Each BDO member firm in New Zealand is a separate legal entity and has no liability for another entity’s acts and omissions. implementing IFRS 15. Contract modifications are changes in the scope and/or price of an existing contract (i.e. So the old spreadsheet needs to come out again and Table 3 below shows the new workings for October 31 and first month into the contract. GENERATES JOURNAL ENTRIES OR DELTA OUTPUTS INTEGRATES WITH EXISTING FINANCE INFRASTRUCTURE. Cr Revenue $1,860 (2,000 bags at $0.93/bag) The basic premise on which both ASC 606 and IFRS 15 have been formulated is that an organization can recognize revenue and the corresponding expenses from a contract only when the customer is satisfied. Lets look at a simple example to better make the point; we’ll carry on with the ISP example we mentioned in Step 2 above. a continuation), and there is an adjustment to revenue recognised at the modification date. For the first 6,000 bags sold, the customer will pay $1/bag (per the terms of the original contract - at the time of contract modification, 6,000 bags of the original 14,000 bags had not been sold). By using this site you agree to our use of cookies. Example 2 (termination of original contract) IFRS 15 replaces two standards, namely IAS 11 Construction Contracts, and IAS 18 Revenue, as well as several IFRIC interpretations (13, 15 … See also ‘Segment reporting – an opportunity to explain the business’ below. expense Debit Acc. IFRS 15 is more detailed than the existing revenue requirements, so you may find unexpected changes in your accounting! Each football costs $15. IFRS 15 Deposit components If distinct IFRS 9 Embedded derivatives If not closely related IFRS 9 Scope and exclusions 3 Internal Audit, Risk, Business & Technology Consulting. If we are removing them from the inventory, it should be removed at cost with below warranty expense journal entries: 15 containers X $25 per container = $375 cost of inventory. We have an ISP that offers bundled broadband and phone contracts to customers. Variable consideration 2. It’s based on actual questions that have arisen in practice around the world and includes illustrative examples and journal entries to elaborate or clarify the practical application of IFRS 2. So at the commencement of the contract, assuming the above calculations are pretty much automated and all parts of the contract started on October 1 20XX, we would record the following as set out in Journal Entry 1 below. Therefore, the agreement for the additional 3,000 1kg bags of apples is accounted for as a separate contract. How should this contract modification be accounted for? Therefore, the agreement for the additional 3,000 1kg bags of apples is accounted for as a termination of the original contract and a creation of a new contract. So this feels like the right time to . Most companies who are therefore about to start their 2018 financial year will be in the same position and will need to account for their revenue under IFRS 15 for the first time. publications. FastPost helps to manage IFRS15 complexity – mapping business events against new accounting rules and allowing users to create and implement rules quickly. The apples are packaged in 1kg plastic bags (with each bag being distinct) and are transferred to the customer over a seven-week period. initial route and has a stand-alone price of $50.00 and delivery fee has of $10 (this gives us the stand-alone selling price of $60 for the router and delivery); the customer is billed $30 per month, over a 12 month contract (a total price of $360; the figure that needs to be allocated); the ISP has an equivalent $20 plan with no free delivered router (they will use this as the stand-alone selling price for the monthly plan at $240). The receivable from Club B was outstanding as at the end of July, when Club A returned 5 and Club B returned 10 footballs. IFRS 15 Revenue from Contracts with Customers — Your Questions Answered. In our May 2018 edition of Accounting Alert we discussed the five step model for revenue recognition introduced by IFRS 15 Revenue from Contracts with Customers (“IFRS 15… Notify me of followup comments via e-mail. IFRS 15 specifies how and when an IFRS reporter will recognise revenue as well as requiring such entities to provide users of financial statements with more informative, relevant disclosures. The complete entry would be: The debtor entry is made up of two parts: $11.82 for the new cell phone and $0.95 for the new broadband router. .pdf from ACCOUNTING 1602423 at University of Jordan. Supplementary material – IFRS 15 SEMESTER 1/2016 FINANCIAL ACCOUNTING 101 FAC511S IFRS 15 – Revenue from contracts with customers . A change in scope where the additional goods or services provided, An increase in total contract price which, The additional 3,000 1kg bags of apples to be supplied as part of the modified contract are distinct, and. The modification is accounted for as a separate contract, The modification is accounted for as a termination of the original contract and the issue of a new contract. It provides detailed guidance, illustrative examples and extensive discussion of the areas that companies have found most complex. Your email address will not be published. Cr Revenue received in advance $140 (balancing figure) IFRS 17 will supersede the earlier standard on insurance contracts (IFRS 4). As subscription billing models have grown in popularity, in particular in the online world, how. There would be similar treatment under IAS 11, however, there are more specific requirements under IFRS 15. IFRS 17 is the first comprehensive international accounting standard for insurance contracts issued by a company, including the reinsurance contracts. © 2016 BDO New Zealand Ltd. All rights reserved. Plus, I will illustrate everything on an example with journal entries and calculations. You also have the option to opt-out of these cookies. How FastPost helps you handle IFRS 15. there will now be a total of 17,000 1kg bags of apples delivered to the customer and 9,000 of those bags have not yet been delivered). You can also check out my IFRS Kit with detailed video tutorials about IFRS 15… BDO refers to one or more of the independent member firms of BDO International Ltd, a UK company limited by guarantee. Below are the simple journal entries: The focus of this unit is the recognition as well as presentation and disclosure of Revenue from contracts with customers. With this example we will expand out a bit more the example we used in Step 4 above. Consistently, applying IFRS 17, when an entity provides services in a period, it reduces the liability for remaining coverage for the services provided and recognises insurance revenue. Consider the journal entries of a hypothetical bill and hold transaction: ... Bill-and-Hold Arrangement under IFRS. How To: ….Journal Entry for Factoring company’s loan? Journal Entry 2 would then be repeated each month, $40 being debited to case, £12.77 being credited to debtors and the other revenue line items being credited with their respective revenue allocation. dep. IFRS 15 applies to all contracts with customers, except for those that are within the scope of other IFRSs. When Chain Store transfers control of the 100 garments, it should process the following journal entries: Variable consideration – volume discount (based on IFRS 15, Illustrative Example 24) Widget Co enters into a contract with a customer on 1 January 2018 to sell Widget A for $100 per unit. Practical expedient – no need to adjust for financing component (IFRS 15, paragraph 63) As ... Journal entries. IE48C: The entity observes that the nature of its promise is to establish and provide a service of producing the full complement of devices for which the customer has contracted in accordance with the customer’s specifications. This allows management to apply judgment to determine the separate performance obligations that best reflect the economic substance of a transaction. From January 1, 2018 International Financial Reporting Standard (IFRS) 15 Revenue from Contracts with Customers set out the new requirements in how this revenue was to now be recognised. 11. iv. IFRS 15 Revenue from Contracts with Customers was issued in May 2014. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. A right to receive payment is unconditional if only the passage of time is required before payment is due (IFRS 15.105, 107-108). Where the additional goods or services provided are not distinct, the modification is accounted for as a change to the existing contract (i.e. Where employee remuneration is based on revenue, consideration will have to be given to whether remuneration will be based on revenue recognised or payments received from customers. 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