IFRS 15 revenue recognition template

IFRS 15 is the International Financial Reporting Standard that deals with revenue recognition from contracts with customers. It provides a comprehensive framework for recognizing revenue based on contractual arrangements. Here are some key points about IFRS 15:

Background:

IFRS 15 replaced several existing standards, including IAS 11, IAS 18, IFRIC 13, IFRIC 15, IFRIC 18, and SIC-31.

It was issued in May 2014 and became effective on January 1, 2018.

Recognition of Revenue:

IFRS 15 outlines principles for recognizing revenue from contracts with customers.

It focuses on identifying performance obligations, determining transaction prices, and allocating revenue to those obligations.

Steps in Applying IFRS 15:

Step 1: Identify the contract with a customer.

Criteria are used to determine whether a contract exists.

Consideration received before a contract exists is also addressed.

Step 2: Identify the performance obligations in the contract.

Understand what the customer expects to receive.

Separate performance obligations if necessary.

Step 3: Determine the Transaction Price:

In this step, an entity calculates the transaction price for the contract with the customer.

The transaction price represents the amount of consideration (money or other assets) that the entity expects to receive in exchange for transferring goods or services.

Consider the following factors when determining the transaction price:

Fixed amounts specified in the contract.

Variable consideration (e.g., discounts, rebates, bonuses) based on estimates.

Any significant financing components.

Non-cash consideration (if applicable).

Step 4: Allocate the Transaction Price to Performance Obligations:

Once the transaction price is determined, the entity allocates it to the distinct performance obligations identified in the contract.

Performance obligations are the individual promises to transfer goods or services to the customer.

Allocate the transaction price based on the relative standalone selling prices of each performance obligation.

If standalone selling prices are not directly observable, use estimation techniques.

Step 5: Recognize Revenue When Each Performance Obligation Is Satisfied:

Revenue recognition occurs when the entity satisfies a performance obligation by transferring control of a promised good or service to the customer.

Consider the following criteria for recognizing revenue:

Control has been transferred to the customer.

The customer can use and benefit from the good or service.

The entity has the right to payment.

Recognize revenue either at a point in time (e.g., upon delivery) or over time (e.g., as services are provided).

Presentation and Disclosure:

IFRS 15 requires specific disclosures related to revenue recognition.

These disclosures help users of financial statements understand the nature, amount, timing, and uncertainty of revenue and cash flows. 

Illustration:

Telecom operator, ABC Corp. entered into a contract with Johnny on 1 July 20X1. In line with the contract, Johnny subscribes for ABC's monthly plan for 12 months  and in return, Johnny receives free handset from ABC Corp. Johnny will pay a monthly fee of CU 100. Johnny gets the handset immediately after contract signature.

ABC sells the same handsets for CU 300 and the same monthly plans for CU 80/month without handset.

How should ABC recognize revenues from the contract with Johnny in 20X1 under IFRS 15?

Step 1: Identify the contract with a customer
= written contract between Johnny and ABC Corp.
Step 2: Identify the performance obligations
PO #1: Network services (monthly plan)
PO #2: Handset
Step 3: Determine the transaction price
Monthly fee:	100
Months of subscription:	12
Total transaction price:	1,200
Step 4: Allocate the transaction price to the performance obligations
**Total transaction price*    PO standalone selling price                                                        Total PO Amount
Performance obligations Stand-alone selling price Allocated transaction price Revenue Billing Network services 960 **914.29  => 76.20/month  =>100 / month Handset 300 285.71 286 0 Total 1,260 1,200
Step 5: Recognize revenue when (or as) an entity satisfies a performance obligation
PO #1: Network services (monthly plan)	=>Over time, as monthly network services are provided
PO #2: Handset	=>At the point of time, when handset is delivered to Johnny
Journal entries:
Revenue from handset:
	286	=>
	-286
	0
Invoice - month 1:
	100
	-24	(1/12 of a contract asset)
	-76
	0
Total revenue in 20X1:
Revenue from handset	286
Revenue from network services (6 months)	457
Total:	743