A86045 Accoun,ng and Financial Repor,ng (2017/2018)my.liuc.it/MatSup/2017/A86045/Slides Session...
Transcript of A86045 Accoun,ng and Financial Repor,ng (2017/2018)my.liuc.it/MatSup/2017/A86045/Slides Session...
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A86045Accoun,ngandFinancialRepor,ng(2017/2018)
Session5Revenuefromcontractswith
customers
PaulG.SmithB.A.,F.C.A.
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SESSION5OVERVIEW
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Session5OverviewMins
Sessionoverviewandobjec,ves 5
Reviewofpre-workandsession4recap 5
IAS18RevenuesandIAS11Construc,onContracts 20
RA3Revenueaccoun,ngpoliciesStudentpresenta,onsofpre-workassignment
25
IFRS15Revenue–Objec,ve,Scope,Recogni,on,measurement,Presenta,onanddisclosure
30
Casestudy–Vespaexample 20
Specialconsidera,ons 20
Requiredreadingandassignmentfornextsession 5
Summaryandvalida,on,overviewofsession6 5
135
3A86045Accoun,ngandFinancialRepor,ng
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CourseObjec,ves
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Attheendofthiscoursestudentswillbeableto:• Readandperformahighlevelinterpreta2onofthefinancialstatementsofcompaniesapplyinginterna9onalaccoun9ngstandards
• Iden2fyandevaluatetheimpactonacompaniesaccountsofalterna9veaccoun9ngmethods
• Carryoutahighlevelassessmentofthetheeconomic-financialposi9onofacompanyrepor9ngunderIAS/IFRS.
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CourseOverview
A86045Accoun,ngandFinancialRepor,ng
1.Financialrepor,ngunderIFRS 14.Construc,oncontracts
2.Financialanalysis:Ra,oanalysis 15.OtherNon-financialliabili,es
3.Financialanalysis:SegmentsandEPS 16.Reviewsession
4.Reviewsession 17.Midtermtest
5.Revenues 18.FinancialInstruments1
6.Costsandexpenses 19.FinancialInstruments2
7.Taxa,on-DirectandIndirect 20.Reviewsession
8.Non-currentassets-Intangibleassets 21.CashFlowStatement
9.Non-currentassets-Tangibleassets 22.Groupaccounts/Businesscomb
10.Financialleases 23.Reviewsession
11.Impairmentofassets 24.Reviewsession
12.Reviewsession 25.Finaltest
13.Inventories
PGS
PT
PT
PGS
PGS
5
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Objec,vesofSession5
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Attheendofthissessionstudentswillbeableto:1.demonstrateanunderstandingofthescopeofIFRS15–anditsapplica,ontosalesofgoodsandservicesandhowitrelatestointerest,royal,esanddividendincome.2.appreciate,throughcross-sectorcomparisons,theimportanceofindustrycontextinunderstandingacompany’srevenuerecogni,onpolicies.
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SESSION4RECAP,REQUIREDREADINGANDPRE-WORK
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Session4ReviewofSessions1-3
• RegulatoryFramework(Chapter1)• IASBConceptualFramework(Chapter2)• Presenta,onofFinancialStatements(Chapter3)• Accoun,ngPolicies,Accoun,ngEs,matesandErrors(Chapter4)
• RelatedPar,es,ChangesinForeignCurrencies(Chapter21)
• Ra,oAnalysis(Chapter22)• EarningsPerShare(Chapter23)• SegmentalAnalysis(Chapter24)
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Session5Pre-work• Reading
– MelvilleInterna,onalFinancialRepor,ng-APrac,calGuide
• Chapter13–Revenue– Interna,onalaccoun,ngstandards
• IFRS15Revenuesfromcontractswithcustomers• ResearchAssignment
– RA4Foryourchosencompany,prepareabriefpresenta,onsummarizingthecompany’sbusinessmodeli.e.howthecompanygeneratesrevenuesandwhatitsaccoun,ngpolicy(ies)forrevenuerecogni,onis(are).
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IAS18REVENUESANDIAS11CONSTRUCTIONCONTRACTS
Standardsinforceun,lJanuary1,2018
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IAS18&11
IAS18• Scope
– Saleofgoods– Renderingofservices– Usebyothersoftheen,,es
assets,yieldinginterest,royal,esanddividends
• Measurement– Fairvalueofthe
considera,onreceivedorreceivable.
IAS11• Construc,oncontract:A
contractspecificallynego9atedfortheconstruc9onofanassetoracombina9onofassetsthatarecloselyinterrelatedorinterdependentintermsofdesign,technologyandfunc9onoftheirul9matepurposeoruse.Thesecanbe:
• Fixedpriceor,• Costplus
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IAS18Recogni,oncondi,ons
Goods-allofthefollowinga) Theen,tyhastransferredtothebuyerthe
significantrisksandrewardsofownershipofthegoods;
b) Theen,tyretainsneithercon,nuingmanagerialinvolvementtothedegreeusuallyassociatedwithownershipnoreffec,vecontroloverthegoodssold;
c) Theamountofrevenuecanbemeasuredreliably;
d) Itisprobablethattheeconomicbenefitsassociatedwiththetransac,onwillflowtotheen,ty;and
e) Thecostsincurredortobeincurredinrespectofthetransac,oncanbemeasuredreliably
Services-allofthefollowinga) Theamountofrevenuecanbemeasured
reliably;b) Itisprobablethattheeconomicbenefits
associatedwiththetransac,onwillflowtotheen,ty;
c) Thestageofcomple,onofthetransac,onattheendoftherepor,ngperiodcanbemeasuredreliably;and
d) Thecostsincurredforthetransac,onandthecoststocompletethetransac,oncanbemeasuredreliably
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USGAAPComparison1. Pervasiveevidenceofanarrangementexists2. Deliveryhasoccurredorserviceshavebeenrendered3. Theseller’spricetothebuyerisfixedanddeterminable4. Collectabilityisreasonablyassured
SeealsoSM1TheIncoterms®rules
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IAS11Construc,onContracts
Revenues• Theini,alamountof
revenueagreedinthecontract;and
• Varia,onsincontractworkandclaims– Ifprobablethattheywill
resultinrevenue– Theyarecapableofbeing
reliablymeasured
Costs• Coststhatrelatedirectlyto
thespecificcontract• Coststhatareahributable
tocontractac,vity• Suchothercostsasare
specificallychargeabletothecustomer.
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Accoun,ngforconstruc,oncontracts
Whentheoutcomeofaconstruc,oncontractcanbees,matedreliably,contractrevenueandcontractcostaassociatedwiththeconstruc,oncontractshallberecognizedasrevenueandexpensesrespec,velybyreferencetothestageofcomple,onofthecontractac,vityattheendoftherepor,ngperiod.Anexpectedlossshallberecognizedimmediately.Theoutcomeofaconstruc,oncontractcanbees,matedreliablywhenallofthefollowingcondi,onsaresa,sfied:a) Totalcontractrevenuecanbemeasured
reliably;b) Itisprobablethattheeconomicbenefits
associatedwiththecontractwillflowtotheen,ty;
c) Bothcontractcoststocompletethecontractandthestageofcontractcomple,onattheendoftherepor,ngperiodcanbemeasuredreliably
d) Thecontractcostsahributabletothecontractcanbeclearlyiden,fiedandmeasuredreliably.
Contractprice
Contractcosts
Contractmargin
%
Originalcontract
100 60 40 40%
Changeorders
20 15 5 25%
Claims(intotal80)
20 20 0
Addi,onalcoststobeincurred
20 (20)
Revisedcontract
140 115 25 18%
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UsingthecosttocostmethodifcostsincurredtodateAtthebalancesheetdateamountto60then60/115%ofrevenueandmarginwouldberecognized
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Measurement–IFRS13
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Revenueshallbemeasuredatthefairvalueoftheconsidera,onreceivedorreceivable
FairValueisthepricethatwouldbereceivedtosellanassetortotransferaliabilityinanorderlytransac9onbetweenmarketpar9cipantsatthemeasurementdate.
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RESEARCHASSIGNMENTRA3ACCOUNTINGPOLICIESFORREVENUES
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RA3RevenueAccoun,ngPolicies
ReviewofPre-workassignment• Companyname• Industry(ies)inwhichitoperates• Businessmodel• Accoun,ngpoliciesforrevenuerecogni,on
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RA3Template
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GeneralRevenueRecogniRonAccounRngPolicy(ifany)
Typeofrevenue
BasisofrevenuerecogniRon
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RA3Template
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GeneralRevenueRecogniRonAccounRngPolicy(ifany)
Typeofrevenue BasisofrevenuerecogniRon
Interestincome TheGroupappliesIAS39FinancialInstruments:Recogni,onandMeasurement
Feeandcommissionincome
TheGroupappliesIAS18Revenue.Feesreceivedarerecognizedasservicesareprovidedforexampleuponcomple,onoftheunderlyingtransac,on.
Tradingincome InaccordancewithIAS39tradingposi,onsareheldatfairvalueandtheresul,nggainsandlossesareincludedintheincomestatement
Investmentincome Dividendsarerecognizedwhentherighttoreceivethedividendhasbeenestablished.
Company_Barclays______________
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RA3Template
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GeneralRevenueRecogniRonAccounRngPolicy(ifany)Netsalesarerecognizedwhentherisksandrewardsinherenttoownershipofthegoodshavebeentransferredtothecustomer.Salesincen,ves,cashdiscountsandproductreturnsaredeductedfromsales,asaretheincen,vesgrantedtodistributorsorconsumersresul,nginacashoullow,suchascommercialcoopera,on,coupons.Discountsandloyaltyprogrammes.Salesincen,ves,cashdiscounts,provisionsforreturnsandincen,vesgrantedtocustomersarerecordedsimultaneouslytotherecogni,onofthesalesiftheycanbees,matedinareasonablyreliablemanner,basedmainlyonsta,s,cscompiledfrompastexperienceandcontractualcondi,ons.
Typeofrevenue
BasisofrevenuerecogniRon
Company___L’Oreal____________
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RA3Template
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GeneralRevenueRecogniRonAccounRngPolicy(ifany)Salesrepresentamountsreceivedandreceivablefromthirdpar,esforgoodssuppliedtothecustomersandforservicesrendered.Revenuefromthesalesforgoodsisrecognizedintheincomestatementatthemomentwhenthesignificantrisksandrewardsofownershipofthegoodshavebeentransferredtothebuyer,whichismainlyonshipment.Itismeasuredatthelistpriceapplicabletoagivendistribu,onchannelamerdeduc,onofreturns,salestaxes,pricingallowances,othertradediscountsandcouponingandpricepromo,onstoconsumers.Paymentsmadetothecustomersforcommercialservicesreceivedareexpensed.Otherrevenueisprimarilylicensefeesfromthirdpar,eswhichhavebeenearnedduringtheperiod.
Typeofrevenue
BasisofrevenuerecogniRon
Company__Nestlé_____________
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RA3Template
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GeneralRevenueRecogniRonAccounRngPolicy(ifany)Underthecondi,onthatpersuasiveevidenceofanarrangementexists,revenueisrecognizedtotheextentthatitisprobablethattheeconomicbenefitswillflowtotheCompanyandtherevenuecanbereliablymeasured,regardlessofwhenthepaymentisbeingmade.Incaseswheretheinflowofeconomicbenefitsisnotprobableduetocustomerrelatedcreditrisks,therevenuerecognisedissubjecttotheamountofpaymentsirrevocablyreceived.
Typeofrevenue BasisofrevenuerecogniRon
Saleofgoods Whenthesignificantrisksandrewardsofownershipofthegoodshavepassedtothebuyer,usuallyondeliveryofthegoods
Construc,oncontracts InaccordancewithIAS11Construc,oncontractonthe%ofcomple,onbasisusingthecosttocostmethod.
Renderingofservices Straightlinebasisoverthetermofthecontractunlesstheperformancepahernisdifferentasservicesaredelivered.
Mul,pleelementarrangements
Determineunitsofaccoun,ngandallocaterevenuetothesebasedonfairvaluesbasedontheirrela,vefairvalues.
Interest Usingtheeffec,veinterestmethod
Royal,es OnanAccrualbasis
Opera,ngleases Straightlinebasisovertheleaseterm
Company___Siemens____________
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RA3Template
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GeneralRevenueRecogniRonAccounRngPolicy(ifany)ArrangementswithmulRpledeliverablesInrevenuearrangementswheremorethanonegoodorserviceisprovidedtothecustomer,considera,onisallocatedbetweenthegoodsandservicesusingrela,vefairvalueprinciples.Thefairvaluesdeterminedfordeliverablesmayimpactthe,mingoftherecogni,onofrevenue.Determiningthefairvalueofeachdeliverablecanrequirecomplexes,mates.TheGroupgenerallydeterminesthefairvalueofindividualelementsbasedonpricesatwhichthedeliverableisregularlysoldonastand-alonebasisamerconsideringanyappropriatediscounts.Grossvs.netpresentaRonWhentheGroupsellsgoodsorservicesasaprincipal,incomeandpaymentstosuppliersarereportedonagrossbasisinrevenueandopera,ngcosts.IftheGroupsellsgoodsorservicesasanagent,revenueandpaymentstosuppliersarerecordedinrevenueonanetbasis,represen,ngthemarginearned.WhethertheGroupisconsideredtobetheprincipleoranagentinthetransac,ondependsanalysisbymanagementofboththelegalformandsubstanceoftheagreementbetweentheGroupanditsbusinesspartners;suchjudgmentsimpacttheamountofreportedrevenueandopera,ngexpensesbutdonotimpactreportedassets,liabili,esandcashflows.
Typeofrevenue BasisofrevenuerecogniRon
Company__Vodafone_____________
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IFRS15-REVENUEFROMCONTRACTSWITHCUSTOMERS
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ScopeofIFRS15
Revenuearisingfromallcontractswithcustomersexcept:• Leasecontracts(IFRS16)• Insurancecontracts(IFRS4/17)• Financialinstruments(IFRS7/9,IAS32)• Non-monetaryexchangesbetweenen,,esinthesamebusiness
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FrameworkforTimingofRevenueRecogni,on
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TimingofRecogni2on Criteria Examples
Duringproduc,on(accre,on) Revenuesaccrueover,me,andnosignificantuncertaintyexistsastomeasurabilityorcollec,bility.Acontractofsalehasbeenenteredintoandfuturecostscanbees,matedwithreasonableaccuracy.
Mostservices.Theaccrualofinterestanddividendincome.Construc,oncontractsusingthepercenatge-of-comple,onmethod
Atthecomple,onofproduc,on Thereisareadymarketforthecommoditythatcanrapidlyabsorbthequan,tyheldbytheen,ty;thecommoditycomprisesinterchangeableunits;themarketpriceshouldbedeterminableandstable;thereshouldbeinsignificantmarke,ngcostsinvolved.
Certainpreciousmetalsandcommodi,es.
Atthe,meofsale(butbeforedelivery) Goodshavealreadybeenacquiredormanufactured;goodsmustbecapableofimmediaatedeliverytothecustomer;sellingpricehasbeenestablished;allmaterialexpenseshavebeenascertained;nosignificantuncertain,esremain(e.g.ul,matecashcollec,on,returns)
Certainsalesofgoods(e.g."billandhold"sales)
Ondelivery Criteriaforrecogni,onbeforedeliverywerenotsa,sfiedandnosignificantuncertain,esremain.
Mostsalesofgoodsandsomeservices.Propertysaleswhereitisnotcertainthatthesalewillbecompleted.
Subsequenttodelivery Significantuncertaintyregardingcollec,bilityexistedatthe,meofdelivery;atthe,meofsaleitwasnotpossibletovaluetheconsidera,onwithsufficientaccuracy.
Certainsalesofgoodsandservices(e.g.wheretherightofreturnexists).Goodsshippedsubjecttocondi,ons(e.g.installa,onandinspec,on/performance).
Onanappor,onmentbasis(therevenuealloca,onapproach)
Whererevenuerepresentsthesupplyofini,alandsubsequentgoods/services.
Franchisefees.Saleofgoodswithamersalesservice.
Timingalsodependsonwhetherallthecriteriaforrevenuerecogni,onhavebeenmet.
SM2
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Objec,veofIFRS15
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Theobjec9veofthisStandardistoestablishtheprinciplesthatanen9tyshallapplytoreportusefulinforma9ontousersoffinancialstatementsaboutthenature,amount,2minganduncertaintyofrevenueandcashflowsarisingfromacontractwithacustomer.
Revenue=Incomearisinginthecourseofanen9ty’sordinaryac9vi9es
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5StepApproachinIFRS15
• 1.Iden,fythecontract(s)withacustomer• 2.Iden,fytheperformanceobliga,onsinthecontract
• 3.Determinethetransac,onprice• 4.Allocatethetransac,onpricetotheperformanceobliga,onsinthecontract
• Recognizerevenuewhen(oras)theen,tysa,sfiesaperformanceobliga,on
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1.Iden,fytheContractAnen,tyshallaccountforacontractwithacustomeronlywhenallofthefollowingcriteriaaremet:a) Thepar,estothecontracthaveapprovedthecontract
andarecommihedtoperformtheirrespec,veobliga,ons;(WriMen,oral,implied-amaMeroflaw)
b) Theen,tycaniden,fyeachparty’srightsregardingthegoodsorservicestobetransferred;
c) Theen,tycaniden,fythepaymenttermsforthegoodsorservicestobetransferred;
d) Thecontracthascommercialsubstancee) Itisprobablethattheen,tywillcollecttheconsidera,on
towhichitwillbeen,tledinexchangeforthegoodsorservicesthatwillbetransferredtothecustomer.
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Contractconsidera,ons
• Combina,onofcontracts– Nego,atedasapackage– Priceofonedependsontheother– Asingleperformanceobliga,on
• Contractmodifica,ons(scopeorprice)– ApprovedChangeorder,varia,on,amendment– Separatecontractifbothcriteriamet:
• Addi,onofdis,nctgoodsorservices• Priceincreasereflectsstand-alonesellingprice
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2.Iden,fyPerformanceobliga,ons
A86045Accoun,ngandFinancialRepor,ng 31
Atcontractincep,on,anen,tyshallassessthegoodsorservicespromisedinacontractwithacustomerandshalliden,fyasaperformanceobliga,oneachpromisetotransfertothecustomereither:(a)agoodorservice(orabundleofgoodsorservices)thatisdis,nct*;or(b)aseriesofdis,nctgoodsorservicesthataresubstan,allythesameandthathavethesamepahernoftransfertothecustomer.
*Dis2nct=thecustomercouldbenefitfromthegoodorserviceonitsown,andthepromisetotransferthegoodorserviceisseparatelyiden9fiablewithinthecontract
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3.DeterminetheTransac,onPrice
A86045Accoun,ngandFinancialRepor,ng 32
Anen,tyshallconsiderthetermsofthecontractanditscustomarybusinessprac,cestodeterminethetransac,onprice.Thetransac,onpriceistheamountofconsidera9ontowhichanen9tyexpectstobeen9tledinexchangefortransferringpromisedgoodsorservicestoacustomer,excludingamountscollectedonbehalfofthirdpar,es(forexample,somesalestaxes).Theconsidera,onpromisedinacontractwithacustomermayincludefixedamounts,variableamounts*,orboth.
*Variableconsidera,onarisesfromsuchthingsasreturns,discounts,refunds,incen,ves,penal,esetc.andneedstobees,mated.Ifthesecannotbees,matedreliablethenrevenueshouldnotberecognizedun,lsuch,meastheycanbees,mated.
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Commonsalesdeduc,ons
• Returns• Allowances• Tradediscounts• Cashdiscounts• Volumerebates• Customerloyaltyschemes• Promo,onalac,vi,es• Chargebacks
A86045Accoun,ngandFinancialRepor,ng 33
Inwhichindustriesarethesenormally
tobefound?
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4.Allocatethetransac,onpricetotheperformanceobliga,ons
A86045Accoun,ngandFinancialRepor,ng 34
Theobjec,vewhenalloca,ngthetransac,onpriceisforanen,tytoallocatethetransac,onpricetoeachperformanceobliga,on(ordis,nctgoodorservice)inanamountthatdepictstheamountofconsidera,ontowhichtheen,tyexpectstobeen,tledinexchangefortransferringthepromisedgoodsorservicestothecustomer.Whenthereismorethanoneperformanceobliga9on,thetransac9onpriceisallocatedbetweenperformanceobliga9onsaccordingtothestandalonesellingpriceofeachobliga9on.Ifthetransac9onpriceislessthanthesumofthestandalonesellingpricesofeachperformanceobliga9on,thediscountisallocatedpropor9onatelyamongsttheperformanceobliga9ons.
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5.RecognizeRevenueamerSa,sfac,onofperformanceobliga,ons
A86045Accoun,ngandFinancialRepor,ng 35
Anen,tyshallrecogniserevenuewhen(oras)theen,tysa,sfiesaperformanceobliga,onbytransferringapromisedgoodorservice(i.e.anasset)toacustomer.Anassetistransferredwhen(oras)thecustomerobtainscontrolofthatasset.
SeealsoSM1TheICCIncoterms®rules2010
Ifaperformanceobliga,onissa,sfied"over,me",revenueisrecognisedaccordingtotheprogressmadetowardscompletesa,sfac,onoftheobliga,on.
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IFRS15Summary-SM5
A86045Accoun,ngandFinancialRepor,ng 36
SM#5#IFRS#15#Revenues#from#contracts#with#customers
A#86045#Accounting#and#Financial#Reporting Paul#G.#Smith
Contract(modifications Principal(or(Agent1.#Identify(the(contract#(s)#with#a#customer.#In#some#cases#contracts#may#
need#to#be#combined#if#one#or#more#of#
the#following#criteria#are#met:
##I#Negotiated#as#a#package
##I#Consideration#in#one#depends#on#
the#other
##I#the#goods#and#services#are#a#single#
oerformance#obligation
(a)#The#parties#to#the#contract#
have#approved(the#contract#(in#writing,#orally#or#in#accordance#
with#business#practices)#and#are#
committed#to#perform#their#
respective#obligations
(b)#The#entity#can#identify#each#
partiy's#rights(regarding#goods#and#services#to#be#transferred
(c)#The#entity#can#identify#the#
payment(terms#for#the#goos#and#services#to#be#transferred
(d)#The#contract#has#commercial(substance#(i.e.#the#risk,#timing#or#
amount#of#the#entity's#future#cash#
flows#is#expected#to#change#as#a#
result#of#the#contract)
(e#)It#is#probable#that#the#entity#
will(collect(the(consideration#to#which#it#will#be#entitled#in#
exchange#for#the#goods#and#
services#that#will#be#transferred#
to#the#customer.
Contract#modifications#are#changes#in#scope#or#price#
(or#both)#approved#by#both#the#parties.#These#should#
be#accounted#for#as#a#separate#contract#if#both#of#the#
followimng#conditions#presenT:
##(a)#the#scope#increased#because#of#the#addition#of#
goods#or#services#that#are#distinct;#and
#(b)#the#price#increase#by#an#amount#which#reflects#
the#standIalone#selling#prices#of#the#additional#goods#
and#services
The#entity#shall#determine#whether#the#nature#
of#its#promise#is#a#performance#obligation#to#
provide#specific#goods#or#services(itself#(i.e.#as#principal)#or#to#arrange#for#the(other(party#to#provide#those#goods#and#services#(i.e.#as#agent)
2.#Identify#the#performance(obligations#in#the#contract.#Distinct#performance#obligations#are#
accounted#for#separately
At#contract#inception#the#entity#
shall#assess#the#goods#or#services#
promissed#and#identify#as#a#
performance#obligation#each#
promise#to#transfer#to#the#
customer#either:
#(a)#a(good(or(service(that(is(distinct;#or#(b)#a#series(of(distinct(goods(and(services#that#are#substantially#the#same
A#good#or#service#is#distinct#if#
both#the#following#conditions#are#
met:
##(a)#the#customer#can#benefit#
from#the#good#or#service#either#
on(its(own(or(together(with#resources#that#are#readily#
available#to#the#customer;#and#
#(b)#the#entity's#promise#to#
transfer#the#good#or#service#to#
the#customer#is#separately(identifiable#from#other#promises#
in#the#contract
Warranties:#Some#provide#
assurance#that#the#product#will#
function(as(intended#others#provide#an#additional(service.#If#there#is#an#option#to#purchase#
separately#this#is#an#additional#
distinct#service.#If#not#it#should#be#
accounted#for#under#IAS#37#
Provisions,#Contingent#Liabilities#
and#Contingent#Assets
Options(for(additional(goods(or(services#for#a#fee#or#at#a#discount#is#a#performance#obligation#only#if#
it#grants#a#material#right#that#the#
customer#would#not#have#
received#without#entering#into#
the#contract.#
Licences#establish#a#customer's#
right#to#the#intellectual#properrty#
of#an#entity#and#may#include:#
software#and#technology;#motion#
pictures,#music#and#
entertainment,#franchises,#
patents,#trademarks#and#
copyrights.#If#not#distinct#
aggregate#with#other#goods#and#
services.#If#distinct#evalaute#
whether#point#in#time#or#over#
time
Repurchase#agreements#are#contracts#in#which#the#
entity#sells#an#asset#and#also#promises#or#has#the#
option#to#repurchase#the#asset.#Three#types:
#(a)#A#forward#I#obligation
#(b)#Call#option#I#right#to#repurchase#
#(c)#Put#option#I#obligation#to#repurchase
In#a#forward#or#call#option,#the#customer#does#not#
obtain#control#and#is#similar#to#a#lease.
In#a#put#option#If#the#right#is#at#a#price#significantly#
lower#than#the#selling#price#then#this#should#be#
accounted#for#as#a#lease.#If#no#significant#incentive#to#
exercise#at#a#lower#price#account#for#as#right#of#
return
3.#Determine#the#transaction(price.#The#may#be#fixed,#variable#or#a#
combination#of#both.#The#contract#
price#is#adjusted#to#reflect#the#time#
value#of#money
The#contract#price#is#the#amount#
of#consideration#to#which#the#
entity#expects#to#be#entitled#in#
exchange#for#transferring#the#
promissed#goods#or#services#to#a#
customer#excluding#amounts#
collected#on#behalf#of#third#
parrties#e.g.#VAT
Variable(compensation#shall#be#estimated.#Consideration#can#vary#
because#of#discounts,#rebates,#
refunds,#credits,#price#
concessions,#incentives,#
performance#bonuses,#penalties#
or#other#similar#items.#It#can#also#
vary#if#contingent#on#future#
events#such#as#right#of#return#or#
achievement#of#milestaones.
The#promissed#amount#of#
consideration#shall#be#adjusted#
for#the#effect#of#the(time(value(of(money#if#the#timing#of#the#
payments#agreed#to#provide#the#
customer#with#a#significant#
benefit#of#financing.
Non@cash(consideration#shall#be#measured#at#fair#value.
Consideration(payable(to(a(customer#shall#be#accounted#for#as#a#reduction#in#the#transaction#
price#paid#and,#therefore,#
revenue#unless#this#is#in#exchange#
for#a#distinct#good#or#service.
When#a#sale#is#made#with#a(right(of(return#the#entity#shall#estiamte#the#amount#of#variable#consideration#
to#which#the#entity#expects#to#be#entitled.#It#shall#
create#a#refund#liability#and#an#asset#for#its#right#to#
recover#the#product.
4.(Allocate(the(trasaction(price#to#the#performance#obligations.#Based#on#the#
relative#standIalone#selling#prices#of#
each#distinct#good#or#service
The#entity#shall#determine#at#
contract#inception#the#stand@alone(selling(prices#of#the#distinct(goods(and(services(underlying#each#performance#obligation.
Stand@alone(selling(price#is#the#price#at#which#an#entity#would#sell#
a#promissed#good#or#service#
separatley#to#a#customer.#i.e#price#
list
If#a#standIalone#selling#price#is#not#
directly#oberservable,#an#entity#
shall#estimate#this.
Except#when#an#entity#has#
observable#evidence#that#a(discount(relates#to#only#one#or#more#but#not#all#performance#
obligations,#the#entity#shall#
allocate#the#discount#
proportionately#to#all#
performance#obligations.
5.#Recognize(revenue#when#(or#as)#the#entity#satisfies#performance#
obligations.#A#performance#obligation#
can#be#satisfied#at#a#point#in#time#
(goods)#or#over#time#(services)
A#performance#obligation#is#
satisfied#by#transferring#a#
promissed#good#or#service#(i.e.#an#
asset)#to##a#customer.#An#asset#is#
transferred#when#(or#as)#the#
customer(obtains(control#of#that#asset.
An#entity#transfers#control#of#a#
good#or#service#over(time#and,#therefore#satisfies#a#performance#
obligation#over#time,#if#any#of#the#
following#criteria#is#met:
#(a)#the#customer#simultaneoulsly#
receives#and#consumes#the#
benefits
#(b)#the#entity's#performane#
creates#or#enhances#an#asset#that#
the#customer#controls;#or
#(c)#the#entity's#performance#does#
not#create#an#asset#with#an#
alternative#use#to#the#entity#and#
the#entity#has#an#enforceable#
right#to#payment
If#a#performance#obligation#is#not#
satisfied#over#time#it#is#satisfied#at#
a#point(in(time.#To#determine#the#
point#in#time#the#entity#shall#
consider#the#requirements#for#
control:
#(a)#right#to#payment
#(b)#legal#title
#(c)#physical#possession#
transferred
#(d)#customer#has#the#significant#
risks#and#rewards#of#ownership
#(e)#customer#has#accepted#the#
asset
For#performance#obligations#
satisfied#over#time##the#entity#
shall#measure(progress#towards#satisfaction#of#performance#
obligations#using#input(or(output(methods.
Consignment(arrangements#exist#when#the#other#paty#has#not#
obtained#control#of#the#product#
and#accordingly#the#entity#shall#
not#recognize#revenues
Bill(&(hold(arrangements#are#when#an#entity#bills#a#customer#
for#a#product#but#the#entity#
retains#physical#possession#until#it#
is#transferred#to#the#customer#at#
some#point#in#tim#ein#the#future.
Customers'(unexercised(rights((breakage).#Upon#receipt#of#a#prepayment#from#a#customer#an#entity#
shall#recognize#a#contrcat#liability#until#such#time#as#it#
satisfies#its#per#formance#obligations.#When#not#
exercised#this#is#referred#to#as#breakage#and#can#be#
recognized#as#revenue#when#exercis#is#remote.
Non@refundable(up@front(fees#e.g.#Clubs,#activation#fees,#set#up#fees.#The#entity#shall#asess#if#the#fee#
relates#to#a#transfer#of#a#promised#good#or#service.#If#
not#this#is#treated#as#an#advance#payment#.
Customer(acceptance#may#indicate#that#the#
customer#has#obtained#control#of#the#asset.#
Contract(costs
An(entity(shall(account(for(a(contrcat(with(a(customer(only(when(all(of(the(following(criteria(are(met:
Incremental(costs(of(obtaining(a(contractCosts#that#would#not#have#been#incurred#if#the#contract#had#not#been#
obtained#e.g.#sales#commission.#These#shall#be#recognbised#as#an#asset#if#
the#entity#expects#to#recover#these#costs
Costs(to(fulfil(a(contractCost#incurred#to#fulfil#a#contract#shall#be#recognized#as#an#asset#if#those#
costs#meet#all#the#foillowinng#criteria:
#(a)#thee#costs#relate#directly#to#the#contract
#(b)#the#costs#generate#or#enhance#resources#of#the#entity#that#will#be#
used#in#satisfying#performance#obligations#in#the#futures;#and
the#costs#are#expected#to#be#recovered
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Disclosures
• the amount of revenue for the period, analysed into appropriate categories
• any impairment losses recognised in the period in relation to contract assets or receivables arising from contracts with customers
• the opening and closing balances of receivables, contract assets and contract liabilities, together with an explanation of significant changes during the period
• the amount of revenue allocated to performance obligations that are unsatisfied at the end of the period
• significant judgements made by the entity in applying the requirements of IFRS15.
A86045Accoun,ngandFinancialRepor,ng 37
IFRS15requiresthaten,,esshoulddisclose:
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CASESTUDY–MULTIPLEELEMENTS
A86045Accoun,ngandFinancialRepor,ng 38
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PurchaseofaVespa
A86045Accoun,ngandFinancialRepor,ng 39
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Dealerperspec,ve
A86045Accoun,ngandFinancialRepor,ng 40
1. Contract2. Performanceobliga,ons3. Considera,on4. Alloca,onoftheconsidera,on5. Recogni,onofrevenue
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Transac,onListPrice€
Vespa150-Blue 3,500
Luggagebox-Blue 200
Crashhelmets(2)-Blue 300
Cover 100
4,100
Oneyear’sfeeInsurance 350
Threeyear’sfeemaintenance 300
Freeextendedthreeyearwarranty 300
5,050
Discount (1,050)
Agreedsellingprice 4,000
A86045Accoun,ngandFinancialRepor,ng 41
OTHERCONSIDERATIONS• Deliveryguaranteed7
workingdaysfromdateoforder
• Paymentbycreditcardor
banktransfer(priortodelivery)
SM4
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SPECIALCONSIDERATIONS
A86045Accoun,ngandFinancialRepor,ng 42
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GrossorNet-AgentorPrincipal
Anen,tyisac,ngasaprincipalwhenithasexposuretothesignificantrisksandrewardsassociatedwiththesaleofgoodsortherenderingofservices.Indica,onsthatanen,tyisac,ngasaprincipalinclude:a) Primaryresponsibilityforprovidingthegoodsand
servicesandacceptabilityoftheproductsorservice;b) Inventoryriskc) La,tudeinestablishingpricesd) BearingthecreditriskAfixedfeeorcommissionisastrongindicatorthatanen,tyisac,ngasanagent.
A86045Accoun,ngandFinancialRepor,ng 43
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RevenueRecogni,on–Prac,calapplica,onissues
Saleofgoods• Billandhold• Shippedsubjecttocondi,ons• Layawaysales• Paymentinadvance• Milestonepayments• Saleandrepurchase• Salestointermediates• Subscrip,ons• Installmentsales• Realestatesales• Customeracceptance• Consignmentsales
Saleofservices• Installa,onfees• Servicingfeesincludedinprice• Adver,singcommissions• Insuranceagencycommissions• Financialservicesfees• Admissionfees• Tui,onfees• Ini,a,on,entranceand
membershipfees• Franchisefees• Developmentofcustomized
somware
A86045Accoun,ngandFinancialRepor,ng 44
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Royal,es,dividendsandinterest
RoyalRes• CoveredbyIFRS15
– Somwarelicenses– Movies– Franchises– Patents,trademarks,
copyrights
• Pointin,meorover,me• Sales-basedorusage-based
Dividendsandinterest• Notpartofthescopeof
IFRS15• Dividendincomeshouldbe
recognizedwhenlegallydue• Interestincomeisgenerally
recognizedusingtheEffec,veInterestRate(EIR)method
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SUMMARY,VALIDATIONANDPRE-WORKSESSION6
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Session5Summary
• Revenues–largestnumberintheincomestatementandtheareamostsuscep,bletomanipula,on
• Fivestepapproachtorevenuerecogni,on• Importanceofindustrycontextandunderstanding
• Frameworkforrevenuerecogni,on• IFRS15nowsupercedesIAS18andIAS11
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OverviewofSession6
• InSession6wewilllookatcostsandexpenses:– Classifica,on– Costofsales– Othergoodsandservices– Personnelexpenses
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Otherexpensessuchasdeprecia,on,ammor,sa,onandincometaxeswillbecoveredinthesessionsrelatedtoTangibleandIntangibleFixedAssetsandTaxa,on
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Session6Pre-work
• Reading– MelvilleInterna,onalFinancialRepor,ngAPrac,calGuide:
• Chapter13–Revenuesfromcontractswithcustomers– IFRS
• IFRS15-Revenuesfromcontractswithcustomers
• Exercises– Melville13.1–13.6– MelvilleOn-linemul,plechoiceques,onsforchapter13– ExerciseEX5Revenues
• ResearchassignmentRA4Employeebenefits
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ResearchAssignmentRA4Employeebenefits
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IAS19 Provideabriefdescrip9onastowhethertheseitemsarepresentand,ifso,thecompany’saccoun9ngpolicyforthese
Short-termbenefits
Servicesrendered
Paidabsences
Profitsharing
Long-termbenefits Termina,onindemni,es
Post-employmentbenefits
DefinedbenefitplansDefinedcontribu,onplansOtherpost-employmentbenefits
IFRS2
Share-basedpayments
EquitysehledCashsehled
Company____________
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Session5Valida,on• Whatisthe5stepapproachtorecognizingrevenuesunderIFRS15?
• Whatarethe5condi,onsthatneedtobesa,sfiedinordertoaccountforacontractwithacustomerunderIFRS15?
• Howdoweaccountforrevenuesfromconstruc,oncontracts?
• Whatcriteriamustbesa,sfiedtoaccountforperformanceobliga,onsinamul,ple-elementtransac,on?Andhowisrevenueallocatedamongthedifferentelements?
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