UK), Agriconsulting (Italy), FBK (Russia), and European Savings Bank Group (Brussels).