{"id":482,"date":"2017-08-31T06:44:51","date_gmt":"2017-08-30T22:44:51","guid":{"rendered":"http:\/\/ehluar.com\/main\/?p=482"},"modified":"2018-03-22T13:00:33","modified_gmt":"2018-03-22T05:00:33","slug":"revenue-the-5-step-model-of-new-revenue-standard-part-2","status":"publish","type":"post","link":"http:\/\/ehluar.com\/main\/2017\/08\/31\/revenue-the-5-step-model-of-new-revenue-standard-part-2\/","title":{"rendered":"Revenue – The 5-Step Model of New Revenue Standard (Part 2)"},"content":{"rendered":"

The new revenue recognition model<\/u><\/strong><\/p>\n

4.1\u00a0\u00a0 (IFRS 15) FRS 115 Revenue from Contracts with Customers<\/em> introduces a 5-steps model that is to be applied to all revenue transactions<\/u> irrespective of the nature of the entity\u2019s business. The new model therefore applies to revenue from the sale of goods, services render, construction contracts, royalties etc.<\/p>\n

4.2\u00a0\u00a0 The following provides an overview of the new revenue recognition model:<\/p>\n

(a)\u00a0\u00a0\u00a0\u00a0 Step 1\u00a0 Identify contract(s) with customer<\/p>\n

(b)\u00a0\u00a0\u00a0\u00a0 Step 2\u00a0 Identify performance obligations in the contract<\/p>\n

(c)\u00a0\u00a0\u00a0\u00a0 Step 3\u00a0 Determine transaction price<\/p>\n

(d)\u00a0\u00a0\u00a0\u00a0 Step 4\u00a0 Allocate transaction price to separate performance obligations in the contract<\/p>\n

(e)\u00a0\u00a0\u00a0\u00a0 Step 5\u00a0 Recognise revenue when (or as) each performance obligation is satisfied<\/p>\n

4.3\u00a0\u00a0 (IFRS 15) FRS 115 Revenue from Contracts with Customers<\/em> establishes a comprehensive framework for determining when to recognise revenue and how much revenue to recognise.<\/p>\n

4.4\u00a0\u00a0 The core principle<\/u> is to recognise revenue to depict the transfer of promised goods or services<\/em> to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange<\/em> for those goods or services.<\/strong><\/p>\n

(a)\u00a0\u00a0\u00a0\u00a0 \u201cPromised\u201d \u2013 identify what the entity has promised the customer<\/p>\n

(b)\u00a0\u00a0\u00a0\u00a0 \u201cExpects\u201d \u2013 what the entity expects to be paid in return<\/p>\n

Step 1 Identify contract(s) with a customer<\/u><\/strong><\/p>\n

5.1\u00a0\u00a0 The first step is to identify the contract(s) and to assess at the inception of contract(s).<\/p>\n

5.2\u00a0\u00a0 (IFRS 15) FRS 115 Revenue from Contracts with Customers<\/em> states that a contract<\/u> is an agreement between tow or more parties that creates enforceable rights and obligations<\/em>. Enforceability of the rights and obligations in a contract is a matter of law. Contracts can be written, oral or implied by an entity\u2019s customary business practices.<\/strong><\/p>\n

5.3\u00a0\u00a0 An entity shall account for a contract with a customer only when all<\/u><\/strong> of the following 5 contract requirements<\/u> are met:<\/p>\n

(a)\u00a0\u00a0\u00a0\u00a0 The parties to the contract have approved the contract and are committed to perform their respective obligations;<\/p>\n

(b)\u00a0\u00a0\u00a0\u00a0 The entity can identify each party\u2019s rights regarding the goods or services to be transferred;<\/p>\n

(c)\u00a0\u00a0\u00a0\u00a0 The entity can identify the payment terms for the goods or services to be transferred;<\/p>\n

(d)\u00a0\u00a0\u00a0\u00a0 The contract has commercial substance; and<\/p>\n

(e)\u00a0\u00a0\u00a0\u00a0 It is probable 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.<\/p>\n

5.4\u00a0\u00a0 If a contract does not yet meet all the above requirements, the entity must continue to re-assess the contract going forward to determine whether it subsequently meets the required criteria.<\/p>\n

5.5\u00a0\u00a0 The collectability criterion must be met. The entity must consider only the customer\u2019s ability and intention to pay that amount of consideration when it is due.<\/p>\n

5.6\u00a0\u00a0 Collectability refers to the customer\u2019s intent and able to pay the promised consideration when due and that it is \u201cprobable\u201d the entity will collect the consideration to which it will be entitled.<\/p>\n

5.7 \u00a0 Collectability assessment relates to the transaction price, the assessment is therefore applied to the transaction price, not the stated contract price.<\/p>\n

5.8 \u00a0 Significant judgement and experience will be required to determine if a partial payment is an implied price concession or an impairment loss (i.e. credit loss).<\/p>\n

5.9 \u00a0 Contract modification<\/p>\n

(a)\u00a0\u00a0\u00a0\u00a0 The standard provides detailed guidance on how to account for contract modification.<\/p>\n

(b)\u00a0\u00a0\u00a0\u00a0 If certain conditions are met, a contract modification will be accounted for as a separate contract with the customer.<\/p>\n

(c)\u00a0\u00a0\u00a0\u00a0 If not, it will be accounted for as a modification of the original contract with the customer.\u00a0 Whether to account for prospectively or retrospectively (i.e. whether the change is accounted for going forward or changing the accounting already made) depends on whether the remaining goods or services to be delivered after the modification are distinct from those delivered prior to the modification.<\/p>\n

5.10 \u00a0 Summary of Step 1 Identify contract(s) with a customer<\/p>\n

\u00a0\u00a0 (a)\u00a0\u00a0\u00a0\u00a0 (i)\u00a0\u00a0\u00a0\u00a0\u00a0 Contract defined as an agreement between two or more parties that creates enforceable rights and obligations.<\/p>\n

\u00a0 \u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 (ii)\u00a0\u00a0\u00a0\u00a0 Applies to each contract that has been agreed upon with a customer and meets specified criteria.<\/p>\n

\u00a0 \u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 (iii)\u00a0\u00a0 Contracts must be combined when specified criteria are met.<\/p>\n

\u00a0 \u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 (iv)\u00a0\u00a0\u00a0 Specifies how to account for contract modifications.<\/p>\n

\u00a0\u00a0 (b)\u00a0\u00a0\u00a0\u00a0 Key changes in (IFRS 15) FRS 115<\/p>\n

\u00a0 \u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 (i)\u00a0\u00a0\u00a0\u00a0\u00a0 Having oral or implied agreements as contracts may be a change in practice to some entities.<\/p>\n

\u00a0 \u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 (ii)\u00a0\u00a0\u00a0\u00a0 Unlike the current standard, (IFRS 15) FRS 115 specifies how to account for transactions with customers that do not meet the specified criteria for a contract.<\/p>\n

\u00a0 \u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 (iii)\u00a0\u00a0 (IFRS 15) FRS 115 provides more explicit requirements on when to combine contracts and how to account for modifications.<\/p>\n

Last review: 31 August 2017<\/p>\n","protected":false},"excerpt":{"rendered":"

The new revenue recognition model 4.1\u00a0\u00a0 (IFRS 15) FRS 115 Revenue from Contracts with Customers introduces a 5-steps model that is to be applied to all revenue transactions irrespective of the nature of the entity\u2019s business. The new model therefore applies to revenue from the sale of goods, services render, construction contracts, royalties etc. 4.2\u00a0\u00a0 […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[7,6],"tags":[],"class_list":["post-482","post","type-post","status-publish","format-standard","hentry","category-accounting","category-techupdates"],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"http:\/\/ehluar.com\/main\/wp-json\/wp\/v2\/posts\/482","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/ehluar.com\/main\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/ehluar.com\/main\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/ehluar.com\/main\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/ehluar.com\/main\/wp-json\/wp\/v2\/comments?post=482"}],"version-history":[{"count":3,"href":"http:\/\/ehluar.com\/main\/wp-json\/wp\/v2\/posts\/482\/revisions"}],"predecessor-version":[{"id":495,"href":"http:\/\/ehluar.com\/main\/wp-json\/wp\/v2\/posts\/482\/revisions\/495"}],"wp:attachment":[{"href":"http:\/\/ehluar.com\/main\/wp-json\/wp\/v2\/media?parent=482"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/ehluar.com\/main\/wp-json\/wp\/v2\/categories?post=482"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/ehluar.com\/main\/wp-json\/wp\/v2\/tags?post=482"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}