a86045 accoun,ng and financial repor,ng (2017/2018)my.liuc.it/matsup/2017/a86045/slides session...

A86045Accoun,ngandFinancialRepor,ng(2017/2018)

Session5Revenuefromcontractswith

customers

PaulG.SmithB.A.,F.C.A.

SESSION5OVERVIEW

A86045Accoun,ngandFinancialRepor,ng 2

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

CourseObjec,ves


Attheendofthiscoursestudentswillbeableto:•  Readandperformahighlevelinterpreta2onofthefinancialstatementsofcompaniesapplyinginterna9onalaccoun9ngstandards

•  Iden2fyandevaluatetheimpactonacompaniesaccountsofalterna9veaccoun9ngmethods

•  Carryoutahighlevelassessmentofthetheeconomic-financialposi9onofacompanyrepor9ngunderIAS/IFRS.

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

Objec,vesofSession5


Attheendofthissessionstudentswillbeableto:1.demonstrateanunderstandingofthescopeofIFRS15–anditsapplica,ontosalesofgoodsandservicesandhowitrelatestointerest,royal,esanddividendincome.2.appreciate,throughcross-sectorcomparisons,theimportanceofindustrycontextinunderstandingacompany’srevenuerecogni,onpolicies.

SESSION4RECAP,REQUIREDREADINGANDPRE-WORK


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)


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).


IAS18REVENUESANDIAS11CONSTRUCTIONCONTRACTS

Standardsinforceun,lJanuary1,2018


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


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


USGAAPComparison1.  Pervasiveevidenceofanarrangementexists2.  Deliveryhasoccurredorserviceshavebeenrendered3.  Theseller’spricetothebuyerisfixedanddeterminable4.  Collectabilityisreasonablyassured

SeealsoSM1TheIncoterms®rules

IAS11Construc,onContracts

Revenues•  Theini,alamountof

revenueagreedinthecontract;and

•  Varia,onsincontractworkandclaims–  Ifprobablethattheywill

resultinrevenue–  Theyarecapableofbeing

reliablymeasured

Costs•  Coststhatrelatedirectlyto

thespecificcontract•  Coststhatareahributable

tocontractac,vity•  Suchothercostsasare

specificallychargeabletothecustomer.


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%


UsingthecosttocostmethodifcostsincurredtodateAtthebalancesheetdateamountto60then60/115%ofrevenueandmarginwouldberecognized

Measurement–IFRS13


Revenueshallbemeasuredatthefairvalueoftheconsidera,onreceivedorreceivable

FairValueisthepricethatwouldbereceivedtosellanassetortotransferaliabilityinanorderlytransac9onbetweenmarketpar9cipantsatthemeasurementdate.

RESEARCHASSIGNMENTRA3ACCOUNTINGPOLICIESFORREVENUES


RA3RevenueAccoun,ngPolicies

ReviewofPre-workassignment•  Companyname•  Industry(ies)inwhichitoperates•  Businessmodel•  Accoun,ngpoliciesforrevenuerecogni,on


RA3Template


GeneralRevenueRecogniRonAccounRngPolicy(ifany)

Typeofrevenue

BasisofrevenuerecogniRon

RA3Template


GeneralRevenueRecogniRonAccounRngPolicy(ifany)

Typeofrevenue BasisofrevenuerecogniRon

Interestincome TheGroupappliesIAS39FinancialInstruments:Recogni,onandMeasurement

Feeandcommissionincome

TheGroupappliesIAS18Revenue.Feesreceivedarerecognizedasservicesareprovidedforexampleuponcomple,onoftheunderlyingtransac,on.

Tradingincome InaccordancewithIAS39tradingposi,onsareheldatfairvalueandtheresul,nggainsandlossesareincludedintheincomestatement

Investmentincome Dividendsarerecognizedwhentherighttoreceivethedividendhasbeenestablished.

Company_Barclays______________

RA3Template


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


Company___L’Oreal____________

RA3Template


GeneralRevenueRecogniRonAccounRngPolicy(ifany)Salesrepresentamountsreceivedandreceivablefromthirdpar,esforgoodssuppliedtothecustomersandforservicesrendered.Revenuefromthesalesforgoodsisrecognizedintheincomestatementatthemomentwhenthesignificantrisksandrewardsofownershipofthegoodshavebeentransferredtothebuyer,whichismainlyonshipment.Itismeasuredatthelistpriceapplicabletoagivendistribu,onchannelamerdeduc,onofreturns,salestaxes,pricingallowances,othertradediscountsandcouponingandpricepromo,onstoconsumers.Paymentsmadetothecustomersforcommercialservicesreceivedareexpensed.Otherrevenueisprimarilylicensefeesfromthirdpar,eswhichhavebeenearnedduringtheperiod.

Typeofrevenue


Company__Nestlé_____________

RA3Template


GeneralRevenueRecogniRonAccounRngPolicy(ifany)Underthecondi,onthatpersuasiveevidenceofanarrangementexists,revenueisrecognizedtotheextentthatitisprobablethattheeconomicbenefitswillflowtotheCompanyandtherevenuecanbereliablymeasured,regardlessofwhenthepaymentisbeingmade.Incaseswheretheinflowofeconomicbenefitsisnotprobableduetocustomerrelatedcreditrisks,therevenuerecognisedissubjecttotheamountofpaymentsirrevocablyreceived.


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____________

RA3Template


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.


Company__Vodafone_____________

IFRS15-REVENUEFROMCONTRACTSWITHCUSTOMERS


ScopeofIFRS15

Revenuearisingfromallcontractswithcustomersexcept:•  Leasecontracts(IFRS16)•  Insurancecontracts(IFRS4/17)•  Financialinstruments(IFRS7/9,IAS32)•  Non-monetaryexchangesbetweenen,,esinthesamebusiness


FrameworkforTimingofRevenueRecogni,on


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

Objec,veofIFRS15


Theobjec9veofthisStandardistoestablishtheprinciplesthatanen9tyshallapplytoreportusefulinforma9ontousersoffinancialstatementsaboutthenature,amount,2minganduncertaintyofrevenueandcashflowsarisingfromacontractwithacustomer.

Revenue=Incomearisinginthecourseofanen9ty’sordinaryac9vi9es

5StepApproachinIFRS15

•  1.Iden,fythecontract(s)withacustomer•  2.Iden,fytheperformanceobliga,onsinthecontract

•  3.Determinethetransac,onprice•  4.Allocatethetransac,onpricetotheperformanceobliga,onsinthecontract

•  Recognizerevenuewhen(oras)theen,tysa,sfiesaperformanceobliga,on


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.


Contractconsidera,ons

•  Combina,onofcontracts– Nego,atedasapackage– Priceofonedependsontheother– Asingleperformanceobliga,on

•  Contractmodifica,ons(scopeorprice)– ApprovedChangeorder,varia,on,amendment– Separatecontractifbothcriteriamet:

•  Addi,onofdis,nctgoodsorservices•  Priceincreasereflectsstand-alonesellingprice


2.Iden,fyPerformanceobliga,ons


Atcontractincep,on,anen,tyshallassessthegoodsorservicespromisedinacontractwithacustomerandshalliden,fyasaperformanceobliga,oneachpromisetotransfertothecustomereither:(a)agoodorservice(orabundleofgoodsorservices)thatisdis,nct*;or(b)aseriesofdis,nctgoodsorservicesthataresubstan,allythesameandthathavethesamepahernoftransfertothecustomer.

*Dis2nct=thecustomercouldbenefitfromthegoodorserviceonitsown,andthepromisetotransferthegoodorserviceisseparatelyiden9fiablewithinthecontract

3.DeterminetheTransac,onPrice


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.

Commonsalesdeduc,ons

•  Returns•  Allowances•  Tradediscounts•  Cashdiscounts•  Volumerebates•  Customerloyaltyschemes•  Promo,onalac,vi,es•  Chargebacks


Inwhichindustriesarethesenormally

tobefound?

4.Allocatethetransac,onpricetotheperformanceobliga,ons


Theobjec,vewhenalloca,ngthetransac,onpriceisforanen,tytoallocatethetransac,onpricetoeachperformanceobliga,on(ordis,nctgoodorservice)inanamountthatdepictstheamountofconsidera,ontowhichtheen,tyexpectstobeen,tledinexchangefortransferringthepromisedgoodsorservicestothecustomer.Whenthereismorethanoneperformanceobliga9on,thetransac9onpriceisallocatedbetweenperformanceobliga9onsaccordingtothestandalonesellingpriceofeachobliga9on.Ifthetransac9onpriceislessthanthesumofthestandalonesellingpricesofeachperformanceobliga9on,thediscountisallocatedpropor9onatelyamongsttheperformanceobliga9ons.

5.RecognizeRevenueamerSa,sfac,onofperformanceobliga,ons


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.

IFRS15Summary-SM5


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

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.


IFRS15requiresthaten,,esshoulddisclose:

CASESTUDY–MULTIPLEELEMENTS


PurchaseofaVespa


Dealerperspec,ve


1. Contract2. Performanceobliga,ons3. Considera,on4. Alloca,onoftheconsidera,on5. Recogni,onofrevenue

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


OTHERCONSIDERATIONS•  Deliveryguaranteed7

workingdaysfromdateoforder

•  Paymentbycreditcardor

banktransfer(priortodelivery)

SM4

SPECIALCONSIDERATIONS


GrossorNet-AgentorPrincipal

Anen,tyisac,ngasaprincipalwhenithasexposuretothesignificantrisksandrewardsassociatedwiththesaleofgoodsortherenderingofservices.Indica,onsthatanen,tyisac,ngasaprincipalinclude:a)  Primaryresponsibilityforprovidingthegoodsand

servicesandacceptabilityoftheproductsorservice;b)  Inventoryriskc)  La,tudeinestablishingpricesd)  BearingthecreditriskAfixedfeeorcommissionisastrongindicatorthatanen,tyisac,ngasanagent.


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


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


SUMMARY,VALIDATIONANDPRE-WORKSESSION6


Session5Summary

•  Revenues–largestnumberintheincomestatementandtheareamostsuscep,bletomanipula,on

•  Fivestepapproachtorevenuerecogni,on•  Importanceofindustrycontextandunderstanding

•  Frameworkforrevenuerecogni,on•  IFRS15nowsupercedesIAS18andIAS11


OverviewofSession6

•  InSession6wewilllookatcostsandexpenses:– Classifica,on– Costofsales– Othergoodsandservices– Personnelexpenses


Otherexpensessuchasdeprecia,on,ammor,sa,onandincometaxeswillbecoveredinthesessionsrelatedtoTangibleandIntangibleFixedAssetsandTaxa,on

Session6Pre-work

•  Reading– MelvilleInterna,onalFinancialRepor,ngAPrac,calGuide:

•  Chapter13–Revenuesfromcontractswithcustomers–  IFRS

•  IFRS15-Revenuesfromcontractswithcustomers

•  Exercises– Melville13.1–13.6– MelvilleOn-linemul,plechoiceques,onsforchapter13–  ExerciseEX5Revenues

•  ResearchassignmentRA4Employeebenefits


ResearchAssignmentRA4Employeebenefits


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____________

Session5Valida,on•  Whatisthe5stepapproachtorecognizingrevenuesunderIFRS15?

•  Whatarethe5condi,onsthatneedtobesa,sfiedinordertoaccountforacontractwithacustomerunderIFRS15?

•  Howdoweaccountforrevenuesfromconstruc,oncontracts?

•  Whatcriteriamustbesa,sfiedtoaccountforperformanceobliga,onsinamul,ple-elementtransac,on?Andhowisrevenueallocatedamongthedifferentelements?


a86045 accoun,ng and financial repor,ng (2017/2018)my.liuc.it/matsup/2017/a86045/slides session...

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