Contents

INTERNATIONAL FINANCIAL REPORTING STANDARD 15 REVENUE FROM CONTRACTS WITH CUSTOMERS
OBJECTIVE1
Meeting the objective2
SCOPE5
RECOGNITION9
Identifying the contract9
Combination of contracts17
Contract modifications18
Identifying performance obligations22
Satisfaction of performance obligations31
MEASUREMENT46
Determining the transaction price47
Allocating the transaction price to performance obligations73
Changes in the transaction price87
CONTRACT COSTS91
Incremental costs of obtaining a contract91
Costs to fulfil a contract95
Amortisation and impairment99
PRESENTATION105
DISCLOSURE110
Contracts with customers113
Significant judgements in the application of this Standard123
Assets recognised from the costs to obtain or fulfil a contract with a customer127
Practical expedients129
APPENDICES 
A Defined terms 
B Application Guidance 
C Effective date and transition 
D Amendments to other Standards 
APPROVAL BY THE BOARD OF IFRS 15 ISSUED IN MAY 2014
APPROVAL BY THE BOARD OF AMENDMENTS TO IFRS 15:
Effective Date of IFRS 15 issued in September 2015
Clarifications to IFRS 15 Revenue from Contracts with Customers issued in April 2016
FOR THE ACCOMPANYING GUIDANCE LISTED BELOW, SEE PART B OF THIS EDITION
ILLUSTRATIVE EXAMPLES
APPENDIX
Amendments to the guidance on other Standards 
FOR THE BASIS FOR CONCLUSIONS, SEE PART C OF THIS EDITION
BASIS FOR CONCLUSIONS
DISSENTING OPINION
APPENDICES TO THE BASIS FOR CONCLUSIONS
A Comparison of IFRS 15 and Topic 606
B Amendments to the Basis for Conclusions on other Standards

International Financial Reporting Standard 15 Revenue from Contracts with Customers (IFRS 15) is set out in paragraphs 1⁠–⁠129 and Appendices A⁠–⁠D. All the paragraphs have equal authority. Paragraphs in bold type state the main principles. Terms defined in Appendix A are in italics the first time that they appear in the Standard. Definitions of other terms are given in the Glossary for International Financial Reporting Standards. The Standard should be read in the context of its objective and the Basis for Conclusions, the Preface to IFRS Standards and the Conceptual Framework for Financial ReportingIAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies in the absence of explicit guidance. [Refer:IAS 8 paragraphs 10⁠–⁠12]

International Financial Reporting Standard 15Revenue from Contracts with Customers

Objective

1

The objective of this Standard is to establish the principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer.

[Link toBasis for Conclusions paragraphs BC22⁠–⁠BC24 for the reasons why the boards did not develop an activities model]

Meeting the objective

2

To meet the objective in paragraph 1, the core principle of this Standard is that an entity shall recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. [Refer:Basis for Conclusions paragraphs BC12BC19⁠–⁠BC21 and BC25⁠–⁠BC27]

[Note:Paragraph IN7 of the Introduction that accompanied the issue of IFRS 15 in May 2014 summarised the five steps that an entity applies when recognising revenue in accordance with the Standard’s core principle. The steps are:

Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation.]

3

An entity shall consider the terms of the contract and all relevant facts and circumstances when applying this Standard. An entity shall apply this Standard, including the use of any practical expedients, consistently to contracts with similar characteristics and in similar circumstances.

4

This Standard specifies the accounting for an individual contract with a customer. However, as a practical expedient, an entity may apply this Standard to a portfolio of contracts (or performance obligations) with similar characteristics if the entity reasonably expects that the effects on the financial statements of applying this Standard to the portfolio would not differ materially from applying this Standard to the individual contracts (or performance obligations) within that portfolio. When accounting for a portfolio, an entity shall use estimates and assumptions that reflect the size and composition of the portfolio.

Scope

5

An entity shall apply this Standard to all contracts with customers, except the following:

(a)

lease contracts within the scope of IFRS 16 Leases;

(b)

contracts within the scope of IFRS 17 Insurance Contracts. [Refer:IFRS 17 paragraph 7(a), (c) and (d) for contracts in the scope of IFRS 15, not IFRS 17] However, an entity may choose to apply this Standard to insurance contracts that have as their primary purpose the provision of services for a fixed fee in accordance with paragraph 8 of IFRS 17 [Refer:IFRS 17 Basis for Conclusions paragraphs BC95⁠–⁠BC97];

(c)

financial instruments and other contractual rights or obligations within the scope of IFRS 9 Financial Instruments, IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures; and

(d)

non-monetary exchanges between entities in the same line of business to facilitate sales to customers or potential customers. For example, this Standard would not apply to a contract between two oil companies that agree to an exchange of oil to fulfil demand from their customers in different specified locations on a timely basis. [Refer:Basis for Conclusions paragraphs BC58 and BC59]

6

An entity shall apply this Standard to a contract (other than a contract listed in paragraph 5) only if the counterparty to the contract is a customer. [Refer:Basis for Conclusions paragraphs BC52⁠–⁠BC57] A customer is a party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration. A counterparty to the contract would not be a customer if, for example, the counterparty has contracted with the entity to participate in an activity or process in which the parties to the contract share in the risks and benefits that result from the activity or process (such as developing an asset in a collaboration arrangement) rather than to obtain the output of the entity’s ordinary activities.

7

contract with a customer may be partially within the scope of this Standard and partially within the scope of other Standards listed in paragraph 5.

(a)

If the other Standards specify how to separate and/or initially measure one or more parts of the contract, then an entity shall first apply the separation and/or measurement requirements in those Standards. An entity shall exclude from the transaction price the amount of the part (or parts) of the contract that are initially measured in accordance with other Standards and shall apply paragraphs 73⁠–⁠86 to allocate the amount of the transaction price that remains (if any) to each performance obligation within the scope of this Standard and to any other parts of the contract identified by paragraph 7(b).

(b)

If the other Standards do not specify how to separate and/or initially measure one or more parts of the contract, then the entity shall apply this Standard to separate and/or initially measure the part (or parts) of the contract.

8

This Standard specifies the accounting for the incremental costs of obtaining a contract with a customer and for the costs incurred to fulfil a contract with a customer if those costs are not within the scope of another Standard (see paragraphs 91⁠–⁠104). An entity shall apply those paragraphs only to the costs incurred that relate to a contract with a customer (or part of that contract) that is within the scope of this Standard.

Recognition

Identifying the contract

9

An entity shall account for a contract with a customer that is within the scope of this Standard only when all of the following criteria are met: [Refer:Basis for Conclusions paragraphs BC33 and BC34]

(a)

the parties to the contract have approved the contract (in writing, orally or in accordance with other customary business practices) and are committed to perform their respective obligations; [Refer:Basis for Conclusions paragraphs BC35 and BC36]

(b)

the entity can identify each party’s rights regarding the goods or services to be transferred; [Refer:Basis for Conclusions paragraph BC37]

(c)

the entity can identify the payment terms for the goods or services to be transferred; [Refer:Basis for Conclusions paragraphs BC38 and BC39]

(d)

the contract has commercial substance (ie the risk, timing or amount of the entity’s future cash flows is expected to change as a result of the contract); [Refer:Basis for Conclusions paragraphs BC40 and BC41] and

(e)

it is probable [Refer:Basis for Conclusions paragraph BC44] that the entity will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer. In evaluating whether collectability of an amount of consideration is probable, an entity shall consider only the customer’s ability and intention to pay that amount of consideration when it is due. The amount of consideration to which the entity will be entitled may be less than the price stated in the contract if the consideration is variable because the entity may offer the customer a price concession (see paragraph 52). [Refer:Basis for Conclusions paragraphs BC42⁠–⁠BC46E and BC265 and Illustrative Examples, examples 1 and 2]

10

A contract is an agreement between two or more parties that creates enforceable rights and obligations. Enforceability of the rights and obligations in a contract is a matter of law. Contracts can be written, oral or implied by an entity’s customary business practices. The practices and processes for establishing contracts with customers vary across legal jurisdictions, industries and entities. In addition, they may vary within an entity (for example, they may depend on the class of customer or the nature of the promised goods or services). An entity shall consider those practices and processes in determining whether and when an agreement with a customer creates enforceable rights and obligations.

11

Some contracts with customers may have no fixed duration and can be terminated or modified by either party at any time. Other contracts may automatically renew on a periodic basis that is specified in the contract. An entity shall apply this Standard to the duration of the contract (ie the contractual period) in which the parties to the contract have present enforceable rights and obligations.

12

For the purpose of applying this Standard, a contract does not exist if each party to the contract has the unilateral enforceable right to terminate a wholly unperformed contract without compensating the other party (or parties). A contract is wholly unperformed if both of the following criteria are met:

(a)

the entity has not yet transferred any promised goods or services to the customer; and

(b)

the entity has not yet received, and is not yet entitled to receive, any consideration in exchange for promised goods or services.

13

If a contract with a customer meets the criteria in paragraph 9 at contract inception, an entity shall not reassess those criteria unless there is an indication of a significant change in facts and circumstances. For example, if a customer’s ability to pay the consideration deteriorates significantly, an entity would reassess whether it is probable that the entity will collect the consideration to which the entity will be entitled in exchange for the remaining goods or services that will be transferred to the customer.

14

If a contract with a customer does not meet the criteria in paragraph 9, an entity shall continue to assess the contract to determine whether the criteria in paragraph 9 are subsequently met.

15

When a contract with a customer does not meet the criteria in paragraph 9 and an entity receives consideration from the customer, the entity shall recognise the consideration received as revenue only when either of the following events has occurred:

(a)

the entity has no remaining obligations to transfer goods or services to the customer and all, or substantially all, of the consideration promised by the customer has been received by the entity and is non-refundable; or

(b)

the contract has been terminated and the consideration received from the customer is non-refundable.

16

An entity shall recognise the consideration received from a customer as a liability until one of the events in paragraph 15 occurs or until the criteria in paragraph 9 are subsequently met (see paragraph 14). Depending on the facts and circumstances relating to the contract, the liability recognised represents the entity’s obligation to either transfer goods or services in the future or refund the consideration received. In either case, the liability shall be measured at the amount of consideration received from the customer.

Combination of contracts

17

An entity shall combine two or more contracts entered into at or near the same time [Refer:Basis for Conclusions paragraph BC72] with the same customer (or related parties of the customer) [Refer:Basis for Conclusions paragraph BC74] and account for the contracts as a single contract if one or more of the following criteria are met:

(a)

the contracts are negotiated as a package with a single commercial objective;

(b)

the amount of consideration to be paid in one contract depends on the price or performance of the other contract; or

(c)

the goods or services promised in the contracts (or some goods or services promised in each of the contracts) are a single performance obligation in accordance with paragraphs 22⁠–⁠30. [Refer:Basis for Conclusions paragraph BC73]

Contract modifications

18

A contract modification is a change in the scope or price (or both) of a contract that is approved by the parties to the contract. In some industries and jurisdictions, a contract modification may be described as a change order, a variation or an amendment. A contract modification exists when the parties to a contract approve a modification that either creates new or changes existing enforceable rights and obligations of the parties to the contract. [Refer:Basis for Conclusions paragraph BC81(a)] A contract modification could be approved in writing, by oral agreement or implied by customary business practices. If the parties to the contract have not approved a contract modification, an entity shall continue to apply this Standard to the existing contract until the contract modification is approved.

19

contract modification may exist even though the parties to the contract have a dispute about the scope or price (or both) of the modification or the parties have approved a change in the scope of the contract but have not yet determined the corresponding change in price. In determining whether the rights and obligations that are created or changed by a modification are enforceable, [Refer:Basis for Conclusions paragraph BC81(a)] an entity shall consider all relevant facts and circumstances including the terms of the contract and other evidence. If the parties to a contract have approved a change in the scope of the contract but have not yet determined the corresponding change in price, an entity shall estimate the change to the transaction price arising [Refer:Basis for Conclusions paragraph BC81(b)] from the modification in accordance with paragraphs 50⁠–⁠54 on estimating variable consideration and paragraphs 56⁠–⁠58 on constraining estimates of variable consideration.

20

An entity shall account for a contract modification as a separate contract if both of the following conditions are present:

(a)

the scope of the contract increases because of the addition of promised goods or services that are distinct (in accordance with paragraphs 26⁠–⁠30); and

(b)

the price of the contract increases by an amount of consideration that reflects the entity’s stand-alone selling prices of the additional promised goods or services and any appropriate adjustments to that price to reflect the circumstances of the particular contract. For example, an entity may adjust the stand-alone selling price of an additional good or service for a discount that the customer receives, because it is not necessary for the entity to incur the selling-related costs that it would incur when selling a similar good or service to a new customer.

21

If a contract modification is not accounted for as a separate contract in accordance with paragraph 20, an entity shall account for the promised goods or services not yet transferred at the date of the contract modification (ie the remaining promised goods or services) in whichever of the following ways is applicable:

(a)

An entity shall account for the contract modification as if it were a termination of the existing contract and the creation of a new contract, if the remaining goods or services are distinct from the goods or services transferred on or before the date of the contract modification. The amount of consideration to be allocated to the remaining performance obligations (or to the remaining distinct goods or services in a single performance obligation identified in accordance with paragraph 22(b)) is the sum of:

(i)

the consideration promised by the customer (including amounts already received from the customer) that was included in the estimate of the transaction price and that had not been recognised as revenue; and

(ii)

the consideration promised as part of the contract modification.

(b)

An entity shall account for the contract modification as if it were a part of the existing contract if the remaining goods or services are not distinct and, therefore, form part of a single performance obligation that is partially satisfied at the date of the contract modification. The effect that the contract modification has on the transaction price, and on the entity’s measure of progress towards complete satisfaction of the performance obligation, is recognised as an adjustment to revenue (either as an increase in or a reduction of revenue) at the date of the contract modification (ie the adjustment to revenue is made on a cumulative catch-up basis). [Refer:Basis for Conclusions paragraphs BC80 and BC81(c) and Illustrative Examples, examples 8 and 9]

(c)

If the remaining goods or services are a combination of items (a) and (b), then the entity shall account for the effects of the modification on the unsatisfied (including partially unsatisfied) performance obligations in the modified contract in a manner that is consistent with the objectives of this paragraph.

Identifying performance obligations

22

At contract inception, an entity shall assess the goods or services promised in a contract with a customer and shall identify as a performance obligation each promise to transfer to the customer either:

(a)

a good or service (or a bundle of goods or services) that is distinct; [Refer:Basis for Conclusions paragraph BC95] or

(b)

a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer (see paragraph 23). [Refer:Basis for Conclusions paragraphs BC113⁠–⁠BC116 and Illustrative Examples, example 7 paragraph IE34 and example 13]

23

A series of distinct goods or services has the same pattern of transfer to the customer if both of the following criteria are met:

(a)

each distinct good or service in the series that the entity promises to transfer to the customer would meet the criteria in paragraph 35 to be a performance obligation satisfied over time; and

(b)

in accordance with paragraphs 39⁠–⁠40, the same method would be used to measure the entity’s progress towards complete satisfaction of the performance obligation to transfer each distinct good or service in the series to the customer.

Promises in contracts with customers

[Refer:Basis for Conclusions paragraphs BC87⁠–⁠BC93 and BC116A⁠–⁠BC116E]

24

A contract with a customer generally explicitly states the goods or services that an entity promises to transfer to a customer. However, the performance obligations identified in a contract with a customer may not be limited to the goods or services that are explicitly stated in that contract. This is because a contract with a customer may also include promises that are implied by an entity’s customary business practices, published policies or specific statements if, at the time of entering into the contract, those promises create a valid expectation of the customer that the entity will transfer a good or service to the customer. [Refer:Basis for Conclusions paragraph BC87]

25

Performance obligations do not include activities that an entity must undertake to fulfil a contract unless those activities transfer a good or service to a customer. For example, a services provider may need to perform various administrative tasks to set up a contract. The performance of those tasks does not transfer a service to the customer as the tasks are performed. Therefore, those setup activities are not a performance obligation.E1 [Refer:Basis for Conclusions paragraph BC93]

E1

[IFRIC® Update, January 2019, Agenda Decision, ‘IFRS 15 Revenue from Contracts with Customers—Assessment of promised goods or services’

The Committee received a request about the recognition of revenue by a stock exchange that provides a listing service to a customer. Specifically, the request asked whether the stock exchange promises to transfer an admission service that is distinct from the listing service. In the fact pattern described in the request, the stock exchange charges the customer a non-refundable upfront fee on initial listing and an ongoing listing fee. The upfront fee relates to activities the stock exchange undertakes at or near contract inception.

Paragraph 22 of IFRS 15 requires an entity to assess the goods or services promised in a contract with a customer and to identify performance obligations. A performance obligation is a promise to transfer to the customer either:

a.

a good or service (or a bundle of goods or services) that is distinct; or

b.

a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer.

In paragraph BC87 of IFRS 15, the Board noted that before an entity can identify its performance obligations in a contract with a customer, the entity would first need to identify all the promised goods or services in that contract.

Paragraph 25 of IFRS 15 specifies that performance obligations do not include activities that an entity must undertake to fulfil a contract unless those activities transfer a good or service to a customer.

Paragraph B49 of IFRS 15 states that to identify performance obligations in contracts in which an entity charges a non-refundable upfront fee, the entity assesses whether the fee relates to the transfer of a promised good or service. In many cases, even though a non-refundable upfront fee relates to an activity that the entity is required to undertake at or near contract inception to fulfil the contract, that activity does not result in the transfer of a promised good or service to the customer.

Accordingly, the Committee noted that when an entity charges a customer a non-refundable upfront fee, the entity considers whether it transfers a promised good or service to the customer at or near contract inception or, instead, for example, whether any activities it performs at or near contract inception represent tasks to set up a contract.

Application of IFRS 15 to the fact pattern in the request

The assessment of the goods and services promised in a contract and the identification of performance obligations requires an assessment of the facts and circumstances of the contract.

Accordingly, the outcome of an entity’s assessment depends on those facts and circumstances.

In the fact pattern described in the request, the stock exchange charges the customer a non-refundable upfront fee and an ongoing listing fee. The stock exchange undertakes various activities at or near contract inception to enable admission to the exchange, such as:

  • performing due diligence for new applications;

  • reviewing the customer’s listing application (including assessing whether to accept the application);

  • issuing reference numbers and tickers for the new security;

  • processing the listing and admission to the market;

  • publishing the security on the order book; and

  • issuing the dealing notice on the admission date.

The Committee observed that the activities performed by the entity at or near contract inception are required to transfer the goods or services for which the customer has contracted—ie the service of being listed on the exchange. However, the entity’s performance of those activities does not transfer a service to the customer.

The Committee also observed that the listing service transferred to the customer is the same on initial listing and on all subsequent days for which the customer remains listed.

Based on the fact pattern described in the request, the Committee concluded that the stock exchange does not promise to transfer any good or service to the customer other than the service of being listed on the exchange.

The Committee concluded that the principles and requirements in IFRS 15 provide an adequate basis for an entity to assess the promised goods and services in a contract with a customer. Consequently, the Committee decided not to add this matter to its standard-setting agenda.]

Distinct goods or services

26

Depending on the contract, promised goods or services may include, but are not limited to, the following:

(a)

sale of goods produced by an entity (for example, inventory of a manufacturer);

(b)

resale of goods purchased by an entity (for example, merchandise of a retailer);

(c)

resale of rights to goods or services purchased by an entity (for example, a ticket resold by an entity acting as a principal, as described in paragraphs B34⁠–⁠B38);

(d)

performing a contractually agreed-upon task (or tasks) for a customer;

(e)

providing a service of standing ready to provide goods or services (for example, unspecified updates to software that are provided on a when-and-if-available basis) or of making goods or services available for a customer to use as and when the customer decides; [Refer:Basis for Conclusions paragraph BC91]

(f)

providing a service of arranging for another party to transfer goods or services to a customer (for example, acting as an agent of another party, as described in paragraphs B34⁠–⁠B38);

(g)

granting rights to goods or services to be provided in the future that a customer can resell or provide to its customer (for example, an entity selling a product to a retailer promises to transfer an additional good or service to an individual who purchases the product from the retailer); [Refer:Basis for Conclusions paragraphs BC91 and BC92 and Illustrative Examples, example 12 Case A and B]

(h)

constructing, manufacturing or developing an asset on behalf of a customer;

(i)

granting licences (see paragraphs B52⁠–⁠B63B); and

(j)

granting options to purchase additional goods or services (when those options provide a customer with a material right, as described in paragraphs B39⁠–⁠B43).

27

A good or service that is promised to a customer is distinctE2 if both of the following criteria are met:

(a)

the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (ie the good or service is capable of being distinct); [Refer:Basis for Conclusions paragraphs BC97⁠–⁠BC101] and

(b)

the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (ie the promise to transfer the good or service is distinct within the context of the contract). [Refer:Basis for Conclusions paragraphs BC102⁠–⁠BC105 and BC116F⁠–⁠BC116Q]

[Link toIllustrative Examples, examples 8 paragraph IE40, 10, 55, 56 Case A and 58 for examples where the goods and services are not distinct]
E2

[IFRIC® Update, March 2018, Agenda Decision, ‘Revenue recognition in a real estate contract that includes the transfer of land (IFRS 15 Revenue from Contracts with Customers)’

The Committee received a request about revenue recognition in a contract for the sale of land and a building to be constructed on the land. Specifically, the request asked (a) about the identification of performance obligations in the contract and (b) for each performance obligation identified, whether the real estate developer (entity) recognises revenue over time or at a point in time.

The text of the full Agenda Decision is reproduced at the end of IFRS 15.]

28

A customer can benefit from a good or service in accordance with paragraph 27(a) if the good or service could be used, consumed, sold for an amount that is greater than scrap value or otherwise held in a way that generates economic benefits. For some goods or services, a customer may be able to benefit from a good or service on its own. For other goods or services, a customer may be able to benefit from the good or service only in conjunction with other readily available resources. A readily available resource is a good or service that is sold separately (by the entity or another entity) or a resource that the customer has already obtained from the entity (including goods or services that the entity will have already transferred to the customer under the contract) or from other transactions or events. Various factors may provide evidence that the customer can benefit from a good or service either on its own or in conjunction with other readily available resources. For example, the fact that the entity regularly sells a good or service separately would indicate that a customer can benefit from the good or service on its own or with other readily available resources.

29

In assessing whether an entity’s promises to transfer goods or services to the customer are separately identifiable in accordance with paragraph 27(b), the objective is to determine whether the nature of the promise, within the context of the contract, is to transfer each of those goods or services individually or, instead, to transfer a combined item or items to which the promised goods or services are inputs. Factors that indicate that two or more promises to transfer goods or services to a customer are not separately identifiable include, but are not limited to, the following: [Refer:Basis for Conclusions paragraphs BC106, BC116F⁠–⁠BC116L and BC116N]

(a)

the entity provides a significant service of integrating the goods or services with other goods or services promised in the contract into a bundle of goods or services that represent the combined output or outputs for which the customer has contracted. In other words, the entity is using the goods or services as inputs to produce or deliver the combined output or outputs specified by the customer. A combined output or outputs might include more than one phase, element or unit. [Refer:Basis for Conclusions paragraphs BC107, BC108 and BC116M]

(b)

one or more of the goods or services significantly modifies or customises, or are significantly modified or customised by, one or more of the other goods or services promised in the contract. [Refer:Basis for Conclusions paragraphs BC109 and BC110]

(c)

the goods or services are highly interdependent or highly interrelated. In other words, each of the goods or services is significantly affected by one or more of the other goods or services in the contract. For example, in some cases, two or more goods or services are significantly affected by each other because the entity would not be able to fulfil its promise by transferring each of the goods or services independently. [Refer:Basis for Conclusions paragraphs BC111 and BC112]

30

If a promised good or service is not distinct, an entity shall combine that good or service with other promised goods or services until it identifies a bundle of goods or services that is distinct. In some cases, that would result in the entity accounting for all the goods or services promised in a contract as a single performance obligation.

Satisfaction of performance obligations

31

An entity shall recognise revenue when (or as) the entity satisfies a performance obligation by transferring a promised good or service (ie an asset) to a customer. An asset is transferred when (or as) the customer obtains control of that asset.

[Link toBasis for Conclusions paragraph BC148 for the reasons for rejecting the right to payment as a separate revenue recognition criterion]

32

For each performance obligation identified in accordance with paragraphs 22⁠–⁠30, an entity shall determine at contract inception whether it satisfies the performance obligation over time (in accordance with paragraphs 35⁠–⁠37) or satisfies the performance obligation at a point in time (in accordance with paragraph 38). If an entity does not satisfy a performance obligation over time, the performance obligation is satisfied at a point in time.

33

Goods and services are assets, even if only momentarily, when they are received and used (as in the case of many services). Control of an asset refers to the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset. [Refer:Basis for Conclusions paragraphs BC120 and BC121] Control includes the ability to prevent other entities from directing the use of, and obtaining the benefits from, an asset. The benefits of an asset are the potential cash flows (inflows or savings in outflows) that can be obtained directly or indirectly in many ways, such as by:

(a)

using the asset to produce goods or provide services (including public services);

(b)

using the asset to enhance the value of other assets;

(c)

using the asset to settle liabilities or reduce expenses;

(d)

selling or exchanging the asset;

(e)

pledging the asset to secure a loan; and

(f)

holding the asset.

34

When evaluating whether a customer obtains control of an asset, an entity shall consider any agreement to repurchase the asset (see paragraphs B64⁠–⁠B76).

Performance obligations satisfied over time

35

An entity transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognises revenue over time, if one of the following criteria is met:E3,E4

(a)

the customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs (see paragraphs B3⁠–⁠B4); [Refer:Basis for Conclusions paragraphs BC125⁠–⁠BC128 and Illustrative Examples, examples 13, 18, 55, 57, 58 and 61]

(b)

the entity’s performance creates or enhances an asset (for example, work in progress) that the customer controls as the asset is created or enhanced (see paragraph B5); [Refer:Basis for Conclusions paragraphs BC129⁠–⁠BC131 and Illustrative Examples, example 8 paragraph IE37] or

(c)

the entity’s performance does not create an asset with an alternative use [Refer:Basis for Conclusions paragraphs BC134⁠–⁠BC141] to the entity (see paragraph 36) and the entity has an enforceable right to payment for performance completed to date (see paragraph 37).E5 [Refer:Basis for Conclusions paragraphs BC142⁠–⁠BC147 and Illustrative Examples, examples 14⁠–⁠17]

[Link toBasis for Conclusions paragraphs BC149⁠–⁠BC152 for the agreements for the construction of real estate]
E3

[IFRIC® Update, March 2018, Agenda Decision, ‘Revenue recognition in a real estate contract (IFRS 15 Revenue from Contracts with Customers)’

The Committee received a request about revenue recognition in a contract for the sale of a unit in a residential multi-unit complex. Specifically, the request asked about the application of paragraph 35 of IFRS 15, which specifies when an entity recognises revenue over time.

The text of the full Agenda Decision is reproduced at the end of IFRS 15.]

E4

[IFRIC® Update, March 2018, Agenda Decision, ‘Revenue recognition in a real estate contract that includes the transfer of land (IFRS 15 Revenue from Contracts with Customers)’

The Committee received a request about revenue recognition in a contract for the sale of land and a building to be constructed on the land. Specifically, the request asked (a) about the identification of performance obligations in the contract and (b) for each performance obligation identified, whether the real estate developer (entity) recognises revenue over time or at a point in time.

The text of the full Agenda Decision is reproduced at the end of IFRS 15.]

E5

[IFRIC® Update, March 2018, Agenda Decision, ‘Right to payment for performance completed to date (IFRS 15 Revenue from Contracts with Customers)’

The Committee received a request about whether to recognise revenue over time or at a point in time in relation to a contract for the sale of a unit in a residential multi-unit complex (real estate unit). Specifically, the request asked whether, in the fact pattern described in the request, the real estate developer (entity) has an enforceable right to payment for performance completed to date as described in paragraph 35(c) of IFRS 15.

Applying paragraph 35(c), an entity recognises revenue over time if (i) the asset created by an entity’s performance does not have an alternative use to the entity; and (ii) the entity has an enforceable right to payment for performance completed to date. The underlying objective of the criterion in paragraph 35(c) is to determine whether the entity transfers control of goods or services to the customer as an asset is being created for that customer (paragraph BC143).

Paragraph 37 states that, to have an enforceable right to payment, at all times throughout the duration of the contract, the entity must be entitled to an amount that at least compensates the entity for performance completed to date if the contract is terminated by the customer or another party for reasons other than the entity’s failure to perform as promised.

Paragraph B9 states that an amount that would compensate an entity for performance completed to date would be an amount that approximates the selling price of the goods or services transferred to date, rather than compensation for only the entity’s potential loss of profit if the contract were to be terminated.

The Committee observed that it is the payment the entity is entitled to receive under the contract with the customer relating to performance under that contract that is relevant in determining whether the entity has an enforceable right to payment for performance completed to date.

The Committee has also included explanatory information about the application of paragraph 35(c) to real estate contracts in its Agenda decision ‘Revenue Recognition in a Real Estate Contract’ published in March 2018.

Application of paragraph 35(c) to the fact pattern in the request

The assessment of whether an entity has an enforceable right to payment for performance completed to date requires an entity to consider the rights and obligations created by the contract, taking into account the legal environment within which the contract is enforceable. Accordingly, the Committee observed that the outcome of an entity’s assessment depends on the particular facts and circumstances of the contract.

In the fact pattern described in the request, the contract includes the following features:

a.

the entity and the customer enter into a contract for the sale of a real estate unit in a residential multi-unit complex before the entity constructs the unit. The entity’s obligation under the contract is to construct and deliver the real estate unit as specified in the contract. The entity retains legal title to the real estate unit (and any land attributed to it) until the customer has paid the purchase price after construction is complete.

b.

the customer pays 10% of the purchase price for the real estate unit at contract inception, and pays the remainder after construction is complete.

c.

the customer has the right to cancel the contract at any time before construction is complete. If the customer cancels the contract, the entity is legally required to make reasonable efforts to resell the real estate unit to a third party. On resale, the entity enters into a new contract with the third party—ie the original contract is not novated to the third party. If the resale price to be obtained from the third party is less than the original purchase price (plus selling costs), the customer is legally obliged to pay the difference to the entity.

It is assumed that the entity identifies a single performance obligation applying paragraphs 22-30. It is also assumed that (i) the entity has determined that the contract does not meet the criteria in paragraphs 35(a) and 35(b); and (ii) the contract meets the first part of the criterion in paragraph 35(c) because the entity’s performance does not create an asset with an alternative use to the entity.

The Committee observed that the principle in paragraph 31 of IFRS 15 for the recognition of revenue requires the customer to have obtained control of a promised good or service. Accordingly and as noted above, the underlying objective of the criterion in paragraph 35(c) is to determine whether the entity is transferring control of goods or services to the customer as an asset is being created for that customer. In line with this objective, it is the payment the entity is entitled to receive under the existing contract with the customer relating to performance under that contract that is relevant in determining whether the entity has an enforceable right to payment for performance completed to date. The consideration received by the entity from the third party in the resale contract is consideration relating to that resale contract—it is not payment for performance under the existing contract with the customer.

In the fact pattern described in the request, the payment to which the entity has a right under the existing contract with the customer is a payment for the difference between the resale price of the unit, if any, and its original purchase price (plus selling costs). That payment does not at all times throughout the duration of the contract entitle the entity to an amount that at least approximates the selling price of the part-constructed real estate unit and, thus, it does not compensate the entity for performance completed to date. Accordingly, the entity does not have an enforceable right to payment for performance completed to date as described in paragraph 35(c) of IFRS 15.

Based on the fact pattern described in the request, the Committee concluded that none of the criteria in paragraph 35 of IFRS 15 are met. Accordingly, the entity would recognise revenue at a point in time applying paragraph 38 of IFRS 15.

The Committee concluded that the principles and requirements in IFRS 15 provide an adequate basis for an entity to determine whether it has an enforceable right to payment for performance completed to date. Consequently, the Committee decided not to add this matter to its standard-setting agenda.]

36

An asset created by an entity’s performance does not have an alternative use to an entity if the entity is either restricted contractually from readily directing the asset for another use during the creation or enhancement of that asset or limited practically from readily directing the asset in its completed state for another use. The assessment of whether an asset has an alternative use to the entity is made at contract inception. After contract inception, an entity shall not update the assessment of the alternative use of an asset unless the parties to the contract approve a contract modification that substantively changes the performance obligation. Paragraphs B6⁠–⁠B8 provide guidance for assessing whether an asset has an alternative use to an entity.

37

An entity shall consider the terms of the contract, as well as any laws that apply to the contract, when evaluating whether it has an enforceable right to payment for performance completed to date in accordance with paragraph 35(c). The right to payment for performance completed to date does not need to be for a fixed amount. However, at all times throughout the duration of the contract, the entity must be entitled to an amount that at least compensates the entity for performance completed to date if the contract is terminated by the customer or another party for reasons other than the entity’s failure to perform as promised. Paragraphs B9⁠–⁠B13 provide guidance for assessing the existence and enforceability of a right to payment and whether an entity’s right to payment would entitle the entity to be paid for its performance completed to date.

Performance obligations satisfied at a point in time

38

If a performance obligation is not satisfied over time in accordance with paragraphs 35⁠–⁠37, an entity satisfies the performance obligation at a point in time. [Refer:Illustrative Examples, examples 16, 17 Case A and 59] To determine the point in time at which a customer obtains control of a promised asset and the entity satisfies a performance obligation, the entity shall consider the requirements for control in paragraphs 31⁠–⁠34. In addition, an entity shall consider indicators of the transfer of control, [Refer:Basis for Conclusions paragraph BC155] which include, but are not limited to, the following:

(a)

The entity has a present right to payment for the asset—if a customer is presently obliged to pay for an asset, then that may indicate that the customer has obtained the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset in exchange.

(b)

The customer has legal title to the asset—legal title may indicate which party to a contract has the ability to direct the use of, and obtain substantially all of the remaining benefits from, an asset or to restrict the access of other entities to those benefits. Therefore, the transfer of legal title of an asset may indicate that the customer has obtained control of the asset. If an entity retains legal title solely as protection against the customer’s failure to pay, those rights of the entity would not preclude the customer from obtaining control of an asset.

(c)

The entity has transferred physical possession of the asset—the customer’s physical possession of an asset may indicate that the customer has the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset or to restrict the access of other entities to those benefits. However, physical possession may not coincide with control of an asset. For example, in some repurchase agreements and in some consignment arrangements, a customer or consignee may have physical possession of an asset that the entity controls. Conversely, in some bill-and-hold arrangements, the entity may have physical possession of an asset that the customer controls. [Refer:Illustrative Examples, example 63] Paragraphs B64⁠–⁠B76, B77⁠–⁠B78 and B79⁠–⁠B82 provide guidance on accounting for repurchase agreements, consignment arrangements and bill-and-hold arrangements, respectively.

(d)

The customer has the significant risks and rewards of ownership of the asset—the transfer of the significant risks and rewards of ownership of an asset to the customer may indicate that the customer has obtained the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset. However, when evaluating the risks and rewards of ownership of a promised asset, an entity shall exclude any risks that give rise to a separate performance obligation in addition to the performance obligation to transfer the asset. For example, an entity may have transferred control of an asset to a customer but not yet satisfied an additional performance obligation to provide maintenance services related to the transferred asset.

(e)

The customer has accepted the asset—the customer’s acceptance of an asset may indicate that it has obtained the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset. To evaluate the effect of a contractual customer acceptance clause on when control of an asset is transferred, an entity shall consider the guidance in paragraphs B83⁠–⁠B86.

[Link toBasis for Conclusions paragraph BC385L for a discussion of why the indicators in paragraph 38 are different from the indicators in paragraph B37]

Measuring progress towards complete satisfaction of a performance obligation

39

For each performance obligation satisfied over time in accordance with paragraphs 35⁠–⁠37, an entity shall recognise revenue over time by measuring the progress towards complete satisfaction of that performance obligation. The objective when measuring progress is to depict an entity’s performance in transferring control of goods or services promised to a customer (ie the satisfaction of an entity’s performance obligation).

40

An entity shall apply a single method of measuring progress for each performance obligation satisfied over time and the entity shall apply that method consistently to similar performance obligations and in similar circumstances. At the end of each reporting period, an entity shall remeasure its progress towards complete satisfaction of a performance obligation satisfied over time. [Refer:Basis for Conclusions paragraphs BC159 and BC161]

Methods for measuring progress

41

Appropriate methods of measuring progress include output methods and input methods. [Refer:Basis for Conclusions paragraph BC162 and Illustrative Examples, examples 18, 19, 31 and 57] Paragraphs B14⁠–⁠B19 provide guidance for using output methods and input methods to measure an entity’s progress towards complete satisfaction of a performance obligation. In determining the appropriate method for measuring progress, an entity shall consider the nature of the good or service that the entity promised to transfer to the customer.

42

When applying a method for measuring progress, an entity shall exclude from the measure of progress any goods or services for which the entity does not transfer control to a customer. Conversely, an entity shall include in the measure of progress any goods or services for which the entity does transfer control to a customer when satisfying that performance obligation.

43

As circumstances change over time, an entity shall update its measure of progress to reflect any changes in the outcome of the performance obligation. Such changes to an entity’s measure of progress shall be accounted for as a change in accounting estimate in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.

Reasonable measures of progress

44

An entity shall recognise revenue for a performance obligation satisfied over time only if the entity can reasonably measure its progress towards complete satisfaction of the performance obligation. An entity would not be able to reasonably measure its progress towards complete satisfaction of a performance obligation if it lacks reliable information that would be required to apply an appropriate method of measuring progress.

45

In some circumstances (for example, in the early stages of a contract), an entity may not be able to reasonably measure the outcome of a performance obligation, but the entity expects to recover the costs incurred in satisfying the performance obligation. In those circumstances, the entity shall recognise revenue only to the extent of the costs incurred until such time that it can reasonably measure the outcome of the performance obligation.

Measurement

46

When (or as) a performance obligation is satisfied, an entity shall recognise as revenue the amount of the transaction price (which excludes estimates of variable consideration that are constrained in accordance with paragraphs 56⁠–⁠58) that is allocated to that performance obligation. [Refer:Basis for Conclusions paragraphs BC25⁠–⁠BC27 and BC181⁠–⁠BC183]

Determining the transaction price

47

An entity shall consider the terms of the contract and its customary business practices to determine the transaction price. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties (for example, some sales taxes) [Refer:Basis for Conclusions paragraphs BC188A⁠–⁠BC188D]. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both.

48

The nature, timing and amount of consideration promised by a customer affect the estimate of the transaction price. When determining the transaction price, an entity shall consider the effects of all of the following:

(a)

variable consideration (see paragraphs 50⁠–⁠55 and 59);

(b)

constraining estimates of variable consideration (see paragraphs 56⁠–⁠58);

(c)

the existence of a significant financing component in the contract (see paragraphs 60⁠–⁠65);

(d)

non-cash consideration (see paragraphs 66⁠–⁠69); and

(e)

consideration payable to a customer (see paragraphs 70⁠–⁠72).

49

For the purpose of determining the transaction price, an entity shall assume that the goods or services will be transferred to the customer as promised in accordance with the existing contract and that the contract will not be cancelled, renewed or modified.

Variable consideration

50

If the consideration promised in a contract includes a variable amount, an entity shall estimate the amount of consideration to which the entity will be entitled in exchange for transferring the promised goods or services to a customer.

51

An amount of consideration can vary because of discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties or other similar items.E6 The promised consideration can also vary if an entity’s entitlement to the consideration is contingent on the occurrence or non-occurrence of a future event. For example, an amount of consideration would be variable if either a product was sold with a right of return or a fixed amount is promised as a performance bonus on achievement of a specified milestone.

E6

[IFRIC® Update, September 2019, Agenda Decision, ‘IFRS 15 Revenue from Contracts with Customers—Compensation for Delays or Cancellations’

The Committee received a request about an airline’s obligation to compensate customers for delayed or cancelled flights. In the fact pattern described in the request:

a.

legislation gives a flight passenger (customer) the right to be compensated by the flight provider (entity) for delays and cancellations subject to specified conditions in the legislation. The legislation stipulates the amount of compensation, which is unrelated to the amount the customer pays for a flight.

b.

the legislation creates enforceable rights and obligations, and forms part of the terms of a contract between the entity and a customer.

c.

applying IFRS 15 to a contract with a customer, the entity identifies as a performance obligation its promise to transfer a flight service to the customer.

The request asked whether the entity accounts for its obligation to compensate customers either: (a) as variable consideration applying paragraphs 50⁠–⁠59 of IFRS 15; or (b) applying IAS 37 Provisions, Contingent Liabilities and Contingent Assets, separately from its performance obligation to transfer a flight service to the customer.

Paragraph 47 of IFRS 15 requires an entity to ‘consider the terms of the contract and its customary business practices in determining the transaction price. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer…The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both’. Paragraph 51 of IFRS 15 lists examples of common types of variable consideration—‘discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties or other similar items’.

Paragraph B33 of IFRS 15 specifies requirements for an entity’s obligation to pay compensation to a customer if its products cause harm or damage. An entity accounts for such an obligation applying IAS 37, separately from its performance obligation in the contract with the customer.

The Committee observed that, in the fact pattern described in the request, the entity promises to transport the customer from one specified location to another within a specified time period after the scheduled flight time. If the entity fails to do so, the customer is entitled to compensation. Accordingly, any compensation for delays or cancellations forms part of the consideration to which the entity expects to be entitled in exchange for transferring the promised service to the customer; it does not represent compensation for harm or damage caused by the entity’s products as described in paragraph B33. The fact that legislation, rather than the contract, stipulates the compensation payable does not affect the entity’s determination of the transaction price—the compensation gives rise to variable consideration in the same way that penalties for delayed transfer of an asset give rise to variable consideration as illustrated in Example 20 of the Illustrative Examples accompanying IFRS 15.

Consequently, the Committee concluded that compensation for delays or cancellations, as described in the request, is variable consideration in the contract. Accordingly, the entity applies the requirements in paragraphs 50⁠–⁠59 of IFRS 15 in accounting for its obligation to compensate customers for delays or cancellations. The Committee did not consider the question of whether the amount of compensation recognised as a reduction of revenue is limited to reducing the transaction price to nil.

The Committee concluded that the principles and requirements in IFRS 15 provide an adequate basis for an entity to determine its accounting for obligations to compensate customers for delays or cancellations. Consequently, the Committee decided not to add the matter to its standard-setting agenda.]

52

The variability relating to the consideration promised by a customer may be explicitly stated in the contract. In addition to the terms of the contract, the promised consideration is variable if either of the following circumstances exists:

(a)

the customer has a valid expectation arising from an entity’s customary business practices, published policies or specific statements that the entity will accept an amount of consideration that is less than the price stated in the contract. That is, it is expected that the entity will offer a price concession. Depending on the jurisdiction, industry or customer this offer may be referred to as a discount, rebate, refund or credit. [Refer:Basis for Conclusions paragraph BC192]

(b)

other facts and circumstances indicate that the entity’s intention, when entering into the contract with the customer, is to offer a price concession to the customer. [Refer:Illustrative Examples, examples 2 and 3]

53

An entity shall estimate an amount of variable consideration by using either of the following methods, depending on which method the entity expects to better predict the amount of consideration to which it will be entitled:

(a)

The expected value—the expected value is the sum of probability-weighted amounts in a range of possible consideration amounts. An expected value may be an appropriate estimate of the amount of variable consideration if an entity has a large number of contracts with similar characteristics.

(b)

The most likely amount—the most likely amount is the single most likely amount in a range of possible consideration amounts (ie the single most likely outcome of the contract). The most likely amount may be an appropriate estimate of the amount of variable consideration if the contract has only two possible outcomes (for example, an entity either achieves a performance bonus or does not).

54

An entity shall apply one method consistently throughout the contract when estimating the effect of an uncertainty on an amount of variable consideration to which the entity will be entitled. In addition, an entity shall consider all the information (historical, current and forecast) that is reasonably available to the entity and shall identify a reasonable number of possible consideration amounts. The information that an entity uses to estimate the amount of variable consideration would typically be similar to the information that the entity’s management uses during the bid-and-proposal process and in establishing prices for promised goods or services. [Refer:Basis for Conclusions paragraph BC202]

Refund liabilities

55

An entity shall recognise a refund liability if the entity receives consideration from a customer and expects to refund some or all of that consideration to the customer. A refund liability is measured at the amount of consideration received (or receivable) for which the entity does not expect to be entitled (ie amounts not included in the transaction price). The refund liability (and corresponding change in the transaction price and, therefore, the contract liability) shall be updated at the end of each reporting period for changes in circumstances. To account for a refund liability relating to a sale with a right of return, an entity shall apply the guidance in paragraphs B20⁠–⁠B27.

Constraining estimates of variable consideration

56

An entity shall include in the transaction price some or all of an amount of variable consideration estimated in accordance with paragraph 53 only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

57

In assessing whether it is highly probable [Refer:Basis for Conclusions paragraphs BC208⁠–⁠BC211] that a significant reversal in the amount of cumulative revenue recognised will not occur once the uncertainty related to the variable consideration is subsequently resolved, an entity shall consider both the likelihood and the magnitude of the revenue reversal. Factors that could increase the likelihood or the magnitude of a revenue reversal include, but are not limited to, any of the following:

(a)

the amount of consideration is highly susceptible to factors outside the entity’s influence. Those factors may include volatility in a market, the judgement or actions of third parties, weather conditions and a high risk of obsolescence of the promised good or service.

(b)

the uncertainty about the amount of consideration is not expected to be resolved for a long period of time.

(c)

the entity’s experience (or other evidence) with similar types of contracts is limited, or that experience (or other evidence) has limited predictive value.

(d)

the entity has a practice of either offering a broad range of price concessions or changing the payment terms and conditions of similar contracts in similar circumstances.

(e)

the contract has a large number and broad range of possible consideration amounts.

58

An entity shall apply paragraph B63 to account for consideration in the form of a sales-based or usage-based royalty that is promised in exchange for a licence of intellectual property.

Reassessment of variable consideration

59

At the end of each reporting period, an entity shall update the estimated transaction price (including updating its assessment of whether an estimate of variable consideration is constrained) to represent faithfully the circumstances present at the end of the reporting period and the changes in circumstances during the reporting period. The entity shall account for changes in the transaction price in accordance with paragraphs 87⁠–⁠90.

The existence of a significant financing component in the contract

60

In determining the transaction price, an entity shall adjust the promised amount of consideration for the effects of the time value of money if the timing of payments agreed to by the parties to the contract (either explicitly or implicitly) provides the customer or the entity with a significant benefit of financing the transfer of goods or services to the customer. In those circumstances, the contract contains a significant financing component. A significant financing component may exist regardless of whether the promise of financing is explicitly stated in the contract or implied by the payment terms agreed to by the parties to the contract.

[Link toBasis for Conclusions paragraph BC238 for the reasons for not exempting an entity from accounting for the effects of a significant financing component for advance payments]
[Link also to Illustrative Examples, examples 27 and 30 for examples where there is not a significant financing component]

61

The objective when adjusting the promised amount of consideration for a significant financing component is for an entity to recognise revenue at an amount that reflects the price that a customer would have paid for the promised goods or services if the customer had paid cash for those goods or services when (or as) they transfer to the customer (ie the cash selling price). An entity shall consider all relevant facts and circumstances in assessing whether a contract contains a financing component and whether that financing component is significant to the contract, including both of the following:

(a)

the difference, if any, between the amount of promised consideration and the cash selling price of the promised goods or services; and

(b)

the combined effect of both of the following:

(i)

the expected length of time between when the entity transfers the promised goods or services to the customer and when the customer pays for those goods or services; and

(ii)

the prevailing interest rates in the relevant market.

62

Notwithstanding the assessment in paragraph 61, a contract with a customer would not have a significant financing component if any of the following factors exist:

(a)

the customer paid for the goods or services in advance and the timing of the transfer of those goods or services is at the discretion of the customer.

(b)

a substantial amount of the consideration promised by the customer is variable and the amount or timing of that consideration varies on the basis of the occurrence or non-occurrence of a future event that is not substantially within the control of the customer or the entity (for example, if the consideration is a sales-based royalty).

(c)

the difference between the promised consideration and the cash selling price of the good or service (as described in paragraph 61) arises for reasons other than the provision of finance to either the customer or the entity, and the difference between those amounts is proportional to the reason for the difference. For example, the payment terms might provide the entity or the customer with protection from the other party failing to adequately complete some or all of its obligations under the contract. [Refer:Illustrative Examples, examples 27 and 30]

63

As a practical expedient, an entity need not adjust the promised amount of consideration for the effects of a significant financing component if the entity expects, at contract inception, that the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. [Refer:Basis for Conclusions paragraphs BC235⁠–⁠BC236]

64

To meet the objective in paragraph 61 when adjusting the promised amount of consideration for a significant financing component, an entity shall use the discount rate that would be reflected in a separate financing transaction between the entity and its customer at contract inception. That rate would reflect the credit characteristics of the party receiving financing in the contract, as well as any collateral or security provided by the customer or the entity, including assets transferred in the contract. An entity may be able to determine that rate by identifying the rate that discounts the nominal amount of the promised consideration to the price that the customer would pay in cash for the goods or services when (or as) they transfer to the customer. [Refer:Basis for Conclusions paragraphs BC239⁠–⁠BC241] After contract inception, an entity shall not update the discount rate for changes in interest rates or other circumstances (such as a change in the assessment of the customer’s credit risk). [Refer:Basis for Conclusions paragraphs BC242⁠–⁠BC243]

65

An entity shall present the effects of financing (interest revenue or interest expense) separately from revenue from contracts with customers in the statement of comprehensive income. Interest revenue or interest expense is recognised only to the extent that a contract asset (or receivable) or a contract liability is recognised in accounting for a contract with a customer. [Refer:Basis for Conclusions paragraphs BC244⁠–⁠BC247]

Non-cash consideration

66

To determine the transaction price for contracts in which a customer promises consideration in a form other than cash, an entity shall measure the non-cash consideration (or promise of non-cash consideration) at fair value.

67

If an entity cannot reasonably estimate the fair value of the non-cash consideration, the entity shall measure the consideration indirectly by reference to the stand-alone selling price of the goods or services promised to the customer (or class of customer) in exchange for the consideration. [Refer:Basis for Conclusions paragraph BC249]

68

The fair value of the non-cash consideration may vary because of the form of the consideration (for example, a change in the price of a share to which an entity is entitled to receive from a customer). If the fair value of the non-cash consideration promised by a customer varies for reasons other than only the form of the consideration (for example, the fair value could vary because of the entity’s performance), an entity shall apply the requirements in paragraphs 56⁠–⁠58. [Refer:Basis for Conclusions paragraphs BC250⁠–⁠BC252 and BC254F⁠–⁠BC254H]

69

If a customer contributes goods or services (for example, materials, equipment or labour) to facilitate an entity’s fulfilment of the contract, the entity shall assess whether it obtains control of those contributed goods or services. If so, the entity shall account for the contributed goods or services as non-cash consideration received from the customer.

Consideration payable to a customer

70

Consideration payable to a customer includes cash amounts that an entity pays, or expects to pay, to the customer (or to other parties that purchase the entity’s goods or services from the customer). Consideration payable to a customer also includes credit or other items (for example, a coupon or voucher) that can be applied against amounts owed to the entity (or to other parties that purchase the entity’s goods or services from the customer). An entity shall account for consideration payable to a customer as a reduction of the transaction price and, therefore, of revenue unless the payment to the customer is in exchange for a distinct good or service (as described in paragraphs 26⁠–⁠30) that the customer transfers to the entity. If the consideration payable to a customer includes a variable amount, an entity shall estimate the transaction price (including assessing whether the estimate of variable consideration is constrained) in accordance with paragraphs 50⁠–⁠58.

71

If consideration payable to a customer is a payment for a distinct good or service from the customer, then an entity shall account for the purchase of the good or service in the same way that it accounts for other purchases from suppliers. [Refer:Basis for Conclusions paragraph BC256] If the amount of consideration payable to the customer exceeds the fair value of the distinct good or service that the entity receives from the customer, then the entity shall account for such an excess as a reduction of the transaction price. [Refer:Basis for Conclusions paragraph BC257] If the entity cannot reasonably estimate the fair value of the good or service received from the customer, it shall account for all of the consideration payable to the customer as a reduction of the transaction price.

72

Accordingly, if consideration payable to a customer is accounted for as a reduction of the transaction price, an entity shall recognise the reduction of revenue when (or as) the later of either of the following events occurs:

(a)

the entity recognises revenue for the transfer of the related goods or services to the customer; and

(b)

the entity pays or promises to pay the consideration (even if the payment is conditional on a future event). That promise might be implied by the entity’s customary business practices.

Allocating the transaction price to performance obligations

73

The objective when allocating the transaction price is for an entity to allocate the transaction price to each performance obligation (or distinct good or service) in an amount that depicts the amount of consideration to which the entity expects to be entitled in exchange for transferring the promised goods or services to the customer.

74

To meet the allocation objective, an entity shall allocate the transaction price to each performance obligation identified in the contract on a relative stand-alone selling price basis [Refer:Basis for Conclusions paragraph BC266] in accordance with paragraphs 76⁠–⁠80, except as specified in paragraphs 81⁠–⁠83 (for allocating discounts) and paragraphs 84⁠–⁠86 (for allocating consideration that includes variable amounts).

75

Paragraphs 76⁠–⁠86 do not apply if a contract has only one performance obligation. However, paragraphs 84⁠–⁠86 may apply if an entity promises to transfer a series of distinct goods or services identified as a single performance obligation in accordance with paragraph 22(b) and the promised consideration includes variable amounts.

Allocation based on stand-alone selling prices

[Refer:Basis for Conclusions paragraphs BC287⁠–⁠BC293 for the reasons for not carrying forward the contingent revenue cap requirements]

76

To allocate the transaction price to each performance obligation on a relative stand-alone selling price basis, an entity shall determine the stand-alone selling price at contract inception [Refer:Illustrative Examples, example 52] of the distinct good or service underlying each performance obligation in the contract and allocate the transaction price in proportion to those stand-alone selling prices.

77

The stand-alone selling price is the price at which an entity would sell a promised good or service separately to a customer. The best evidence of a stand-alone selling price is the observable price of a good or service when the entity sells that good or service separately in similar circumstances and to similar customers. A contractually stated price or a list price for a good or service may be (but shall not be presumed to be) the stand-alone selling price of that good or service.

78

If a stand-alone selling price is not directly observable, an entity shall estimate the stand-alone selling price at an amount that would result in the allocation of the transaction price meeting the allocation objective in paragraph 73. When estimating a stand-alone selling price, an entity shall consider all information (including market conditions, entity-specific factors and information about the customer or class of customer) that is reasonably available to the entity. In doing so, an entity shall maximise the use of observable inputs and apply estimation methods consistently in similar circumstances.

[Link toBasis for Conclusions paragraphs BC274⁠–⁠BC276 for the reasons not to specify a hierarchy of evidence to determine the stand-alone selling price]

79

Suitable methods for estimating the stand-alone selling price of a good or service include, but are not limited to, the following:

(a)

Adjusted market assessment approach—an entity could evaluate the market in which it sells goods or services and estimate the price that a customer in that market would be willing to pay for those goods or services. That approach might also include referring to prices from the entity’s competitors for similar goods or services and adjusting those prices as necessary to reflect the entity’s costs and margins.

(b)

Expected cost plus a margin approach—an entity could forecast its expected costs of satisfying a performance obligation and then add an appropriate margin for that good or service.

(c)

Residual approach—an entity may estimate the stand-alone selling price by reference to the total transaction price less the sum of the observable stand-alone selling prices of other goods or services promised in the contract. However, an entity may use a residual approach to estimate, in accordance with paragraph 78, the stand-alone selling price of a good or service only if one of the following criteria is met: [Refer:Basis for Conclusions paragraphs BC270⁠–⁠BC273]

(i)

the entity sells the same good or service to different customers (at or near the same time) for a broad range of amounts (ie the selling price is highly variable because a representative stand-alone selling price is not discernible from past transactions or other observable evidence); or

(ii)

the entity has not yet established a price for that good or service and the good or service has not previously been sold on a stand-alone basis (ie the selling price is uncertain).

80

A combination of methods may need to be used to estimate the stand-alone selling prices of the goods or services promised in the contract if two or more of those goods or services have highly variable or uncertain stand-alone selling prices. For example, an entity may use a residual approach to estimate the aggregate stand-alone selling price for those promised goods or services with highly variable or uncertain stand-alone selling prices and then use another method to estimate the stand-alone selling prices of the individual goods or services relative to that estimated aggregate stand-alone selling price determined by the residual approach. When an entity uses a combination of methods to estimate the stand-alone selling price of each promised good or service in the contract, the entity shall evaluate whether allocating the transaction price at those estimated stand-alone selling prices would be consistent with the allocation objective in paragraph 73 and the requirements for estimating stand-alone selling prices in paragraph 78.

Allocation of a discount

81

A customer receives a discount for purchasing a bundle of goods or services if the sum of the stand-alone selling prices of those promised goods or services in the contract exceeds the promised consideration in a contract. Except when an entity has observable evidence in accordance with paragraph 82 that the entire discount relates to only one or more, but not all, performance obligations in a contract, the entity shall allocate a discount proportionately to all performance obligations in the contract. [Refer:Basis for Conclusions paragraph BC280] The proportionate allocation of the discount in those circumstances is a consequence of the entity allocating the transaction price to each performance obligation on the basis of the relative stand-alone selling prices of the underlying distinct goods or services.

82

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

(a)

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

(b)

the entity also regularly sells on a stand-alone basis a bundle (or bundles) of some of those distinct goods or services at a discount to the stand-alone selling prices of the goods or services in each bundle; and

(c)

the discount attributable to each bundle of goods or services described in paragraph 82(b) is substantially the same as the discount in the contract and an analysis of the goods or services in each bundle provides observable evidence of the performance obligation (or performance obligations) to which the entire discount in the contract belongs.

83

If a discount is allocated entirely to one or more performance obligations in the contract in accordance with paragraph 82, an entity shall allocate the discount before using the residual approach to estimate the stand-alone selling price of a good or service in accordance with paragraph 79(c).

Allocation of variable consideration

84

Variable consideration that is promised in a contract may be attributable to the entire contract or to a specific part of the contract, such as either of the following:

(a)

one or more, but not all, performance obligations in the contract (for example, a bonus may be contingent on an entity transferring a promised good or service within a specified period of time); or

(b)

one or more, but not all, distinct goods or services promised in a series of distinct goods or services that forms part of a single performance obligation in accordance with paragraph 22(b) (for example, the consideration promised for the second year of a two-year cleaning service contract will increase on the basis of movements in a specified inflation index).

85

An entity shall allocate a variable amount (and subsequent changes to that amount) entirely to a performance obligation or to a distinct good or service that forms part of a single performance obligation in accordance with paragraph 22(b) if both of the following criteria are met:

(a)

the terms of a variable payment relate specifically to the entity’s efforts to satisfy the performance obligation or transfer the distinct good or service (or to a specific outcome from satisfying the performance obligation or transferring the distinct good or service); and

(b)

allocating the variable amount of consideration entirely to the performance obligation or the distinct good or service is consistent with the allocation objective in paragraph 73 when considering all of the performance obligations and payment terms in the contract.

86

The allocation requirements in paragraphs 73⁠–⁠83 shall be applied to allocate the remaining amount of the transaction price that does not meet the criteria in paragraph 85.

Changes in the transaction price

87

After contract inception, the transaction price can change for various reasons, including the resolution of uncertain events or other changes in circumstances that change the amount of consideration to which an entity expects to be entitled in exchange for the promised goods or services.

88

An entity shall allocate to the performance obligations in the contract any subsequent changes in the transaction price on the same basis as at contract inception. [Refer:Basis for Conclusions paragraph BC286] Consequently, an entity shall not reallocate the transaction price to reflect changes in stand-alone selling prices after contract inception. Amounts allocated to a satisfied performance obligation shall be recognised as revenue, or as a reduction of revenue, in the period in which the transaction price changes.

89

An entity shall allocate a change in the transaction price entirely to one or more, but not all, performance obligations or distinct goods or services promised in a series that forms part of a single performance obligation in accordance with paragraph 22(b) only if the criteria in paragraph 85 on allocating variable consideration are met.

90

An entity shall account for a change in the transaction price that arises as a result of a contract modification in accordance with paragraphs 18⁠–⁠21. [Refer:Basis for Conclusions paragraph BC82] However, for a change in the transaction price that occurs after a contract modification, an entity shall apply paragraphs 87⁠–⁠89 to allocate the change in the transaction price in whichever of the following ways is applicable:

(a)

An entity shall allocate the change in the transaction price to the performance obligations identified in the contract before the modification if, and to the extent that, the change in the transaction price is attributable to an amount of variable consideration promised before the modification and the modification is accounted for in accordance with paragraph 21(a). [Refer:Basis for Conclusions paragraph BC83 and Illustrative Examples, example 6 paragraph IE30]

(b)

In all other cases in which the modification was not accounted for as a separate contract in accordance with paragraph 20, an entity shall allocate the change in the transaction price to the performance obligations in the modified contract (ie the performance obligations that were unsatisfied or partially unsatisfied immediately after the modification).

Contract costs

Incremental costs of obtaining a contract

91

An entity shall recognise as an asset the incremental costs of obtaining a contract with a customer if the entity expects to recover those costs.

92

The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, a sales commission).

93

Costs to obtain a contract that would have been incurred regardless of whether the contract was obtained shall be recognised as an expense when incurred, unless those costs are explicitly chargeable to the customer regardless of whether the contract is obtained.

94

As a practical expedient, an entity may recognise the incremental costs of obtaining a contract as an expense when incurred if the amortisation period of the asset that the entity otherwise would have recognised is one year or less.

Costs to fulfil a contract

95

If the costs incurred in fulfilling a contract with a customer are not within the scope of another Standard (for example, IAS 2 Inventories, IAS 16 Property, Plant and Equipment or IAS 38 Intangible Assets), an entity shall recognise an asset from the costs incurred to fulfil a contract only if those costs meet all of the following criteria:E7

(a)

the costs relate directly to a contract or to an anticipated contract that the entity can specifically identify (for example, costs relating to services to be provided under renewal of an existing contract or costs of designing an asset to be transferred under a specific contract that has not yet been approved);

(b)

the costs generate or enhance resources of the entity that will be used in satisfying (or in continuing to satisfy) performance obligations in the future;E8 and

(c)

the costs are expected to be recovered.

E7

[IFRIC® Update, March 2020, Agenda Decision, ‘IFRS 15 Revenue from Contracts with Customers—Training Costs to Fulfil a Contract’

The Committee received a request about training costs incurred to fulfil a contract with a customer. In the fact pattern described in the request:

a.

an entity enters into a contract with a customer that is within the scope of IFRS 15. The contract is for the supply of outsourced services.

b.

to be able to provide the services to the customer, the entity incurs costs to train its employees so that they understand the customer’s equipment and processes. The training costs are as described in paragraph 15 of IAS 38 Intangible Assets—the entity has insufficient control over the expected future economic benefits arising from the training to meet the definition of an intangible asset because employees can leave the entity’s employment. Applying IFRS 15, the entity does not identify the training activities as a performance obligation.

c.

the contract permits the entity to charge to the customer the costs of training (i) the entity’s employees at the beginning of the contract, and (ii) new employees that the entity hires as a result of any expansion of the customer’s operations.

The request asked whether the entity recognises the training costs as an asset or an expense when incurred.

Which IFRS Standard applies to the training costs?

Paragraph 95 of IFRS 15 requires an entity to recognise an asset from the costs incurred to fulfil a contract with a customer if the costs are not within the scope of another IFRS Standard, and only if those costs meet all three criteria specified in paragraph 95. Consequently, before assessing the criteria in paragraph 95, the entity first considers whether the training costs incurred to fulfil the contract are within the scope of another IFRS Standard.

Paragraphs 2⁠–⁠7 of IAS 38 describe the scope of that Standard—paragraph 5 explicitly includes expenditure on training within IAS 38’s scope, stating that IAS 38 ‘applies to, among other things, expenditure on advertising, training, start-up, research and development activities’. Accordingly, the Committee concluded that, in the fact pattern described in the request, the entity applies IAS 38 in accounting for the training costs incurred to fulfil the contract with the customer.

Application of IAS 38

Paragraph 69(b) of IAS 38 includes expenditure on training activities as an example of expenditure that is incurred ‘to provide future economic benefits to an entity, but no intangible asset or other asset is acquired or created that can be recognised’. Consequently, paragraph 69 states that such expenditure on training activities is recognised as an expense when incurred. Paragraph 15 of IAS 38 explains that ‘an entity usually has insufficient control over the expected future economic benefits arising from a team of skilled staff and from training for these items to meet the definition of an intangible asset’.

In addition, in explaining the requirements in IFRS 15 regarding costs to fulfil a contract, paragraph BC307 of IFRS 15 states that ‘if the other Standards preclude the recognition of any asset arising from a particular cost, an asset cannot then be recognised under IFRS 15’.

Accordingly, the Committee concluded that, in the fact pattern described in the request, the entity recognises the training costs to fulfil the contract with the customer as an expense when incurred. The Committee noted that the entity’s ability to charge to the customer the costs of training does not affect that conclusion.

The Committee concluded that the principles and requirements in IFRS 15 and IAS 38 provide an adequate basis for an entity to determine its accounting for training costs incurred to fulfil a contract with a customer. Consequently, the Committee decided not to add the matter to its standard-setting agenda.]

E8

[IFRIC® Update, June 2019, Agenda Decision, ‘IFRS 15 Revenue from Contracts with Customers—Costs to fulfil a contract’

The Committee received a request about the recognition of costs incurred to fulfil a contract as an entity satisfies a performance obligation in the contract over time. In the fact pattern described in the request, the entity (a) transfers control of a good over time (ie one (or more) of the criteria in paragraph 35 of IFRS 15 is met) and, therefore, satisfies a performance obligation and recognises revenue over time; and (b) measures progress towards complete satisfaction of the performance obligation using an output method applying paragraphs 39⁠–⁠43 of IFRS 15. The entity incurs costs in constructing the good. At the reporting date, the costs incurred relate to construction work performed on the good that is transferring to the customer as the good is being constructed.

The Committee first noted the principles and requirements in IFRS 15 relating to the measurement of progress towards complete satisfaction of a performance obligation satisfied over time. Paragraph 39 states that ‘the objective when measuring progress is to depict an entity’s performance in transferring control of goods or services promised to a customer’. The Committee also observed that when evaluating whether to apply an output method to measure progress, paragraph B15 requires an entity to ‘consider whether the output selected would faithfully depict the entity’s performance towards complete satisfaction of the performance obligation’.

In considering the recognition of costs, the Committee noted that paragraph 98(c) of IFRS 15 requires an entity to recognise as expenses when incurred ‘costs that relate to satisfied performance obligations (or partially satisfied performance obligations) in the contract (ie costs that relate to past performance)’.

The Committee observed that the costs of construction described in the request are costs that relate to the partially satisfied performance obligation in the contract—ie they are costs that relate to the entity’s past performance. Those costs do not, therefore, generate or enhance resources of the entity that will be used in continuing to satisfy the performance obligation in the future (paragraph 95(b)). Consequently, those costs do not meet the criteria in paragraph 95 of IFRS 15 to be recognised as an asset. 

The Committee concluded that the principles and requirements in IFRS Standards provide an adequate basis for an entity to determine how to recognise costs incurred in fulfilling a contract in the fact pattern described in the request. Consequently, the Committee decided not to add the matter to its standard-setting agenda.]

96

For costs incurred in fulfilling a contract with a customer that are within the scope of another Standard, an entity shall account for those costs in accordance with those other Standards.

97

Costs that relate directly to a contract (or a specific anticipated contract) include any of the following:

(a)

direct labour (for example, salaries and wages of employees who provide the promised services directly to the customer);

(b)

direct materials (for example, supplies used in providing the promised services to a customer);

(c)

allocations of costs that relate directly to the contract or to contract activities (for example, costs of contract management and supervision, insurance and depreciation of tools, equipment and right‑of‑use assets used in fulfilling the contract);

(d)

costs that are explicitly chargeable to the customer under the contract; and

(e)

other costs that are incurred only because an entity entered into the contract (for example, payments to subcontractors).

98

An entity shall recognise the following costs as expenses when incurred:

(a)

general and administrative costs (unless those costs are explicitly chargeable to the customer under the contract, in which case an entity shall evaluate those costs in accordance with paragraph 97);

(b)

costs of wasted materials, labour or other resources to fulfil the contract that were not reflected in the price of the contract;

(c)

costs that relate to satisfied performance obligations (or partially satisfied performance obligations) in the contract (ie costs that relate to past performance); and

(d)

costs for which an entity cannot distinguish whether the costs relate to unsatisfied performance obligations or to satisfied performance obligations (or partially satisfied performance obligations).

Amortisation and impairment

99

An asset recognised in accordance with paragraph 91 or 95 shall be amortised on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates. The asset may relate to goods or services to be transferred under a specific anticipated contract (as described in paragraph 95(a)).

100

An entity shall update the amortisation to reflect a significant change in the entity’s expected timing of transfer to the customer of the goods or services to which the asset relates. Such a change shall be accounted for as a change in accounting estimate in accordance with IAS 8.

101

An entity shall recognise an impairment loss in profit or loss to the extent that the carrying amount of an asset recognised in accordance with paragraph 91 or 95 exceeds:

(a)

the remaining amount of consideration that the entity expects to receive in exchange for the goods or services to which the asset relates; less

(b)

the costs that relate directly to providing those goods or services and that have not been recognised as expenses (see paragraph 97).

102

For the purposes of applying paragraph 101 to determine the amount of consideration that an entity expects to receive, an entity shall use the principles for determining the transaction price (except for the requirements in paragraphs 56⁠–⁠58 on constraining estimates of variable consideration) and adjust that amount to reflect the effects of the customer’s credit risk.

103

Before an entity recognises an impairment loss for an asset recognised in accordance with paragraph 91 or 95, the entity shall recognise any impairment loss for assets related to the contract that are recognised in accordance with another Standard (for example, IAS 2, IAS 16 and IAS 38). After applying the impairment test in paragraph 101, an entity shall include the resulting carrying amount of the asset recognised in accordance with paragraph 91 or 95 in the carrying amount of the cash-generating unit to which it belongs for the purpose of applying IAS 36 Impairment of Assets to that cash-generating unit.

104

An entity shall recognise in profit or loss a reversal of some or all of an impairment loss previously recognised in accordance with paragraph 101 when the impairment conditions no longer exist or have improved. The increased carrying amount of the asset shall not exceed the amount that would have been determined (net of amortisation) if no impairment loss had been recognised previously.

Presentation

Disclosure of revenue from contracts with customers [text block] Disclosure Text block IFRS 15 - Disclosure Disclosure 800500, 831150

105

When either party to a contract has performed, an entity shall present the contract in the statement of financial position as a contract asset or a contract liability, depending on the relationship between the entity’s performance and the customer’s payment. An entity shall present any unconditional rights to consideration separately as a receivable.

Contract assets Disclosure MonetaryInstant, Debit IFRS 15.116 a Disclosure 800100, 831150
Contract liabilities Disclosure MonetaryInstant, Credit IFRS 15.116 a Disclosure 800100, 831150
Current contract assets Disclosure MonetaryInstant, Debit 800100, 831150
Current contract liabilities Disclosure MonetaryInstant, Credit 800100, 831150
Current receivables from contracts with customers Disclosure MonetaryInstant, Debit 831150
Non-current contract assets Disclosure MonetaryInstant, Debit 800100, 831150
Non-current contract liabilities Disclosure MonetaryInstant, Credit 800100, 831150
Non-current receivables from contracts with customers Disclosure MonetaryInstant, Debit 831150
Receivables from contracts with customers Disclosure MonetaryInstant, Debit IFRS 15.116 a Disclosure 831150

106

If a customer pays consideration, or an entity has a right to an amount of consideration that is unconditional (ie a receivable), before the entity transfers a good or service to the customer, the entity shall present the contract as a contract liability when the payment is made or the payment is due (whichever is earlier). A contract liability is an entity’s obligation to transfer goods or services to a customer for which the entity has received consideration (or an amount of consideration is due) from the customer.

107

If an entity performs by transferring goods or services to a customer before the customer pays consideration or before payment is due, the entity shall present the contract as a contract asset, excluding any amounts presented as a receivable. A contract asset is an entity’s right to consideration in exchange for goods or services that the entity has transferred to a customer. An entity shall assess a contract asset for impairment in accordance with IFRS 9. An impairment of a contract asset shall be measured, presented and disclosed on the same basis as a financial asset that is within the scope of IFRS 9 (see also paragraph 113(b)).

108

A receivable is an entity’s right to consideration that is unconditional. A right to consideration is unconditional if only the passage of time is required before payment of that consideration is due. [Refer:Basis for Conclusions paragraphs BC323⁠–⁠BC326] For example, an entity would recognise a receivable if it has a present right to payment even though that amount may be subject to refund in the future. An entity shall account for a receivable in accordance with IFRS 9. Upon initial recognition of a receivable from a contract with a customer, any difference between the measurement of the receivable in accordance with IFRS 9 and the corresponding amount of revenue recognised shall be presented as an expense (for example, as an impairment loss).

109

This Standard uses the terms ‘contract asset’ and ‘contract liability’ but does not prohibit an entity from using alternative descriptions in the statement of financial position for those items. If an entity uses an alternative description for a contract asset, the entity shall provide sufficient information for a user of the financial statements to distinguish between receivables and contract assets. [Refer:Basis for Conclusions paragraphs BC320]

Disclosure

Disclosure of revenue from contracts with customers [text block] Disclosure Text block IFRS 15 - Presentation Disclosure 800500, 831150

110

The objective of the disclosure requirements is for an entity to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. To achieve that objective, an entity shall disclose qualitative and quantitative information about all of the following:

(a)

its contracts with customers (see paragraphs 113⁠–⁠122);

(b)

the significant judgements, and changes in the judgements, made in applying this Standard to those contracts (see paragraphs 123⁠–⁠126); and

(c)

any assets recognised from the costs to obtain or fulfil a contract with a customer in accordance with paragraph 91 or 95 (see paragraphs 127⁠–⁠128).

111

An entity shall consider the level of detail necessary to satisfy the disclosure objective and how much emphasis to place on each of the various requirements. An entity shall aggregate or disaggregate disclosures so that useful information is not obscured by either the inclusion of a large amount of insignificant detail or the aggregation of items that have substantially different characteristics. [Refer:Basis for Conclusions paragraph BC331]

112

An entity need not disclose information in accordance with this Standard if it has provided the information in accordance with another Standard.

Contracts with customers

113

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

(a)

revenue recognised from contracts with customers, which the entity shall disclose separately from its other sources of revenue; and

Revenue from contracts with customers Disclosure MonetaryDuration, Credit IFRS 15.114 Disclosure 831150

(b)

any impairment losses recognised (in accordance with IFRS 9) on any receivables or contract assets arising from an entity’s contracts with customers, which the entity shall disclose separately from impairment losses from other contracts. [Refer:Basis for Conclusions paragraph BC264]

Impairment loss on receivables or contract assets arising from contracts with customers Disclosure MonetaryDuration, Debit 831150

Disaggregation of revenue

114

An entity shall disaggregate revenue recognised from contracts with customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. An entity shall apply the guidance in paragraphs B87⁠–⁠B89 when selecting the categories to use to disaggregate revenue.

Disclosure of disaggregation of revenue from contracts with customers [table] Disclosure 831150
Disclosure of disaggregation of revenue from contracts with customers [text block] Disclosure Text block 831150
Revenue from contracts with customers Disclosure MonetaryDuration, Credit IFRS 15.113 a Disclosure 831150

115

In addition, an entity shall disclose sufficient information to enable users of financial statements to understand the relationship between the disclosure of disaggregated revenue (in accordance with paragraph 114) and revenue information that is disclosed for each reportable segment, if the entity applies IFRS 8 Operating Segments.

All other segments [member] Disclosure IFRS 8.16 Disclosure 831150, 871100
Information about relationship between disclosure of disaggregated revenue from contracts with customers and revenue information for reportable segments [text block] Disclosure Text block 831150
Reportable segments [member] Disclosure IAS 19.138 d Example
IFRS 17.96 c Example
IFRS 8.23 Disclosure
831150, 832410, 834480, 871100
Segments [axis] Disclosure IAS 19.138 d Example
IAS 36.130 d (ii) Disclosure
IFRS 17.96 c Example
IFRS 8.23 Disclosure
831150, 832410, 834480, 871100, 990000
Segments [domain] Disclosure IAS 19.138 d Example
IAS 36.130 d (ii) Disclosure
IFRS 17.96 c Example
IFRS 8.28 Disclosure
831150, 832410, 834480, 871100, 990000

Contract balances

116

An entity shall disclose all of the following:

(a)

the opening and closing balances of receivables, contract assets and contract liabilities from contracts with customers, if not otherwise separately presented or disclosed;

Contract assets Disclosure MonetaryInstant, Debit IFRS 15.105 Disclosure 800100, 831150
Contract liabilities Disclosure MonetaryInstant, Credit IFRS 15.105 Disclosure 800100, 831150
Receivables from contracts with customers Disclosure MonetaryInstant, Debit IFRS 15.105 Disclosure 831150

(b)

revenue recognised in the reporting period that was included in the contract liability balance at the beginning of the period; and

Revenue that was included in contract liability balance at beginning of period Disclosure MonetaryDuration, Credit 831150

(c)

revenue recognised in the reporting period from performance obligations satisfied (or partially satisfied) in previous periods (for example, changes in transaction price).

Revenue from performance obligations satisfied or partially satisfied in previous periods Disclosure MonetaryDuration, Credit 831150

117

An entity shall explain how the timing of satisfaction of its performance obligations (see paragraph 119(a)) relates to the typical timing of payment (see paragraph 119(b)) and the effect that those factors have on the contract asset and the contract liability balances. The explanation provided may use qualitative information.

Explanation of effect that timing of satisfaction of performance obligations and typical timing of payment have on contract assets and contract liabilities [text block] Disclosure Text block 831150
Explanation of how timing of satisfaction of performance obligations relates to typical timing of payment Disclosure Text 831150

118

An entity shall provide an explanation of the significant changes in the contract asset and the contract liability balances during the reporting period. The explanation shall include qualitative and quantitative information. Examples of changes in the entity’s balances of contract assets and contract liabilities include any of the following:

(a)

changes due to business combinations;

Increase through business combinations, contract assets Example MonetaryDuration, Debit 831150
Increase through business combinations, contract liabilities Example MonetaryDuration, Credit 831150

(b)

cumulative catch-up adjustments to revenue that affect the corresponding contract asset or contract liability, including adjustments arising from a change in the measure of progress, a change in an estimate of the transaction price (including any changes in the assessment of whether an estimate of variable consideration is constrained) or a contract modification;

Increase (decrease) through cumulative catch-up adjustments to revenue arising from change in estimate of transaction price, contract assets Example MonetaryDuration, Debit 831150
Increase (decrease) through cumulative catch-up adjustments to revenue arising from change in estimate of transaction price, contract liabilities Example MonetaryDuration, Credit 831150
Increase (decrease) through cumulative catch-up adjustments to revenue arising from change in measure of progress, contract assets Example MonetaryDuration, Debit 831150
Increase (decrease) through cumulative catch-up adjustments to revenue arising from change in measure of progress, contract liabilities Example MonetaryDuration, Credit 831150
Increase (decrease) through cumulative catch-up adjustments to revenue arising from contract modification, contract assets Example MonetaryDuration, Debit 831150
Increase (decrease) through cumulative catch-up adjustments to revenue arising from contract modification, contract liabilities Example MonetaryDuration, Credit 831150
Increase (decrease) through cumulative catch-up adjustments to revenue, contract assets Example MonetaryDuration, Debit 831150
Increase (decrease) through cumulative catch-up adjustments to revenue, contract liabilities Example MonetaryDuration, Credit 831150

(c)

impairment of a contract asset;

Decrease through impairment, contract assets Example MonetaryDuration, Credit 831150

(d)

a change in the time frame for a right to consideration to become unconditional (ie for a contract asset to be reclassified to a receivable); and

Decrease through right to consideration becoming unconditional, contract assets Example MonetaryDuration, Credit 831150

(e)

a change in the time frame for a performance obligation to be satisfied (ie for the recognition of revenue arising from a contract liability).

Decrease through performance obligation being satisfied, contract liabilities Example MonetaryDuration, Debit 831150
Explanation of significant changes in contract assets and contract liabilities [text block] Disclosure Text block 831150

Performance obligations

119

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

(a)

when the entity typically satisfies its performance obligations (for example, upon shipment, upon delivery, as services are rendered or upon completion of service), including when performance obligations are satisfied in a bill-and-hold arrangement;

Description of when entity typically satisfies performance obligations Disclosure Text 831150

(b)

the significant payment terms (for example, when payment is typically due, whether the contract has a significant financing component, whether the consideration amount is variable and whether the estimate of variable consideration is typically constrained in accordance with paragraphs 56⁠–⁠58);

Description of significant payment terms in contracts with customers Disclosure Text 831150

(c)

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

Description of nature of goods or services that entity has promised to transfer Disclosure Text 831150
Description of performance obligations to arrange for another party to transfer goods or services Disclosure Text 831150

(d)

obligations for returns, refunds and other similar obligations; and

Description of obligations for returns, refunds and other similar obligations Disclosure Text 831150

(e)

types of warranties and related obligations.

Description of types of warranties and related obligations Disclosure Text 831150
Disclosure of performance obligations [table] Disclosure 831150
Disclosure of performance obligations [text block] Disclosure Text block 831150
Performance obligations [axis] Disclosure 831150, 990000
Performance obligations [domain] Disclosure 831150, 990000

Transaction price allocated to the remaining performance obligations

120

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

(a)

the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period; and

Transaction price allocated to remaining performance obligations Disclosure MonetaryInstant, Credit 831150

(b)

an explanation of when the entity expects to recognise as revenue the amount disclosed in accordance with paragraph 120(a), which the entity shall disclose in either of the following ways:

(i)

on a quantitative basis using the time bands that would be most appropriate for the duration of the remaining performance obligations; [Refer:Illustrative Examples, example 42 Contracts B and C] or

Disclosure of transaction price allocated to remaining performance obligations [table] Disclosure 831150
Disclosure of transaction price allocated to remaining performance obligations [text block] Disclosure Text block 831150
Maturity [axis] Disclosure IAS 1.61 Disclosure
IAS 19.147 c Example
IFRS 16.94 Disclosure
IFRS 16.97 Disclosure
IFRS 17.109 Disclosure
IFRS 17.109A Disclosure
IFRS 17.120 Disclosure
IFRS 17.132 b Disclosure
IFRS 7.23B a Disclosure
IFRS 7.42E e Disclosure
IFRS 7.B11 Example
810000, 822390, 831150, 832610, 834480, 836600, 880000, 990000
Maturity [domain] Disclosure IAS 1.61 Disclosure
IAS 19.147 c Example
IFRS 16.94 Disclosure
IFRS 16.97 Disclosure
IFRS 17.109 Disclosure
IFRS 17.109A Disclosure
IFRS 17.120 Disclosure
IFRS 17.132 b Disclosure
IFRS 7.23B a Disclosure
IFRS 7.B11 Example
IFRS 7.B35 Example
810000, 822390, 831150, 832610, 834480, 836600, 880000, 990000

(ii)

by using qualitative information. [Refer:Illustrative Examples, example 43]

Explanation of when entity expects to recognise transaction price allocated to remaining performance obligations as revenue Disclosure Text 831150

121

As a practical expedient, an entity need not disclose the information in paragraph 120 for a performance obligation if either of the following conditions is met:

(a)

the performance obligation is part of a contract that has an original expected duration of one year or less; or

(b)

the entity recognises revenue from the satisfaction of the performance obligation in accordance with paragraph B16. [Refer:Illustrative Examples, example 42 Contract A]

122

An entity shall explain qualitatively whether it is applying the practical expedient in paragraph 121 and whether any consideration from contracts with customers is not included in the transaction price and, therefore, not included in the information disclosed in accordance with paragraph 120. For example, an estimate of the transaction price would not include any estimated amounts of variable consideration that are constrained (see paragraphs 56⁠–⁠58).

Explanation of whether any consideration from contracts with customers is not included in disclosure of transaction price allocated to remaining performance obligations Disclosure Text 831150
Explanation of whether practical expedient is applied for disclosure of transaction price allocated to remaining performance obligations Disclosure Text 831150
Not all consideration from contracts with customers is included in disclosure of transaction price allocated to remaining performance obligations Disclosure True/False 831150
Practical expedient is applied for disclosure of transaction price allocated to remaining performance obligations Disclosure True/False 831150

Significant judgements in the application of this Standard

123

An entity shall disclose the judgements, and changes in the judgements, made in applying this Standard that significantly affect the determination of the amount and timing of revenue from contracts with customers. In particular, an entity shall explain the judgements, and changes in the judgements, used in determining both of the following:

(a)

the timing of satisfaction of performance obligations (see paragraphs 124⁠–⁠125); and

(b)

the transaction price and the amounts allocated to performance obligations (see paragraph 126).

Description of judgements, and changes in judgements, that significantly affect determination of amount and timing of revenue from contracts with customers Disclosure Text 831150

Determining the timing of satisfaction of performance obligations

124

For performance obligations that an entity satisfies over time, an entity shall disclose both of the following:

(a)

the methods used to recognise revenue (for example, a description of the output methods or input methods used and how those methods are applied); and

Description of methods used to recognise revenue from contracts with customers Disclosure Text 831150

(b)

an explanation of why the methods used provide a faithful depiction of the transfer of goods or services.

Explanation of why methods used to recognise revenue provide faithful depiction of transfer of goods or services Disclosure Text 831150
Performance obligations satisfied over time [member] Disclosure 831150

125

For performance obligations satisfied at a point in time, an entity shall disclose the significant judgements made in evaluating when a customer obtains control of promised goods or services.

Description of significant judgements made in evaluating when customer obtains control of promised goods or services Disclosure Text 831150
Performance obligations satisfied at point in time [member] Disclosure 831150

Determining the transaction price and the amounts allocated to performance obligations

126

An entity shall disclose information about the methods, inputs and assumptions used for all of the following:

(a)

determining the transaction price, which includes, but is not limited to, estimating variable consideration, adjusting the consideration for the effects of the time value of money and measuring non-cash consideration;

Disclosure of information about methods, inputs and assumptions used for determining transaction price [text block] Disclosure Text block 831150

(b)

assessing whether an estimate of variable consideration is constrained;

Disclosure of information about methods, inputs and assumptions used for assessing whether estimate of variable consideration is constrained [text block] Disclosure Text block 831150

(c)

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

Disclosure of information about methods, inputs and assumptions used for allocating transaction price [text block] Disclosure Text block 831150

(d)

measuring obligations for returns, refunds and other similar obligations.

Disclosure of information about methods, inputs and assumptions used for measuring obligations for returns, refunds and other similar obligations [text block] Disclosure Text block 831150

Assets recognised from the costs to obtain or fulfil a contract with a customer

127

An entity shall describe both of the following:

(a)

the judgements made in determining the amount of the costs incurred to obtain or fulfil a contract with a customer (in accordance with paragraph 91 or 95); and

Description of judgements made in determining amount of costs to obtain or fulfil contracts with customers Disclosure Text 831150

(b)

the method it uses to determine the amortisation for each reporting period.

Description of method used to determine amortisation of assets recognised from costs to obtain or fulfil contracts with customers Disclosure Text 831150

128

An entity shall disclose all of the following:

(a)

the closing balances of assets recognised from the costs incurred to obtain or fulfil a contract with a customer (in accordance with paragraph 91 or 95), by main category of asset (for example, costs to obtain contracts with customers, pre‑contract costs and setup costs); and

Assets recognised from costs to obtain or fulfil contracts with customers Disclosure MonetaryInstant, Debit 831150
Categories of assets recognised from costs to obtain or fulfil contracts with customers [axis] Disclosure 831150, 990000
Categories of assets recognised from costs to obtain or fulfil contracts with customers [domain] Disclosure 831150, 990000
Disclosure of assets recognised from costs to obtain or fulfil contracts with customers [table] Disclosure 831150
Disclosure of assets recognised from costs to obtain or fulfil contracts with customers [text block] Disclosure Text block 831150
Costs to obtain contracts with customers [member] Example 831150
Pre-contract costs [member] Example 831150
Setup costs [member] Example 831150

(b)

the amount of amortisation and any impairment losses recognised in the reporting period.

Amortisation, assets recognised from costs incurred to obtain or fulfil contracts with customers Disclosure MonetaryDuration, Debit 831150
Impairment loss, assets recognised from costs incurred to obtain or fulfil contracts with customers Disclosure MonetaryDuration, Debit 831150

Practical expedients

129

If an entity elects to use the practical expedient in either paragraph 63 (about the existence of a significant financing component) or paragraph 94 (about the incremental costs of obtaining a contract), the entity shall disclose that fact.

Practical expedient about existence of significant financing component has been used Disclosure True/False 831150
Practical expedient about incremental costs of obtaining contract has been used Disclosure True/False 831150
Statement that practical expedient about existence of significant financing component has been used Disclosure Text 831150
Statement that practical expedient about incremental costs of obtaining contract has been used Disclosure Text 831150

Appendices

Appendix ADefined terms

This appendix is an integral part of the Standard.

contract

An agreement between two or more parties that creates enforceable rights and obligations. [Refer:Basis for Conclusions paragraphs BC31 and BC32]

contract asset

An entity’s right to consideration in exchange for goods or services that the entity has transferred to a customer when that right is conditioned on something other than the passage of time (for example, the entity’s future performance).

contract liability

An entity’s obligation to transfer goods or services to a customer for which the entity has received consideration (or the amount is due) from the customer. [Refer:Basis of Conclusions BC317⁠–⁠BC321]

customer

A party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration. [Refer:Basis for Conclusions paragraphs BC52⁠–⁠BC57]

income

Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in an increase in equity, other than those relating to contributions from equity participants.

performance obligation

A promise in a contract with a customer to transfer to the customer either:

(a)

a good or service (or a bundle of goods or services) that is distinct; or

(b)

a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer.

revenue

Income arising in the course of an entity’s ordinary activities.

stand-alone selling price (of a good or service)

The price at which an entity would sell a promised good or service separately to a customer.

transaction price (for a contract with a customer)

The amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.

Appendix BApplication Guidance

This appendix is an integral part of the Standard. It describes the application of paragraphs 1⁠–⁠129 and has the same authority as the other parts of the Standard.

B1

This application guidance is organised into the following categories:

(a)

performance obligations satisfied over time (paragraphs B2⁠–⁠B13);

(b)

methods for measuring progress towards complete satisfaction of a performance obligation (paragraphs B14⁠–⁠B19);

(c)

sale with a right of return (paragraphs B20⁠–⁠B27);

(d)

warranties (paragraphs B28⁠–⁠B33);

(e)

principal versus agent considerations (paragraphs B34⁠–⁠B38);

(f)

customer options for additional goods or services (paragraphs B39⁠–⁠B43);

(g)

customers’ unexercised rights (paragraphs B44⁠–⁠B47);

(h)

non-refundable upfront fees (and some related costs) (paragraphs B48⁠–⁠B51);

(i)

licensing (paragraphs B52⁠–⁠B63B);

(j)

repurchase agreements (paragraphs B64⁠–⁠B76);

(k)

consignment arrangements (paragraphs B77⁠–⁠B78);

(l)

bill-and-hold arrangements (paragraphs B79⁠–⁠B82);

(m)

customer acceptance (paragraphs B83⁠–⁠B86); and

(n)

disclosure of disaggregated revenue (paragraphs B87⁠–⁠B89).

Performance obligations satisfied over time

B2

In accordance with paragraph 35, a performance obligation is satisfied over time if one of the following criteria is met:

(a)

the customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs (see paragraphs B3⁠–⁠B4);

(b)

the entity’s performance creates or enhances an asset (for example, work in progress) that the customer controls as the asset is created or enhanced (see paragraph B5); or

(c)

the entity’s performance does not create an asset with an alternative use to the entity (see paragraphs B6⁠–⁠B8) and the entity has an enforceable right to payment for performance completed to date (see paragraphs B9⁠–⁠B13).

Simultaneous receipt and consumption of the benefits of the entity’s performance (paragraph 35(a))

B3

For some types of performance obligations, the assessment of whether a customer receives the benefits of an entity’s performance as the entity performs and simultaneously consumes those benefits as they are received will be straightforward. Examples include routine or recurring services (such as a cleaning service) in which the receipt and simultaneous consumption by the customer of the benefits of the entity’s performance can be readily identified. [Refer:Illustrative Examples, example 13]

B4

For other types of performance obligations, an entity may not be able to readily identify whether a customer simultaneously receives and consumes the benefits from the entity’s performance as the entity performs. In those circumstances, a performance obligation is satisfied over time if an entity determines that another entity would not need to substantially re‑perform the work that the entity has completed to date if that other entity were to fulfil the remaining performance obligation to the customer. In determining whether another entity would not need to substantially re‑perform the work the entity has completed to date, an entity shall make both of the following assumptions:

(a)

disregard potential contractual restrictions or practical limitations that otherwise would prevent the entity from transferring the remaining performance obligation to another entity; and

(b)

presume that another entity fulfilling the remainder of the performance obligation would not have the benefit of any asset that is presently controlled by the entity and that would remain controlled by the entity if the performance obligation were to transfer to another entity.

Customer controls the asset as it is created or enhanced (paragraph 35(b))

B5

In determining whether a customer controls an asset as it is created or enhanced in accordance with paragraph 35(b), an entity shall apply the requirements for control in paragraphs 31⁠–⁠34 and 38. The asset that is being created or enhanced (for example, a work‑in‑progress asset) could be either tangible or intangible.

Entity’s performance does not create an asset with an alternative use (paragraph 35(c))

B6

In assessing whether an asset has an alternative use to an entity in accordance with paragraph 36, an entity shall consider the effects of contractual restrictions and practical limitations on the entity’s ability to readily direct that asset for another use, such as selling it to a different customer. The possibility of the contract with the customer being terminated is not a relevant consideration in assessing whether the entity would be able to readily direct the asset for another use.

B7

A contractual restriction on an entity’s ability to direct an asset for another use must be substantive for the asset not to have an alternative use to the entity. A contractual restriction is substantive if a customer could enforce its rights to the promised asset if the entity sought to direct the asset for another use. In contrast, a contractual restriction is not substantive if, for example, an asset is largely interchangeable with other assets that the entity could transfer to another customer without breaching the contract and without incurring significant costs that otherwise would not have been incurred in relation to that contract.

B8

A practical limitation on an entity’s ability to direct an asset for another use exists if an entity would incur significant economic losses to direct the asset for another use. A significant economic loss could arise because the entity either would incur significant costs to rework the asset or would only be able to sell the asset at a significant loss. For example, an entity may be practically limited from redirecting assets that either have design specifications that are unique to a customer or are located in remote areas.

Right to payment for performance completed to date (paragraph 35(c))

B9

In accordance with paragraph 37, an entity has a right to payment for performance completed to date if the entity would be entitled to an amount that at least compensates the entity for its performance completed to date in the event that the customer or another party terminates the contract for reasons other than the entity’s failure to perform as promised. An amount that would compensate an entity for performance completed to date would be an amount that approximates the selling price of the goods or services transferred to date (for example, recovery of the costs incurred by an entity in satisfying the performance obligation plus a reasonable profit margin) rather than compensation for only the entity’s potential loss of profit if the contract were to be terminated. Compensation for a reasonable profit margin need not equal the profit margin expected if the contract was fulfilled as promised, but an entity should be entitled to compensation for either of the following amounts:

(a)

a proportion of the expected profit margin in the contract that reasonably reflects the extent of the entity’s performance under the contract before termination by the customer (or another party); or

(b)

a reasonable return on the entity’s cost of capital for similar contracts (or the entity’s typical operating margin for similar contracts) if the contract-specific margin is higher than the return the entity usually generates from similar contracts.

B10

An entity’s right to payment for performance completed to date need not be a present unconditional right to payment. In many cases, an entity will have an unconditional right to payment only at an agreed-upon milestone or upon complete satisfaction of the performance obligation. In assessing whether it has a right to payment for performance completed to date, an entity shall consider whether it would have an enforceable right to demand or retain payment for performance completed to date if the contract were to be terminated before completion for reasons other than the entity’s failure to perform as promised.

B11

In some contracts, a customer may have a right to terminate the contract only at specified times during the life of the contract or the customer might not have any right to terminate the contract. If a customer acts to terminate a contract without having the right to terminate the contract at that time (including when a customer fails to perform its obligations as promised), the contract (or other laws) might entitle the entity to continue to transfer to the customer the goods or services promised in the contract and require the customer to pay the consideration promised in exchange for those goods or services. In those circumstances, an entity has a right to payment for performance completed to date because the entity has a right to continue to perform its obligations in accordance with the contract and to require the customer to perform its obligations (which include paying the promised consideration).

B12

In assessing the existence and enforceability of a right to payment for performance completed to date, an entity shall consider the contractual terms as well as any legislation or legal precedent that could supplement or override those contractual terms. This would include an assessment of whether:

(a)

legislation, administrative practice or legal precedent confers upon the entity a right to payment for performance to date even though that right is not specified in the contract with the customer;

(b)

relevant legal precedent indicates that similar rights to payment for performance completed to date in similar contracts have no binding legal effect; or

(c)

an entity’s customary business practices of choosing not to enforce a right to payment has resulted in the right being rendered unenforceable in that legal environment. However, notwithstanding that an entity may choose to waive its right to payment in similar contracts, an entity would continue to have a right to payment to date if, in the contract with the customer, its right to payment for performance to date remains enforceable.

B13

The payment schedule specified in a contract does not necessarily indicate whether an entity has an enforceable right to payment for performance completed to date. [Refer:Illustrative Examples, example 16] Although the payment schedule in a contract specifies the timing and amount of consideration that is payable by a customer, the payment schedule might not necessarily provide evidence of the entity’s right to payment for performance completed to date. This is because, for example, the contract could specify that the consideration received from the customer is refundable for reasons other than the entity failing to perform as promised in the contract.

Methods for measuring progress towards complete satisfaction of a performance obligation

B14

Methods that can be used to measure an entity’s progress towards complete satisfaction of a performance obligation satisfied over time in accordance with paragraphs 35⁠–⁠37 include the following:

(a)

output methods (see paragraphs B15⁠–⁠B17); and

(b)

input methods (see paragraphs B18⁠–⁠B19).

Output methods

B15

Output methods recognise revenue on the basis of direct measurements of the value to the customer of the goods or services transferred to date relative to the remaining goods or services promised under the contract. Output methods include methods such as surveys of performance completed to date, appraisals of results achieved, milestones reached, time elapsed and units produced or units delivered. When an entity evaluates whether to apply an output method to measure its progress, the entity shall consider whether the output selected would faithfully depict the entity’s performance towards complete satisfaction of the performance obligation. An output method would not provide a faithful depiction of the entity’s performance if the output selected would fail to measure some of the goods or services for which control has transferred to the customer. For example, output methods based on units produced or units delivered would not faithfully depict an entity’s performance in satisfying a performance obligation if, at the end of the reporting period, the entity’s performance has produced work in progress or finished goods controlled by the customer that are not included in the measurement of the output.

B16

As a practical expedient, if an entity has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date (for example, a service contract in which an entity bills a fixed amount for each hour of service provided), the entity may recognise revenue in the amount to which the entity has a right to invoice.

B17

The disadvantages of output methods are that the outputs used to measure progress may not be directly observable and the information required to apply them may not be available to an entity without undue cost. Therefore, an input method may be necessary.

Input methods

B18

Input methods recognise revenue on the basis of the entity’s efforts or inputs to the satisfaction of a performance obligation (for example, resources consumed, labour hours expended, costs incurred, time elapsed or machine hours used) relative to the total expected inputs to the satisfaction of that performance obligation. If the entity’s efforts or inputs are expended evenly throughout the performance period, it may be appropriate for the entity to recognise revenue on a straight-line basis.

B19

A shortcoming of input methods is that there may not be a direct relationship between an entity’s inputs and the transfer of control of goods or services to a customer. [Refer:Basis for Conclusions paragraph BC176] Therefore, an entity shall exclude from an input method the effects of any inputs that, in accordance with the objective of measuring progress in paragraph 39, do not depict the entity’s performance in transferring control of goods or services to the customer. For instance, when using a cost-based input method, an adjustment to the measure of progress may be required in the following circumstances:

(a)

When a cost incurred does not contribute to an entity’s progress in satisfying the performance obligation. For example, an entity would not recognise revenue on the basis of costs incurred that are attributable to significant inefficiencies in the entity’s performance that were not reflected in the price of the contract (for example, the costs of unexpected amounts of wasted materials, labour or other resources that were incurred to satisfy the performance obligation). [Refer:Basis for Conclusions paragraphs BC177 and BC178]

(b)

When a cost incurred is not proportionate to the entity’s progress in satisfying the performance obligation. In those circumstances, the best depiction of the entity’s performance may be to adjust the input method to recognise revenue only to the extent of that cost incurred. For example, a faithful depiction of an entity’s performance might be to recognise revenue at an amount equal to the cost of a good used to satisfy a performance obligation if the entity expects at contract inception that all of the following conditions would be met:

(i)

the good is not distinct;

(ii)

the customer is expected to obtain control of the good significantly before receiving services related to the good; [Refer:Basis for Conclusions paragraphs BC170⁠–⁠BC175]

(iii)

the cost of the transferred good is significant relative to the total expected costs to completely satisfy the performance obligation; and

(iv)

the entity procures the good from a third party and is not significantly involved in designing and manufacturing the good (but the entity is acting as a principal in accordance with paragraphs B34⁠–⁠B38).

Sale with a right of return

B20

In some contracts, an entity transfers control of a product to a customer and also grants the customer the right to return the product for various reasons (such as dissatisfaction with the product) and receive any combination of the following:

(a)

a full or partial refund of any consideration paid;

(b)

a credit that can be applied against amounts owed, or that will be owed, to the entity; and

(c)

another product in exchange.

B21

To account for the transfer of products with a right of return (and for some services that are provided subject to a refund), an entity shall recognise all of the following:

(a)

revenue for the transferred products in the amount of consideration to which the entity expects to be entitled (therefore, revenue would not be recognised for the products expected to be returned);

(b)

a refund liability; and

(c)

an asset (and corresponding adjustment to cost of sales) for its right to recover products from customers on settling the refund liability.

B22

An entity’s promise to stand ready to accept a returned product during the return period shall not be accounted for as a performance obligation in addition to the obligation to provide a refund.

B23

An entity shall apply the requirements in paragraphs 47⁠–⁠72 (including the requirements for constraining estimates of variable consideration in paragraphs 56⁠–⁠58) to determine the amount of consideration to which the entity expects to be entitled (ie excluding the products expected to be returned). For any amounts received (or receivable) for which an entity does not expect to be entitled, the entity shall not recognise revenue when it transfers products to customers but shall recognise those amounts received (or receivable) as a refund liability. Subsequently, at the end of each reporting period, the entity shall update its assessment of amounts for which it expects to be entitled in exchange for the transferred products and make a corresponding change to the transaction price and, therefore, in the amount of revenue recognised. [Refer:Basis for Conclusions paragraph BC365]

B24

An entity shall update the measurement of the refund liability at the end of each reporting period for changes in expectations about the amount of refunds. An entity shall recognise corresponding adjustments as revenue (or reductions of revenue).

B25

An asset recognised for an entity’s right to recover products from a customer on settling a refund liability shall initially be measured by reference to the former carrying amount of the product (for example, inventory) less any expected costs to recover those products (including potential decreases in the value to the entity of returned products). At the end of each reporting period, an entity shall update the measurement of the asset arising from changes in expectations about products to be returned. An entity shall present the asset separately from the refund liability. [Refer:Basis for Conclusions paragraph BC367]

B26

Exchanges by customers of one product for another of the same type, quality, condition and price (for example, one colour or size for another) are not considered returns for the purposes of applying this Standard.

B27

Contracts in which a customer may return a defective product in exchange for a functioning product shall be evaluated in accordance with the guidance on warranties in paragraphs B28⁠–⁠B33.

Warranties

B28

It is common for an entity to provide (in accordance with the contract, the law or the entity’s customary business practices) a warranty in connection with the sale of a product (whether a good or service). The nature of a warranty can vary significantly across industries and contracts. Some warranties provide a customer with assurance that the related product will function as the parties intended because it complies with agreed-upon specifications. Other warranties provide the customer with a service in addition to the assurance that the product complies with agreed-upon specifications.

B29

If a customer has the option to purchase a warranty separately (for example, because the warranty is priced or negotiated separately), the warranty is a distinct service because the entity promises to provide the service to the customer in addition to the product that has the functionality described in the contract. In those circumstances, an entity shall account for the promised warranty as a performance obligation in accordance with paragraphs 22⁠–⁠30 and allocate a portion of the transaction price to that performance obligation in accordance with paragraphs 73⁠–⁠86. [Refer:Basis for Conclusions paragraph BC371]

B30

If a customer does not have the option to purchase a warranty separately, an entity shall account for the warranty in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets [Refer:Basis for Conclusions paragraph BC376] unless the promised warranty, or a part of the promised warranty, provides the customer with a service in addition to the assurance that the product complies with agreed-upon specifications. [Refer:Basis for Conclusions paragraph BC372]

B31

In assessing whether a warranty provides a customer with a service in addition to the assurance that the product complies with agreed-upon specifications, an entity shall consider factors such as:

(a)

Whether the warranty is required by law—if the entity is required by law to provide a warranty, the existence of that law indicates that the promised warranty is not a performance obligation because such requirements typically exist to protect customers from the risk of purchasing defective products. [Refer:Basis for Conclusions paragraph BC377]

(b)

The length of the warranty coverage period—the longer the coverage period, the more likely it is that the promised warranty is a performance obligation because it is more likely to provide a service in addition to the assurance that the product complies with agreed-upon specifications.

(c)

The nature of the tasks that the entity promises to perform—if it is necessary for an entity to perform specified tasks to provide the assurance that a product complies with agreed-upon specifications (for example, a return shipping service for a defective product), then those tasks likely do not give rise to a performance obligation.

B32

If a warranty, or a part of a warranty, provides a customer with a service in addition to the assurance that the product complies with agreed-upon specifications, the promised service is a performance obligation. Therefore, an entity shall allocate the transaction price to the product and the service. If an entity promises both an assurance-type warranty and a service-type warranty but cannot reasonably account for them separately, the entity shall account for both of the warranties together as a single performance obligation.

B33

A law that requires an entity to pay compensation if its products cause harm or damage does not give rise to a performance obligation. For example, a manufacturer might sell products in a jurisdiction in which the law holds the manufacturer liable for any damages (for example, to personal property) that might be caused by a consumer using a product for its intended purpose. Similarly, an entity’s promise to indemnify the customer for liabilities and damages arising from claims of patent, copyright, trademark or other infringement by the entity’s products does not give rise to a performance obligation. The entity shall account for such obligations in accordance with IAS 37. [Refer:Basis for Conclusions paragraph BC378]

Principal versus agent considerations

[Refer:

Basis for Conclusions paragraphs BC379⁠–⁠BC385Z

Illustrative Examples, examples 45 and 48 (entity is agent), examples 46, 46A and 47 (entity is principal) and example 48A (entity is principal and agent in the same contract)]

B34

When another party is involved in providing goods or services to a customer, the entity shall determine whether the nature of its promise is a performance obligation to provide the specified goods or services itself (ie the entity is a principal) or to arrange for those goods or services to be provided by the other party (ie the entity is an agent). An entity determines whether it is a principal or an agent for each specified good or service promised to the customer. A specified good or service is a distinct good or service (or a distinct bundle of goods or services) to be provided to the customer (see paragraphs 27⁠–⁠30). If a contract with a customer includes more than one specified good or service, an entity could be a principal for some specified goods or services and an agent for others [Refer:Illustrative Examples, example 48A].

B34A

To determine the nature of its promise (as described in paragraph B34), the entity shall:E9

(a)

identify the specified goods or services to be provided to the customer (which, for example, could be a right to a good or service to be provided by another party (see paragraph 26)); and

(b)

assess whether it controls (as described in paragraph 33) each specified good or service before that good or service is transferred to the customer.

E9

[IFRIC® Update, April 2022, Agenda Decision, ‘IFRS 15 Revenue from Contracts with Customers—Principal versus Agent: Software Reseller’

The Committee received a request asking whether, in applying IFRS 15, a reseller of software licences is a principal or agent. In the fact pattern described in the request:

a.

the reseller has a distribution agreement with a software manufacturer that:

i.

gives the reseller the right to grant (sell) the manufacturer’s standard software licences to customers;

ii.

requires the reseller to provide pre-sales advice to each customer—before the sale of the software licences—to identify the type and number of software licences that would meet the customer’s needs; and

iii.

provides the reseller with discretion in pricing the software licences for sale to customers.

b.

if the customer decides:

i.

to buy no software licences, it pays nothing. The reseller and the customer do not enter into an agreement.

ii.

to buy a specified type and number of software licences, the reseller negotiates the selling price with the customer, places an order with the software manufacturer on behalf of the customer (and pays the manufacturer), and invoices the customer for the agreed price.

c.

the software manufacturer provides the customer with the software licences ordered—issued in the customer’s name—via a software portal and with the key necessary for activation. The software manufacturer and the customer enter into an agreement specifying the customer’s right to use the software, a warranty covering the software’s functionality and the term of the licence.

d.

if the reseller advises the customer to order an incorrect type or number of software licences (that fails to meet the customer’s needs), the customer may not accept the licences. The reseller is unable to return unaccepted licences to the software manufacturer or sell them to another customer.

Applicable requirements in IFRS 15—Principal versus agent considerations

Paragraphs B34⁠–⁠B38 set out a framework to determine whether an entity is a principal or agent. When another party is involved in providing goods or services to a customer, an entity determines whether the nature of its promise is a performance obligation to provide the specified goods or services itself (the entity is a principal) or to arrange for those goods or services to be provided by the other party (the entity is an agent).

Paragraph B34A states that determining the nature of its promise requires an entity to:

a.

identify the specified goods or services to be provided to the customer. A specified good or service is a distinct good or service (or a distinct bundle of goods or services) to be provided to the customer (paragraph B34); and

b.

assess whether it controls each specified good or service before that good or service is transferred to the customer.

An entity is a principal if it controls the specified good or service before that good or service is transferred to a customer (paragraph B35). An entity that is an agent does not control the specified good or service provided by another party before that good or service is transferred to the customer (paragraph B36).

Identifying the specified goods or services to be provided to the customer

The first step in identifying the specified goods or services to be provided to the customer is to assess the goods or services promised in the contract with the customer. A contract with a customer generally explicitly states the goods or services that an entity promises to provide to a customer. However, the contract may also include promises that are implied by an entity’s customary business practices, published policies or specific statements if, at the time of entering into the contract, those promises create a valid expectation of the customer that the entity will transfer a good or service to the customer (paragraph 24).

Having assessed the goods or services promised in the contract with the customer, an entity then identifies—applying paragraphs 27⁠–⁠30—each distinct good or service (or distinct bundle of goods or services) to be provided to the customer.

Assessing whether an entity controls each specified good or service before that good or service is transferred to the customer

When another party is involved in providing goods or services to a customer, paragraph B35A sets out the circumstances in which an entity is a principal—one of which is when the entity obtains control of a good or another asset from the other party that it then transfers to the customer. Control of an asset refers to the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset; control includes the ability to prevent other entities from directing the use of, and obtaining the benefits from, an asset (paragraph 33).

Paragraph B37 sets out indicators to help an entity determine whether it is a principal or agent. Such indicators include, but are not limited to: (a) primary responsibility for fulfilling the promise to provide the specified good or service; (b) inventory risk before the specified good or service has been transferred to the customer or after transfer of control to the customer; and (c) discretion in establishing the price for the specified good or service. The indicators may be more or less relevant to the assessment of control depending on the nature of the specified good or service and the terms and conditions of the contract, and different indicators may provide more persuasive evidence in different contracts (paragraph B37A).

Applying IFRS 15 to the fact pattern described in the request

Identifying the specified goods or services to be provided to the customer

In the fact pattern described in the request, the reseller’s contract with the customer includes an explicit promise to provide a specified type and number of standard software licences to the customer.

The Committee observed that the pre-sales advice the reseller provides—under the distribution agreement between the software manufacturer and the reseller—is not an implicit promise in the contract with the customer. At the time of entering into the contract with the customer, the reseller has already provided the advice. There is no further advice to be provided by the reseller and the advice already provided will not be transferred to the customer after contract inception. Consequently, at the time of entering into the contract with the customer, there is no valid expectation of the customer that the reseller will transfer a good or service to the customer other than the standard software licences.

Accordingly, the Committee concluded that, in the fact pattern described in the request, the promised goods in the reseller’s contract with the customer are the standard software licences. Because the standard software licences are the only promised goods in the contract with the customer, they are distinct goods to be provided to the customer. Those licences are therefore the specified goods to be provided to the customer as described in paragraph B34A(a).

Assessing whether the reseller controls the standard software licences before they are transferred to the customer

In the fact pattern described in the request, the reseller assesses whether it obtains control of the standard software licences from the software manufacturer before they are transferred to the customer. That assessment of control requires consideration of the specific facts and circumstances, which include the terms and conditions of the contracts between the reseller and the customer, the reseller and the software manufacturer, and the software manufacturer and the customer.

If—after applying the principles and requirements on control in IFRS 15—it is unclear whether the reseller is a principal or agent, the reseller considers the indicators in paragraph B37 in assessing whether it obtains control of the standard software licences from the software manufacturer before they are transferred to the customer. In the fact pattern described in the request, the Committee observed that:

a.

the software licences provided to the customer exist only after the reseller places an order with the software manufacturer and the software manufacturer issues the software licences in the customer’s name. The software manufacturer is responsible for the software’s functionality, as well as for issuing and activating the licences. The software manufacturer is therefore responsible in those respects for fulfilling the promise to provide the licences to the customer (paragraph B37(a)).

b.

the reseller is the party that engages with the customer before and after the software licences are provided to the customer, taking responsibility for the unaccepted licences. The reseller is therefore responsible in those respects for fulfilling the promise to provide the licences to the customer (paragraph B37(a)).

c.

the reseller does not obtain a pool of software licences before entering into the contract with the customer and cannot, for example, direct the software licences to another customer. The reseller therefore has no inventory risk before the licences are provided to the customer but then has inventory risk until the customer accepts the licences (paragraph B37(b)).

d.

the reseller has discretion in establishing the price for the software licences (paragraph B37(c)). Pricing discretion may be less relevant to the assessment of control if, for example, the market for the software licences is such that the reseller, in effect, has limited flexibility in establishing the price.

The Committee observed that the conclusion as to whether the reseller is a principal or agent depends on the specific facts and circumstances, including the terms and conditions of the relevant contracts. The reseller would apply judgement in making its overall assessment of whether it is a principal or agent—including considering the relevance of the indicators to the assessment of control and the degree to which they provide evidence of control of the standard software licences before they are transferred to the customer—within the context of the framework and requirements set out in paragraphs B34⁠–⁠B38 of IFRS 15.

The Committee also observed that the reseller would disclose (a) material accounting policy information in accordance with IAS 1 Presentation of Financial Statements, and (b) information required by IFRS 15, including about its performance obligations (paragraph 119) and the judgements made in applying IFRS 15 that significantly affect the determination of the amount and timing of revenue from contracts with customers (paragraph 123).

The Committee concluded that the principles and requirements in IFRS Accounting Standards provide an adequate basis for a reseller to determine whether—in the fact pattern described in the request—it is a principal or agent for the standard software licences provided to a customer. Consequently, the Committee decided not to add a standard-setting project to the work plan.]

B35

An entity is a principal if it controls the specified good or service before that good or service is transferred to a customer. However, an entity does not necessarily control a specified good if the entity obtains legal title to that good only momentarily before legal title is transferred to a customer. An entity that is a principal may satisfy its performance obligation to provide the specified good or service itself or it may engage another party (for example, a subcontractor) to satisfy some or all of the performance obligation on its behalf.

B35A

When another party is involved in providing goods or services to a customer, an entity that is a principal obtains control of any one of the following:

(a)

a good or another asset from the other party that it then transfers to the customer. [Refer:Illustrative Examples, example 47]

(b)

a right to a service to be performed by the other party, which gives the entity the ability to direct that party to provide the service to the customer on the entity’s behalf. [Refer:Illustrative Examples, example 46A]

(c)

a good or service from the other party that it then combines with other goods or services in providing the specified good or service to the customer. For example, if an entity provides a significant service of integrating goods or services (see paragraph 29(a)) provided by another party into the specified good or service for which the customer has contracted, the entity controls the specified good or service before that good or service is transferred to the customer. [Refer:Illustrative Examples, example 46] This is because the entity first obtains control of the inputs to the specified good or service (which includes goods or services from other parties) and directs their use to create the combined output that is the specified good or service.

B35B

When (or as) an entity that is a principal satisfies a performance obligation, the entity recognises revenue in the gross amount of consideration to which it expects to be entitled in exchange for the specified good or service transferred.

B36

An entity is an agent if the entity’s performance obligation is to arrange for the provision of the specified good or service by another party. An entity that is an agent does not control the specified good or service provided by another party before that good or service is transferred to the customer. When (or as) an entity that is an agent satisfies a performance obligation, the entity recognises revenue in the amount of any fee or commission to which it expects to be entitled in exchange for arranging for the specified goods or services to be provided by the other party. An entity’s fee or commission might be the net amount of consideration that the entity retains after paying the other party the consideration received in exchange for the goods or services to be provided by that party.

B37

Indicators that an entity controls the specified good or service before it is transferred to the customer (and is therefore a principal (see paragraph B35)) include, but are not limited to, the following:

(a)

the entity is primarily responsible for fulfilling the promise to provide the specified good or service. This typically includes responsibility for the acceptability of the specified good or service (for example, primary responsibility for the good or service meeting customer specifications). If the entity is primarily responsible for fulfilling the promise to provide the specified good or service, this may indicate that the other party involved in providing the specified good or service is acting on the entity’s behalf.

(b)

the entity has inventory risk before the specified good or service has been transferred to a customer or after transfer of control to the customer (for example, if the customer has a right of return). For example, if the entity obtains, or commits itself to obtain, the specified good or service before obtaining a contract with a customer, that may indicate that the entity has the ability to direct the use of, and obtain substantially all of the remaining benefits from, the good or service before it is transferred to the customer.

(c)

the entity has discretion in establishing the price for the specified good or service. Establishing the price that the customer pays for the specified good or service may indicate that the entity has the ability to direct the use of that good or service and obtain substantially all of the remaining benefits. However, an agent can have discretion in establishing prices in some cases. For example, an agent may have some flexibility in setting prices in order to generate additional revenue from its service of arranging for goods or services to be provided by other parties to customers.

B37A

The indicators in paragraph B37 may be more or less relevant to the assessment of control depending on the nature of the specified good or service and the terms and conditions of the contract. In addition, different indicators may provide more persuasive evidence in different contracts.

B38

If another entity assumes the entity’s performance obligations and contractual rights in the contract so that the entity is no longer obliged to satisfy the performance obligation to transfer the specified good or service to the customer (ie the entity is no longer acting as the principal), the entity shall not recognise revenue for that performance obligation. Instead, the entity shall evaluate whether to recognise revenue for satisfying a performance obligation to obtain a contract for the other party (ie whether the entity is acting as an agent).

Customer options for additional goods or services

B39

Customer options to acquire additional goods or services for free or at a discount come in many forms, including sales incentives, customer award credits (or points), contract renewal options or other discounts on future goods or services.

B40

If, in a contract, an entity grants a customer the option to acquire additional goods or services, that option gives rise to a performance obligation in the contract only if the option provides a material right to the customer that it would not receive without entering into that contract (for example, a discount that is incremental to the range of discounts typically given for those goods or services to that class of customer in that geographical area or market). If the option provides a material right to the customer, the customer in effect pays the entity in advance for future goods or services and the entity recognises revenue when those future goods or services are transferred or when the option expires.

B41

If a customer has the option to acquire an additional good or service at a price that would reflect the stand-alone selling price for that good or service, that option does not provide the customer with a material right even if the option can be exercised only by entering into a previous contract. In those cases, the entity has made a marketing offer that it shall account for in accordance with this Standard only when the customer exercises the option to purchase the additional goods or services.

B42

Paragraph 74 requires an entity to allocate the transaction price to performance obligations on a relative stand-alone selling price basis. If the stand-alone selling price for a customer’s option to acquire additional goods or services is not directly observable, an entity shall estimate it. That estimate shall reflect the discount that the customer would obtain when exercising the option, adjusted for both of the following:

(a)

any discount that the customer could receive without exercising the option; and

(b)

the likelihood that the option will be exercised.

B43

If a customer has a material right to acquire future goods or services and those goods or services are similar to the original goods or services in the contract and are provided in accordance with the terms of the original contract, then an entity may, as a practical alternative to estimating the stand-alone selling price of the option, allocate the transaction price to the optional goods or services by reference to the goods or services expected to be provided and the corresponding expected consideration. Typically, those types of options are for contract renewals.

Customers’ unexercised rights

B44

In accordance with paragraph 106, upon receipt of a prepayment from a customer, an entity shall recognise a contract liability in the amount of the prepayment for its performance obligation to transfer, or to stand ready to transfer, goods or services in the future. An entity shall derecognise that contract liability (and recognise revenue) when it transfers those goods or services and, therefore, satisfies its performance obligation.

B45

A customer’s non-refundable prepayment to an entity gives the customer a right to receive a good or service in the future (and obliges the entity to stand ready to transfer a good or service). However, customers may not exercise all of their contractual rights. Those unexercised rights are often referred to as breakage.

B46

If an entity expects to be entitled to a breakage amount in a contract liability, the entity shall recognise the expected breakage amount as revenue in proportion to the pattern of rights exercised by the customer. If an entity does not expect to be entitled to a breakage amount, the entity shall recognise the expected breakage amount as revenue when the likelihood of the customer exercising its remaining rights becomes remote. To determine whether an entity expects to be entitled to a breakage amount, the entity shall consider the requirements in paragraphs 56⁠–⁠58 on constraining estimates of variable consideration.

B47

An entity shall recognise a liability (and not revenue) for any consideration received that is attributable to a customer’s unexercised rights for which the entity is required to remit to another party, for example, a government entity in accordance with applicable unclaimed property laws.

Non-refundable upfront fees (and some related costs)

B48

In some contracts, an entity charges a customer a non-refundable upfront fee at or near contract inception. Examples include joining fees in health club membership contracts, activation fees in telecommunication contracts, setup fees in some services contracts and initial fees in some supply contracts.

B49

To identify performance obligations in such contracts, an entity shall assess whether the fee relates to the transfer of a promised good or service. In many cases, even though a non-refundable upfront fee relates to an activity that the entity is required to undertake at or near contract inception to fulfil the contract, that activity does not result in the transfer of a promised good or service to the customer (see paragraph 25). Instead, the upfront fee is an advance payment for future goods or services and, therefore, would be recognised as revenue when those future goods or services are provided. [Refer:Illustrative Examples, examples 53 and 16] The revenue recognition period would extend beyond the initial contractual period if the entity grants the customer the option to renew the contract and that option provides the customer with a material right as described in paragraph B40.

B50

If the non-refundable upfront fee relates to a good or service, the entity shall evaluate whether to account for the good or service as a separate performance obligation in accordance with paragraphs 22⁠–⁠30.

B51

An entity may charge a non-refundable fee in part as compensation for costs incurred in setting up a contract (or other administrative tasks as described in paragraph 25). If those setup activities do not satisfy a performance obligation, the entity shall disregard those activities (and related costs) when measuring progress in accordance with paragraph B19. That is because the costs of setup activities do not depict the transfer of services to the customer. The entity shall assess whether costs incurred in setting up a contract have resulted in an asset that shall be recognised in accordance with paragraph 95.

Licensing

B52

A licence establishes a customer’s rights to the intellectual property of an entity. Licences of intellectual property may include, but are not limited to, licences of any of the following:

(a)

software and technology;

(b)

motion pictures, music and other forms of media and entertainment;

(c)

franchises; and

(d)

patents, trademarks and copyrights.

B53

In addition to a promise to grant a licence (or licences) to a customer, an entity may also promise to transfer other goods or services to the customer. Those promises may be explicitly stated in the contract or implied by an entity’s customary business practices, published policies or specific statements (see paragraph 24). As with other types of contracts, when a contract with a customer includes a promise to grant a licence (or licences) in addition to other promised goods or services, an entity applies paragraphs 22⁠–⁠30 to identify each of the performance obligations in the contract.

B54

If the promise to grant a licence is not distinct from other promised goods or services in the contract in accordance with paragraphs 26⁠–⁠30, an entity shall account for the promise to grant a licence and those other promised goods or services together as a single performance obligation. Examples of licences that are not distinct from other goods or services promised in the contract include the following:

(a)

a licence that forms a component of a tangible good and that is integral to the functionality of the good; and

(b)

a licence that the customer can benefit from only in conjunction with a related service (such as an online service provided by the entity that enables, by granting a licence, the customer to access content). [Refer:Illustrative Examples, example 55]

B55

If the licence is not distinct, an entity shall apply paragraphs 31⁠–⁠38 to determine whether the performance obligation (which includes the promised licence) is a performance obligation that is satisfied over time or satisfied at a point in time.

B56

If the promise to grant the licence is distinct from the other promised goods or services in the contract and, therefore, the promise to grant the licence is a separate performance obligation, an entity shall determine whether the licence transfers to a customer either at a point in time or over time. In making this determination, an entity shall consider whether the nature of the entity’s promise in granting the licence to a customer is to provide the customer with either:

(a)

a right to access the entity’s intellectual property as it exists throughout the licence period; [Refer:paragraphs B58⁠–⁠B60 and B62 and Illustrative Examples, examples 57, 58 and 61] or

(b)

a right to use the entity’s intellectual property as it exists at the point in time at which the licence is granted. [Refer:paragraphs B61 and B62 and Illustrative Examples, examples 54, 56 Case B and 59]

Determining the nature of the entity’s promise

B57

[Deleted]

B58

The nature of an entity’s promise in granting a licence is a promise to provide a right to access the entity’s intellectual property if all of the following criteria are met:

(a)

the contract requires, or the customer reasonably expects, that the entity will undertake activities that significantly affect the intellectual property to which the customer has rights (see paragraphs B59 and B59A); [Refer:Basis for Conclusions paragraphs BC414C⁠–⁠BC414F]

(b)

the rights granted by the licence directly expose the customer to any positive or negative effects of the entity’s activities identified in paragraph B58(a); and

(c)

those activities do not result in the transfer of a good or a service to the customer as those activities occur (see paragraph 25).

B59

Factors that may indicate that a customer could reasonably expect that an entity will undertake activities that significantly affect the intellectual property include the entity’s customary business practices, published policies or specific statements. Although not determinative, the existence of a shared economic interest (for example, a sales-based royalty) between the entity and the customer related to the intellectual property to which the customer has rights may also indicate that the customer could reasonably expect that the entity will undertake such activities.

B59A

An entity’s activities significantly affect the intellectual property to which the customer has rights when either:

(a)

those activities are expected to significantly change the form (for example, the design or content) or the functionality (for example, the ability to perform a function or task) of the intellectual property; or

(b)

the ability of the customer to obtain benefit from the intellectual property is substantially derived from, or dependent upon, those activities. For example, the benefit from a brand is often derived from, or dependent upon, the entity’s ongoing activities that support or maintain the value of the intellectual property.

Accordingly, if the intellectual property to which the customer has rights has significant stand-alone functionality, a substantial portion of the benefit of that intellectual property is derived from that functionality. Consequently, the ability of the customer to obtain benefit from that intellectual property would not be significantly affected by the entity’s activities unless those activities significantly change its form or functionality. Types of intellectual property that often have significant stand-alone functionality include software, biological compounds or drug formulas, and completed media content (for example, films, television shows and music recordings).

B60

If the criteria in paragraph B58 are met, an entity shall account for the promise to grant a licence as a performance obligation satisfied over time because the customer will simultaneously receive and consume the benefit from the entity’s performance of providing access to its intellectual property as the performance occurs (see paragraph 35(a)). An entity shall apply paragraphs 39⁠–⁠45 to select an appropriate method to measure its progress towards complete satisfaction of that performance obligation to provide access.

B61

If the criteria in paragraph B58 are not met, the nature of an entity’s promise is to provide a right to use the entity’s intellectual property as that intellectual property exists (in terms of form and functionality) at the point in time at which the licence is granted to the customer. This means that the customer can direct the use of, and obtain substantially all of the remaining benefits from, the licence at the point in time at which the licence transfers. An entity shall account for the promise to provide a right to use the entity’s intellectual property as a performance obligation satisfied at a point in time. [Refer:Illustrative Examples, examples 54, 56 Case B and 59] An entity shall apply paragraph 38 to determine the point in time at which the licence transfers to the customer. However, revenue cannot be recognised for a licence that provides a right to use the entity’s intellectual property before the beginning of the period during which the customer is able to use and benefit from the licence. For example, if a software licence period begins before an entity provides (or otherwise makes available) to the customer a code that enables the customer to immediately use the software, the entity would not recognise revenue before that code has been provided (or otherwise made available). [Refer:Basis for Conclusions paragraphs BC414 and BC414S⁠–⁠BC414U]

B62

An entity shall disregard the following factors when determining whether a licence provides a right to access the entity’s intellectual property or a right to use the entity’s intellectual property:

(a)

Restrictions of time, geographical region or use—those restrictions define the attributes of the promised licence, rather than define whether the entity satisfies its performance obligation at a point in time or over time. [Refer:Basis for Conclusions paragraphs BC414O⁠–⁠BC414R and Illustrative Examples, examples 59]

(b)

Guarantees provided by the entity that it has a valid patent to intellectual property and that it will defend that patent from unauthorised use—a promise to defend a patent right is not a performance obligation because the act of defending a patent protects the value of the entity’s intellectual property assets and provides assurance to the customer that the licence transferred meets the specifications of the licence promised in the contract.

Sales-based or usage-based royalties

B63

Notwithstanding the requirements in paragraphs 56⁠–⁠59, an entity shall recognise revenue for a sales-based or usage-based royalty promised in exchange for a licence of intellectual property only when (or as) the later of the following events occurs:

(a)

the subsequent sale or usage occurs; and

(b)

the performance obligation to which some or all of the sales-based or usage-based royalty has been allocated has been satisfied (or partially satisfied).

B63A

The requirement for a sales-based or usage-based royalty in paragraph B63 applies when the royalty relates only to a licence of intellectual property or when a licence of intellectual property is the predominant item to which the royalty relates (for example, the licence of intellectual property may be the predominant item to which the royalty relates when the entity has a reasonable expectation that the customer would ascribe significantly more value to the licence than to the other goods or services to which the royalty relates).

B63B

When the requirement in paragraph B63A is met, revenue from a sales-based or usage-based royalty shall be recognised wholly in accordance with paragraph B63. When the requirement in paragraph B63A is not met, the requirements on variable consideration in paragraphs 50⁠–⁠59 apply to the sales-based or usage-based royalty.

Repurchase agreements

B64

A repurchase agreement is a contract in which an entity sells an asset and also promises or has the option (either in the same contract or in another contract) to repurchase the asset. The repurchased asset may be the asset that was originally sold to the customer, an asset that is substantially the same as that asset, or another asset of which the asset that was originally sold is a component.

B65

Repurchase agreements generally come in three forms:

(a)

an entity’s obligation to repurchase the asset (a forward);

(b)

an entity’s right to repurchase the asset (a call option); and

(c)

an entity’s obligation to repurchase the asset at the customer’s request (a put option).

A forward or a call option

B66

If an entity has an obligation or a right to repurchase the asset (a forward or a call option), a customer does not obtain control of the asset because the customer is limited in its ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset even though the customer may have physical possession of the asset. Consequently, the entity shall account for the contract as either of the following:

(a)

a lease in accordance with IFRS 16 Leases if the entity can or must repurchase the asset for an amount that is less than the original selling price of the asset [Refer:IFRS 16 paragraphs 61⁠–⁠88], unless the contract is part of a sale and leaseback transaction. If the contract is part of a sale and leaseback transaction, the entity shall continue to recognise the asset and shall recognise a financial liability for any consideration received from the customer. [Refer:IFRS 16 paragraph 103] The entity shall account for the financial liability in accordance with IFRS 9; or

(b)

a financing arrangement in accordance with paragraph B68 if the entity can or must repurchase the asset for an amount that is equal to or more than the original selling price of the asset. [Refer:Illustrative Examples, example 62 Case A]

B67

When comparing the repurchase price with the selling price, an entity shall consider the time value of money.

B68

If the repurchase agreement is a financing arrangement, the entity shall continue to recognise the asset and also recognise a financial liability for any consideration received from the customer. The entity shall recognise the difference between the amount of consideration received from the customer and the amount of consideration to be paid to the customer as interest and, if applicable, as processing or holding costs (for example, insurance).

B69

If the option lapses unexercised, an entity shall derecognise the liability and recognise revenue.

A put option

B70

If an entity has an obligation to repurchase the asset at the customer’s request (a put option) at a price that is lower than the original selling price of the asset, the entity shall consider at contract inception whether the customer has a significant economic incentive to exercise that right. The customer’s exercising of that right results in the customer effectively paying the entity consideration for the right to use a specified asset for a period of time. Therefore, if the customer has a significant economic incentive to exercise that right, the entity shall account for the agreement as a lease in accordance with IFRS 16 [Refer:Illustrative Examples, example 62 Case B and IFRS 16 paragraphs 61⁠–⁠88], unless the contract is part of a sale and leaseback transaction. If the contract is part of a sale and leaseback transaction, the entity shall continue to recognise the asset and shall recognise a financial liability for any consideration received from the customer. [Refer:IFRS 16 paragraph 103] The entity shall account for the financial liability in accordance with IFRS 9.

B71

To determine whether a customer has a significant economic incentive to exercise its right, an entity shall consider various factors, including the relationship of the repurchase price to the expected market value of the asset at the date of the repurchase and the amount of time until the right expires. For example, if the repurchase price is expected to significantly exceed the market value of the asset, this may indicate that the customer has a significant economic incentive to exercise the put option.

B72

If the customer does not have a significant economic incentive to exercise its right at a price that is lower than the original selling price of the asset, the entity shall account for the agreement as if it were the sale of a product with a right of return as described in paragraphs B20⁠–⁠B27.

B73

If the repurchase price of the asset is equal to or greater than the original selling price and is more than the expected market value of the asset, the contract is in effect a financing arrangement and, therefore, shall be accounted for as described in paragraph B68.

B74

If the repurchase price of the asset is equal to or greater than the original selling price and is less than or equal to the expected market value of the asset, and the customer does not have a significant economic incentive to exercise its right, then the entity shall account for the agreement as if it were the sale of a product with a right of return as described in paragraphs B20⁠–⁠B27.

B75

When comparing the repurchase price with the selling price, an entity shall consider the time value of money.

B76

If the option lapses unexercised, an entity shall derecognise the liability and recognise revenue.

Consignment arrangements

B77

When an entity delivers a product to another party (such as a dealer or a distributor) for sale to end customers, the entity shall evaluate whether that other party has obtained control of the product at that point in time. A product that has been delivered to another party may be held in a consignment arrangement if that other party has not obtained control of the product. Accordingly, an entity shall not recognise revenue upon delivery of a product to another party if the delivered product is held on consignment.

B78

Indicators that an arrangement is a consignment arrangement include, but are not limited to, the following:

(a)

the product is controlled by the entity until a specified event occurs, such as the sale of the product to a customer of the dealer or until a specified period expires;

(b)

the entity is able to require the return of the product or transfer the product to a third party (such as another dealer); and

(c)

the dealer does not have an unconditional obligation to pay for the product (although it might be required to pay a deposit).

Bill-and-hold arrangements

B79

A bill-and-hold arrangement is a contract under which an entity bills a customer for a product but the entity retains physical possession of the product until it is transferred to the customer at a point in time in the future. For example, a customer may request an entity to enter into such a contract because of the customer’s lack of available space for the product or because of delays in the customer’s production schedules.

B80

An entity shall determine when it has satisfied its performance obligation to transfer a product by evaluating when a customer obtains control of that product (see paragraph 38). For some contracts, control is transferred either when the product is delivered to the customer’s site or when the product is shipped, depending on the terms of the contract (including delivery and shipping terms). However, for some contracts, a customer may obtain control of a product even though that product remains in an entity’s physical possession. In that case, the customer has the ability to direct the use of, and obtain substantially all of the remaining benefits from, the product even though it has decided not to exercise its right to take physical possession of that product. Consequently, the entity does not control the product. Instead, the entity provides custodial services to the customer over the customer’s asset.

B81

In addition to applying the requirements in paragraph 38, for a customer to have obtained control of a product in a bill-and-hold arrangement, all of the following criteria must be met:

(a)

the reason for the bill-and-hold arrangement must be substantive (for example, the customer has requested the arrangement);

(b)

the product must be identified separately as belonging to the customer;

(c)

the product currently must be ready for physical transfer to the customer; and

(d)

the entity cannot have the ability to use the product or to direct it to another customer.

B82

If an entity recognises revenue for the sale of a product on a bill-and-hold basis, the entity shall consider whether it has remaining performance obligations (for example, for custodial services) in accordance with paragraphs 22⁠–⁠30 to which the entity shall allocate a portion of the transaction price in accordance with paragraphs 73⁠–⁠86.

Customer acceptance

B83

In accordance with paragraph 38(e), a customer’s acceptance of an asset may indicate that the customer has obtained control of the asset. Customer acceptance clauses allow a customer to cancel a contract or require an entity to take remedial action if a good or service does not meet agreed-upon specifications. An entity shall consider such clauses when evaluating when a customer obtains control of a good or service.

B84

If an entity can objectively determine that control of a good or service has been transferred to the customer in accordance with the agreed-upon specifications in the contract, then customer acceptance is a formality that would not affect the entity’s determination of when the customer has obtained control of the good or service. For example, if the customer acceptance clause is based on meeting specified size and weight characteristics, an entity would be able to determine whether those criteria have been met before receiving confirmation of the customer’s acceptance. The entity’s experience with contracts for similar goods or services may provide evidence that a good or service provided to the customer is in accordance with the agreed-upon specifications in the contract. If revenue is recognised before customer acceptance, the entity still must consider whether there are any remaining performance obligations (for example, installation of equipment) and evaluate whether to account for them separately.

B85

However, if an entity cannot objectively determine that the good or service provided to the customer is in accordance with the agreed-upon specifications in the contract, then the entity would not be able to conclude that the customer has obtained control until the entity receives the customer’s acceptance. That is because in that circumstance the entity cannot determine that the customer has the ability to direct the use of, and obtain substantially all of the remaining benefits from, the good or service.

B86

If an entity delivers products to a customer for trial or evaluation purposes and the customer is not committed to pay any consideration until the trial period lapses, control of the product is not transferred to the customer until either the customer accepts the product or the trial period lapses.

Disclosure of disaggregated revenue

B87

Paragraph 114 requires an entity to disaggregate revenue from contracts with customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Consequently, the extent to which an entity’s revenue is disaggregated for the purposes of this disclosure depends on the facts and circumstances that pertain to the entity’s contracts with customers. Some entities may need to use more than one type of category to meet the objective in paragraph 114 for disaggregating revenue. Other entities may meet the objective by using only one type of category to disaggregate revenue.

B88

When selecting the type of category (or categories) to use to disaggregate revenue, an entity shall consider how information about the entity’s revenue has been presented for other purposes, including all of the following:

(a)

disclosures presented outside the financial statements (for example, in earnings releases, annual reports or investor presentations);

(b)

information regularly reviewed by the chief operating decision maker [Refer:IFRS 8 paragraph 7] for evaluating the financial performance of operating segments; and

(c)

other information that is similar to the types of information identified in paragraph B88(a) and (b) and that is used by the entity or users of the entity’s financial statements to evaluate the entity’s financial performance or make resource allocation decisions.

B89

Examples of categories that might be appropriate include, but are not limited to, all of the following:

(a)

type of good or service (for example, major product lines);

Products and services [axis] Example IFRS 8.32 Disclosure 831150, 871100, 990000
Products and services [domain] Example IFRS 8.32 Disclosure 831150, 871100, 990000

(b)

geographical region (for example, country or region);

Geographical areas [axis] Example IAS 19.138 a Example
IFRS 17.96 b Example
IFRS 8.33 Disclosure
831150, 834480, 871100, 990000
Geographical areas [domain] Example IAS 19.138 a Example
IFRS 17.96 b Example
IFRS 8.33 Disclosure
831150, 834480, 871100, 990000

(c)

market or type of customer (for example, government and non-government customers);

Government customers [member] Example 831150
Markets of customers [axis] Example 831150, 990000
Markets of customers [domain] Example 831150, 990000
Non-government customers [member] Example 831150
Types of customers [axis] Example 831150, 990000
Types of customers [domain] Example 831150, 990000

(d)

type of contract (for example, fixed-price and time-and-materials contracts);

Fixed-price contracts [member] Example 831150
Time-and-materials contracts [member] Example 831150
Types of contracts [axis] Example IFRS 17.96 a Example 831150, 990000
Types of contracts [domain] Example IFRS 17.96 a Example 831150, 990000

(e)

contract duration (for example, short-term and long-term contracts);

Contract duration [axis] Example 831150, 990000
Contract duration [domain] Example 831150, 990000
Long-term contracts [member] Example 831150
Short-term contracts [member] Example 831150

(f)

timing of transfer of goods or services (for example, revenue from goods or services transferred to customers at a point in time and revenue from goods or services transferred over time); and

Goods or services transferred at point in time [member] Example 831150
Goods or services transferred over time [member] Example 831150
Timing of transfer of goods or services [axis] Example 831150, 990000
Timing of transfer of goods or services [domain] Example 831150, 990000

(g)

sales channels (for example, goods sold directly to consumers and goods sold through intermediaries).

Goods sold directly to consumers [member] Example 831150
Goods sold through intermediaries [member] Example 831150
Sales channels [axis] Example 831150, 990000
Sales channels [domain] Example 831150, 990000

Appendix CEffective date and transition

This appendix is an integral part of the Standard and has the same authority as the other parts of the Standard.

Effective date

C1

An entity shall apply this Standard for annual reporting periods beginning on or after 1 January 2018. [Refer:Basis for Conclusions paragraphs BC446⁠–⁠BC451 and BC453A⁠–⁠BC453H] Earlier application is permitted. [Refer:Basis for Conclusions paragraphs BC452, BC453 and BC453G⁠–⁠BC453H] If an entity applies this Standard earlier, it shall disclose that fact.

C1A

IFRS 16 Leases, issued in January 2016, amended paragraphs 5, 97, B66 and B70. An entity shall apply those amendments when it applies IFRS 16.

C1B

Clarifications to IFRS 15 Revenue from Contracts with Customers, issued in April 2016, amended paragraphs 26, 27, 29, B1, B34⁠–⁠B38, B52⁠–⁠B53, B58, C2, C5 and C7, deleted paragraph B57 and added paragraphs B34A, B35A, B35B, B37A, B59A, B63A, B63B, C7A and C8A. An entity shall apply those amendments for annual reporting periods beginning on or after 1 January 2018. [Refer:Basis for Conclusions paragraph BC453I] Earlier application is permitted. [Refer:Basis for Conclusions paragraph BC453J] If an entity applies those amendments for an earlier period, it shall disclose that fact.

C1C

IFRS 17, issued in May 2017, amended paragraph 5. An entity shall apply that amendment when it applies IFRS 17.

Transition

C2

For the purposes of the transition requirements in paragraphs C3⁠–⁠C8A:

(a)

the date of initial application is the start of the reporting period in which an entity first applies this Standard; and

(b)

a completed contract is a contract for which the entity has transferred all of the goods or services identified in accordance with IAS 11 Construction Contracts, IAS 18 Revenue and related Interpretations. [Refer:Basis for Conclusions paragraphs BC445A⁠–⁠BC445I]

C3

An entity shall apply this Standard using one of the following two methods:

(a)

retrospectively to each prior reporting period presented in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, subject to the expedients in paragraph C5; [Refer:Basis for Conclusions paragraphs BC435 and BC436] or

(b)

retrospectively with the cumulative effect of initially applying this Standard recognised at the date of initial application in accordance with paragraphs C7⁠–⁠C8.

C4

Notwithstanding the requirements of paragraph 28 of IAS 8, when this Standard is first applied, an entity need only present the quantitative information required by paragraph 28(f) of IAS 8 [Refer:Basis for Conclusions paragraph BC445] for the annual period immediately preceding the first annual period for which this Standard is applied (the ‘immediately preceding period’) and only if the entity applies this Standard retrospectively in accordance with paragraph C3(a). An entity may also present this information for the current period or for earlier comparative periods, but is not required to do so.

C5

An entity may use one or more of the following practical expedients when applying this Standard retrospectively in accordance with paragraph C3(a):

(a)

for completed contracts, [Refer:paragraph C2(b)] an entity need not restate contracts that:

(i)

begin and end within the same annual reporting period; or

(ii)

are completed contracts at the beginning of the earliest period presented. [Refer:Basis for Conclusions paragraphs BC445M and BC445N]

(b)

for completed contracts that have variable consideration, an entity may use the transaction price at the date the contract was completed rather than estimating variable consideration amounts in the comparative reporting periods.

(c)

for contracts that were modified before the beginning of the earliest period presented, an entity need not retrospectively restate the contract for those contract modifications in accordance with paragraphs 20⁠–⁠21. Instead, an entity shall reflect the aggregate effect of all of the modifications that occur before the beginning of the earliest period presented when:

(i)

identifying the satisfied and unsatisfied performance obligations;

(ii)

determining the transaction price; and

(iii)

allocating the transaction price to the satisfied and unsatisfied performance obligations.

(d)

for all reporting periods presented before the date of initial application, an entity need not disclose the amount of the transaction price allocated to the remaining performance obligations and an explanation of when the entity expects to recognise that amount as revenue (see paragraph 120).

C6

For any of the practical expedients in paragraph C5 that an entity uses, the entity shall apply that expedient consistently to all contracts within all reporting periods presented. In addition, the entity shall disclose all of the following information:

(a)

the expedients that have been used; and

Description of practical expedients used when applying IFRS 15 retrospectively Disclosure Text 831150

(b)

to the extent reasonably possible, a qualitative assessment of the estimated effect of applying each of those expedients.

Qualitative assessment of estimated effect of practical expedients used when applying IFRS 15 retrospectively Disclosure Text 831150

C7

If an entity elects to apply this Standard retrospectively in accordance with paragraph C3(b), the entity shall recognise the cumulative effect of initially applying this Standard as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) of the annual reporting period that includes the date of initial application. Under this transition method, an entity may elect to [Refer:Basis for Conclusions paragraphs BC445J⁠–⁠BC445L] apply this Standard retrospectively only to contracts that are not completed contracts [Refer:paragraph C2(b)] at the date of initial application (for example, 1 January 2018 for an entity with a 31 December year-end).

C7A

An entity applying this Standard retrospectively in accordance with paragraph C3(b) may also use the practical expedient described in paragraph C5(c), either:

(a)

for all contract modifications that occur before the beginning of the earliest period presented; or

(b)

for all contract modifications that occur before the date of initial application.

If an entity uses this practical expedient, the entity shall apply the expedient consistently to all contracts and disclose the information required by paragraph C6.

C8

For reporting periods that include the date of initial application, an entity shall provide both of the following additional disclosures if this Standard is applied retrospectively in accordance with paragraph C3(b):

(a)

the amount by which each financial statement line item is affected in the current reporting period by the application of this Standard as compared to IAS 11, IAS 18 and related Interpretations that were in effect before the change; and

IFRS 15 [member] Disclosure 610000

(b)

an explanation of the reasons for significant changes identified in C8(a).

Explanation of reasons for significant changes in financial statement line items due to application of IFRS 15 Disclosure Text 831150

C8A

An entity shall apply Clarifications to IFRS 15 (see paragraph C1B) retrospectively in accordance with IAS 8. In applying the amendments retrospectively, an entity shall apply the amendments as if they had been included in IFRS 15 at the date of initial application. Consequently, an entity does not apply the amendments to reporting periods or to contracts to which the requirements of IFRS 15 are not applied in accordance with paragraphs C2⁠–⁠C8. For example, if an entity applies IFRS 15 in accordance with paragraph C3(b) only to contracts that are not completed contracts at the date of initial application, the entity does not restate the completed contracts at the date of initial application of IFRS 15 for the effects of these amendments.

References to IFRS 9

C9

If an entity applies this Standard but does not yet apply IFRS 9 Financial Instruments, any reference in this Standard to IFRS 9 shall be read as a reference to IAS 39 Financial Instruments: Recognition and Measurement.

Withdrawal of other Standards

C10

This Standard supersedes the following Standards:

(a)

IAS 11 Construction Contracts;

(b)

IAS 18 Revenue;

(c)

IFRIC 13 Customer Loyalty Programmes;

(d)

IFRIC 15 Agreements for the Construction of Real Estate;

(e)

IFRIC 18 Transfers of Assets from Customers; and

(f)

SIC‑31 Revenue—Barter Transactions Involving Advertising Services.

Appendix DAmendments to other Standards

This Appendix describes the amendments to other Standards that the IASB made when it finalised IFRS 15. An entity shall apply the amendments for annual periods beginning on or after 1 January 2018. If an entity applies IFRS 15 for an earlier period, these amendments shall be applied for that earlier period.

* * * * *

The amendments contained in this appendix when this Standard was issued in 2014 have been incorporated into the text of the relevant Standards included in this volume.

Board Approvals

Approval by the Board of IFRS 15 Revenue from Contracts with Customers issued in May 2014

IFRS 15 Revenue from Contracts with Customers was approved for issue by all sixteen members of the International Accounting Standards Board.1

Hans HoogervorstChairman
Ian MackintoshVice-Chairman
Stephen Cooper
Philippe Danjou
Martin Edelmann
Jan Engström
Patrick Finnegan
Gary Kabureck
Suzanne Lloyd
Amaro Luiz de Oliveira Gomes
Patricia McConnell
Takatsugu Ochi
Darrel Scott
Chungwoo Suh
Mary Tokar
Wei-Guo Zhang

Approval by the Board of Effective Date of IFRS 15 issued in September 2015

Effective Date of IFRS 15 was approved for publication by the fourteen members of the International Accounting Standards Board.

Hans HoogervorstChairman
Ian MackintoshVice-Chairman
Stephen Cooper
Philippe Danjou
Amaro Luiz De Oliveira Gomes
Martin Edelmann
Patrick Finnegan
Gary Kabureck
Suzanne Lloyd
Takatsugu Ochi
Darrel Scott
Chungwoo Suh
Mary Tokar
Wei-Guo Zhang

Approval by the Board of Clarifications to IFRS 15 Revenue from Contracts with Customers issued in April 2016

Clarifications to IFRS 15 Revenue from Contracts with Customers was approved for issue by thirteen of the fourteen members of the International Accounting Standards Board. Mr Ochi dissented. His dissenting opinion is set out after the Basis for Conclusions.

Hans HoogervorstChairman
Ian MackintoshVice-Chairman
Stephen Cooper
Philippe Danjou
Martin Edelmann
Patrick Finnegan
Amaro Gomes
Gary Kabureck
Suzanne Lloyd
Takatsugu Ochi
Darrel Scott
Chungwoo Suh
Mary Tokar
Wei-Guo Zhang

Footnotes

1

Prabhakar Kalavacherla was a member of the IASB when it voted in November 2013 to begin the balloting process for IFRS 15. However, IFRS 15 was finalised and ready for approval by members of the IASB only after Mr Kalavacherla had retired from the IASB at the completion of his term on 31 December 2013. (back)