When assessing the financial condition of an organization, revenue, along with net profit, is the most important item in financial statements. At the same time, net income cannot be determined without estimating revenue, which, as a rule, is the most significant item in the statement of comprehensive income.

Investors and other users of financial statements, when analyzing the financial condition of an organization, first of all evaluate the amount and composition of revenue recognized in the current reporting period, including in comparison with the previous reporting period, as well as with the revenue of other comparable organizations.
On 28 May 2014 the IASB as a result joint work with the US Financial Accounting Standards Board, which lasted about six years, issued a new revenue standard - IFRS 15 Revenue from Contracts with Customers (hereinafter - IFRS 15). Consider the main provisions of the new standard.

1. What is the reason for the adoption of the new revenue standard?

The previous revenue standard, which was originally issued in 1982 and substantially revised in 1993, did not meet the needs of preparers and users of financial statements, as it did not cover the full variety of situations that arise in practice, and did not give an unambiguous answer to the question of when and in how much to recognize revenue.
Its provisions differed from those of the equivalent standard in US GAAP.
The new standard is expected to provide more detailed guidance on the practicalities of revenue accounting, improve the comparability of revenue recognition across entities, industries, jurisdictions and capital markets globally, and enable users to useful information by improving disclosures on revenue matters.

2. What is the key principle of the new standard?
What is a contract asset and a contract liability?

The key principle of the new standard is that an entity (which in the context of IFRS 15 is a seller of goods or services) recognizes revenue as representing the transfer of goods and services promised to a customer in accordance with the terms of the contract in an amount corresponding to the consideration to which it is entitled and expects to receive in exchange for these goods and services.
Compared to previous IFRSs governing revenue recognition, there has been a change in approach: the concept of income (performance reporting) has been replaced by the concept of changes in assets / liabilities (positional reporting).
The seller of a good or service, after concluding a contract with a buyer, may have a contract asset.

FOR REFERENCE
A contract asset is an entity's right to consideration in exchange for goods or services transferred to a customer that is due to a reason other than the passage of time (for example, the entity's future performance under a contract).

Example 1
The entity enters into a contract for the supply of goods (goods 1 and goods 2) in the amount of 5000. The selling price of goods 1 is 2000, goods 2 is 3000. The unconditional right to receive compensation from the seller arises only after the transfer of control over goods 1 and 2 in the aggregate. Payment by the buyer of remuneration under the contract is carried out after the transfer of goods 1 and 2.
On March 15, goods 1 are transferred to the buyer, the transaction is reflected in the posting:

Dt"Contract asset" - 2000
ct"Revenue" - 2000

On April 3, the buyer receives the goods 2 and there is an unconditional right to receive remuneration under the contract:

Dt
ct"Contract asset" - 2000
ct"Revenue" - 3000

Dt"Settlement account of the organization - the seller of goods" - 5000
ct"Accounts receivable" - 5000

FOR REFERENCE
A contractual obligation is an entity's obligation to transfer goods or services for which the entity has received a consideration (or the entity is due a consideration) from a customer.

If an advance payment is received, the seller has a contractual obligation to deliver the goods, which terminates at the time of its delivery, simultaneously with the recognition of revenue.

Example 2
On February 1, the organization concludes a contract for the supply of goods on March 30 in the amount of 100, providing for an advance payment on February 15. This agreement may be terminated by agreement of the parties.
On February 15, an advance payment was received:

Dt"Current account of the organization - the seller of the goods" - 100
ct"Contractual obligation (for the supply of goods)" - 100

Dt"Contractual obligation" - 100
ct"Revenue" - 100

Thus, the new standard uses a contract-based approach, according to which revenue recognition from contracts with customers is based on changes in assets and liabilities that arise when an entity becomes a party to the contract and begins to fulfill obligations under it. In other words, most (if not all) revenue generating agreements are contractual relations in one form or another. Revenue is earned and recognized when the reporting entity fulfills its obligations under the contract.

3. What is revenue?

Revenue is the income (income) arising from the ordinary activities of the organization.
Income is the increase in economic benefits during the reporting period in the form of inflows or improvements in the quality of assets or decreases in liabilities that result in an increase in equity not related to the contributions of capital participants.
It should be noted that currently IFRS does not contain a definition of the term "ordinary activities", although it used to exist and included any type of activity that an entity has the right to carry out. It can be assumed that in most cases, the term “ordinary activities” should be understood in this context when applying IFRS 15.

For example, proceeds from the sale by an entity of its head office building qualify as revenue.

4. What is a performance obligation in the context of IAS 15?

A performance obligation is a promise by an entity in a contract with a customer to transfer to the customer:
product or service;
a set (package) of goods or services that are separable (see question 11);
a series of separable goods or services that are substantially the same and that have the same pattern of transfer to the customer (see question 11).

Example 3
The organization, the software developer, transfers to the buyer:
1) software license,
2) installation services,
3) software updates,
4) technical support for two years.

The software is delivered first. Similar installation services are provided to other customers and do not materially change the software. The software remains functional even without updates and technical support.
There are four performance obligations in this contract, each of which allocates a transaction price based on a separate selling price (see question 5) and each of which recognizes revenue at the time it is transferred to the customer.

5. What is a stand-alone selling price?

A stand-alone selling price is the price at which an entity sells a good or service to a customer as a separate item in a sale and purchase transaction (separately).

Examples of sources of information about a single sale price are tariffs for services, the price list of an organization.

6. What is a contract in the context of IAS 15?

The concept of a contract is critical to the application of IAS 15. It is based on the definition of a contract in US law and is similar to the definition given in IAS 32 Financial Instruments: Presentation: a contract is an agreement between two or more parties that gives rise to rights and obligations to be enforced (see question 11).
The contract does not have to be in writing. Whether the obligations in the contract are subject to performance is determined in the context of the law in the jurisdiction of the contract. A contractual obligation must include a promise that creates a legitimate expectation for the customer that the entity will transfer the good or service to the customer, even if that promise is not legally binding.

IFRS 15 applies to contracts with customers that meet certain criteria (see question 10). Typically, IFRS 15 is used at the individual contract level. However, it is permitted to apply it to a set of similar contracts as a single contract, provided that it can be reasonably expected that the impact of such an approach on the financial statements will not differ materially from the application of IFRS at the individual contract level.

If the parties can terminate the contract without paying penalties before the contract is settled, it is not a contract for revenue recognition purposes because it does not affect the entity's financial position until the parties begin to fulfill their obligations under it.
If a contract does not meet the criteria set out in IFRS 15 at the time of its inception, the parties periodically thereafter review its terms, if any, against the criteria set out in IFRS 15 and apply that standard when recognizing revenue from the date the contract meets those criteria. However, if a contract meets the criteria set out in IFRS 15 at the time of its inception, there is no need for a periodic review of compliance with those criteria, unless there has been a material change in the facts and circumstances of the contract.

If the contract involves the transfer of non-financial assets that are not related to the entity's ordinary activities - property, plant and equipment, real estate, intangible assets - the entity applies IFRS 15 to determine when to derecognise the asset and how much to recognize the gain or loss on disposal, so how the transaction is more like a transfer of an asset to a buyer than another sale of an asset.

For example, a distributor sells part of a fleet of used trucks, or a manufacturer of a product sells the manufacturing equipment needed to manufacture a given product to a third party. The proceeds from these types of sales do not quite meet the definition of income, since the receipt of economic benefits from the sale of non-current assets necessary for the production of products and services is not a normal activity in this example. However, the provisions of IAS 15 on recognition, measurement, determining whether a contract is one within the meaning of IAS 15 should be applied in this case to determine when and how much revenue should be recognized.

Therefore, IFRS 15 only covers revenue from contracts with customers, which implies that there are other types of contract revenue that are not covered by IFRS 15.

7. Which contracts are not covered by IFRS 15?

The new revenue recognition model applies to all contracts with customers, except for:
leases that are leases under IAS 17 Leases;
insurance contracts in accordance with IFRS 4 Insurance Contracts;
financial instruments and other contractual rights and obligations that are such under IFRS 9 Financial Instruments, IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements and IAS 28 Investments in associates and joint ventures”;
contracts that fall within the scope of IFRS 11 Joint Arrangements.

For example, an entity may enter into contracts with counterparties for the purpose of participating in an activity or process where the risks and rewards of such activity or process are shared by the parties to the contract, often referred to as a “cooperative arrangement”. In such cases, an entity must determine whether the second entity is an “acquirer” (see question 8) to determine whether transactions with that entity are subject to IFRS 15;

Agreements involving non-monetary exchanges of assets between organizations engaged in the same types of business, which are carried out in order to stimulate sales to existing or potential buyers.

For example, IFRS 15 does not apply to a contract between two oil sellers who have agreed to exchange oil for permanent basis in order to reduce transportation costs and meet the demand of their buyers, geographically remote from the seller under the contract. The application of IFRS 15 in this case would lead to an overstatement of revenue and transportation costs.

If the contract involves the performance of obligations, some of which are subject to other IFRSs, the requirements of other standards are primarily applied, and the remaining amount is attributed to the results that are subject to IFRS 15. In this case, the transaction price is reduced by an amount that is measured in accordance with other IFRSs . In the absence of relevant requirements in other standards, IFRS 15 applies.

For example, the part of a leasing contract that is directly related to leasing would be accounted for in accordance with IAS 17 Leases. The service portion of this contract is accounted for in accordance with IAS 15, with the transaction price allocated on a stand-alone selling price basis (see question 5).

IFRS 15 does not apply to the recognition of interest and dividend income.

8. Who is the buyer in the context of IAS 15?

A customer is a counterparty that has entered into a contract with an entity to purchase goods or services that result from the entity's ordinary activities in exchange for consideration.
A party to a contract is not a customer for the purposes of IAS 15 if the terms of the contract provide for the parties to participate in an activity or process in which the parties share the risks and rewards (for example, the development or development of an asset or a cooperative agreement).

9. What steps should be taken to recognize revenue under IFRS 15?

Revenue recognition involves several steps.
Stage 1. Identification of the contract(s) with the buyer.
Stage 2. Identification of obligations to be performed under the contract(s).
Stage 3. Determination of the transaction price.
Stage 4. Allocation of the transaction price to obligations subject to execution.
Stage 5. Recognition of revenue at the time of fulfillment (or in the process of fulfillment) of the obligations to be fulfilled.

The revenue recognition steps have not changed since the publication of the draft standard in 2010. However, many amendments have been made regarding their specific application, which will be discussed below.
At first glance, the five-step revenue model does not seem very complex, and its actions seem logical, consistent and include most of what the previous standard provided.
However, each of the five steps will require significant judgment from the entity's management, in consultation with its auditors, in applying the core principle of revenue recognition, especially in relation to the transfer of control in assessing whether revenue should be recognized. The assessment that existed before the new standard of whether the “risks and rewards” associated with a good or service have been transferred is no longer key indicator for revenue recognition.

10. Stage 1: how to identify the contract with the buyer?

A contract is subject to IFRS 15 if it satisfies all of the following conditions:
the parties under the agreement approved it (in writing, orally or in another way generally accepted in a particular type of business), as a result of which they are obliged to fulfill the corresponding obligations under the agreement; the conclusion of an agreement, therefore, can be oral, written, and also be implied, that is, arising from certain actions of the parties;
the entity can identify the rights of each party to the contract with respect to the goods or services to be transferred;
the entity can identify the terms of payment for the goods or services to be transferred; the contract is commercial in nature, i.e. the risk, timing or amount of the entity's future cash flows are expected to change as a result of performance of the contract;
it is probable that the entity will receive the consideration to which it is entitled in exchange for the goods or services that will be transferred to the customer.

In assessing the likelihood of receiving a consideration, an entity shall consider the customer's ability and intention to pay the award when it becomes due. At the same time, the amount of such remuneration may be less than the price specified in the contract, if the cost changes depending on certain conditions of the contract.
In some cases, for the purposes of revenue recognition, it is possible to combine several contracts with similar characteristics and account for them as one (single) contract.
An entity's multiple contracts with the same counterparty or related parties are collectively assessed as a single contract if the following criteria are met:
if the contracts were concluded as a package with a single commercial purpose;
if the amount of remuneration payable under one contract depends on the price or performance of other contracts;
if the goods or services promised in the contract, or some of the goods or services promised in each contract within the package of contracts, are a single obligation to be performed.

IFRS 15 provides detailed description accounting for changes (modifications) to the contract, which, depending on their terms, may be accounted for as a new contract or as a change to the original contract.
A contract modification is accounted for as a separate contract if two conditions are met:
in accordance with its terms, the additional volume of goods or services is separable and increases the scope of the contract;
the price of the goods or services under the contract is increased by an amount of consideration reflecting the stand-alone price of the additional volume of goods or services and any appropriate adjustment to that price to reflect the circumstances of the particular contract.

If these conditions are not met, the contract modification is taken into account:
prospectively (by allocating the remaining revised transaction price to the remaining contractual obligations);
retrospectively (for obligations that are settled over a period of time (see question 14), resulting in a cumulative adjustment to revenue).

The choice of option depends on whether the remaining and not yet delivered goods or services under the contract differ from those delivered before the modification of the contract, as changes to the current contract with the buyer.

Example 4
Under the terms of the contract, the organization promised to sell 150 units to the buyer for 15,000 (at a price of 100 per unit). The goods are transferred at a certain point in time within a three-month period. After the organization transferred 100 units of goods, the contract was changed (modified) by agreement of the parties, the quantity of goods increased by 50 units.
If an additional supply is sold at a separate selling price, such as 90, and this occurs during the life of the main contract, the additional product is separable from the original product, the revenue from the contract modification is treated as a separate contract and does not affect the revenue from the original contract. Therefore, after fulfilling the obligations under the contract, the entity recognizes revenue of 150 × 100 = 15,000 on the original contract and 50 × 90 = 4,500 on the modification.

Example 5
As indicated in the conditions of example 4, the parties agreed to sell an additional volume of goods in the amount of 50 units. At the same time, as in example 4, the price of an additional consignment of goods is reduced, but differs from a separate sale price and is equal to 85. In addition, the fact of inadequate quality was established for an already delivered consignment of 100 units, so the organization makes a discount in the price for this lot of goods in the amount of 15.
Because the additional quantity is sold at a different price of 85 from the standalone sale price (90), this modification cannot be accounted for as a separate contract.
In addition, since the goods not yet delivered are separable from those already delivered, this modification is treated as the termination of the original contract and the creation of a new contract.

Therefore, the entity recognizes a decrease in revenue (recognized in example 4 as 15,000 for 100 items delivered) of 1,500 = 15 × 100.
Revenue for the remaining goods, of which 50 units are from the original contract and 50 from modifications, will be recognized upon transfer of control of these goods at a blended price = (50 × 100 + 50 × 85) : 100 = 92.5.

11. Stage 2: how to identify contractual obligations to be performed? What is the "separability" of a product or service or a package of goods or services?

The identification of contractual obligations to be fulfilled is the establishment of the units of account to which the transaction price should be allocated and for which revenue should be recognized.
First, all goods or services promised to the customer under the terms of the contract must be assessed in terms of identifying performance obligations in relation to those goods or services, using the criteria set out in IAS 15:
for goods or services or packages of goods or services that are essentially separable;
series of goods or services that are essentially the same and have the same pattern of transfer to the customer.

The key factor is the “separability” of a good or service or a package of goods or services: if the goods or services are separable from each other, the obligation to transfer them is accounted for separately for revenue recognition purposes.
A good or service is separable if the customer can use the good or service on its own or together with other resources that are readily available to the customer, and the entity's obligation to transfer the good or service to the customer is separately identified from other obligations in the contract.
In order for a resource to be considered easily accessible, the buyer must be able to freely purchase it either from the organization that sells the goods (service) or from another seller, or the buyer must already own this resource at the time of purchasing the product or service.
Series of identical severable goods or services with the same transfer patterns are accounted for as fulfillment of a single severable obligation under the contract if the following conditions are met:
each separable item promised and subsequently delivered to the buyer is an obligation to be performed within a period of time;
the same method of measurement will be used to measure progress under the contract in order to fully meet the obligations to transfer to the buyer each separable good or service within the series.

Example 6
Referring to example 3, all four obligations to transfer goods and services to be performed under this contract are severable:

• the buyer has the opportunity to use each of them individually or in combination, and all of them are easily accessible to him;
• obligations to transfer each good and service are separately identifiable from each other:
• A good or service cannot be considered a severable obligation under a contract if it cannot be used without another good or service that has not yet been delivered under the contract.
• installation services are not significantly changed and not customized to the needs of the buyer;
• the software and installation services are separate and independent from each other and not constituent parts combined product or service.

Example 7
If an organization sells part of a complex technological equipment and installation services for this equipment, and while installation services can only be provided by the seller and no one else, this resource (installation services) is not easily accessible. The sale of equipment is not separable from installation services, as the customer cannot use the equipment without it being installed and, accordingly, revenue is recognized after the equipment has been handed over and installation services have been rendered.

Example 8
If an entity sells a software license and installation services that require significant customization to the needs of that customer, the good and service are not separable, contract revenue is recognized after the software is transferred and installed.

At the same time, an inseparable product or service can be combined with other goods or services until the organization identifies their totality as a separable set (package) of goods or services.

Example 9
The manufacturer of the product includes a one-year warranty on all sales (as required by law) in its price, and also offers an additional two-year warranty.
The one-year warranty is not a separable performance obligation, but any sales of an additional two-year warranty are a separable performance obligation, which delays the recognition of revenue from them.

A series of separable goods or services that are substantially the same may be treated as a single performance obligation under a contract for revenue recognition purposes if each good or service follows the same transfer pattern to the customer.

For example, weekly cleaning services for a period of one year, services for processing bank card transactions or an electricity supply contract.

Therefore, IFRS 15 defines indicators for determining the “separability” of goods or services within a contract, which is expected to enable the management of an entity to exercise judgment to determine a separate obligation that best reflects economic essence transactions under the contract.
The algorithm for identifying a separate obligation to be performed if the contract provides for the transfer of more than one product (one service) can be represented as follows:
A. Checking the conditions for "inseparability", we answer the questions:
Are the goods (services) highly interrelated and transferring them to the customer requires the entity to also provide a substantial service to the integrated goods (services) in combination as required by the terms of the contract?
Is the package of goods (services) significantly modified or adjusted in order to fulfill the contract?
B. If yes, combine with other goods (services) until a separable package of goods (services) is identified.
B. If not, check that the conditions for recognizing a separate liability are met.

To do this, answer the question: is the product (service) sold separately on a regular basis, or can the buyer use the product (service) on its own or together with other resources freely available to him?
If not, repeat step B.
If yes, account for it as a separate obligation to be fulfilled.

12. Stage 3: how to determine the price of the transaction?

The transaction price is the amount of consideration to which an entity is expected to be entitled in exchange for goods and services transferred to a customer.
As in the previous IFRS on revenue, taxes are excluded from the price, such as VAT, sales tax.
The transaction price can be a fixed amount, include a non-monetary part, as well as a variable part of the remuneration.
The transaction price may include an element of variable remuneration in the case of discounts, bonuses, incentive conditions, incentive programs, fines, etc.
If the price includes a variable part of the fee, the entity shall estimate the amount of the fee taking into account the variable part. The price of the transaction should also be estimated based on the expected value, weighting the expected amounts by the probability-weighted amount, or based on the most likely amount that the entity expects to receive as part of the exercise of its rights to the consideration under the contract, and when take into account factors that may reduce this probability.

Example 10
The organization provides services to the customer. The terms of the contract include the payment of a performance bonus linked to certain performance indicators achieved within a limited period of time. The organization estimates the bonus as follows: with a probability of 50% - 100,000, with a probability of 25% - 80,000, with a probability of 20% - 60,000, with a probability
5% - 0. Total Estimated Transaction Price = 100,000 × 50% + 80,000 × 25% +
+ 6000 × 20% + 0 × 5% = 82,000.

An estimate of the variable consideration is included in the transaction price unless it is highly probable that there will be a significant return on the amount of cumulative revenue already recognized, in the event that the uncertainty associated with the variable consideration subsequently materializes.

Example 11
The buyer concludes a contract with the organization for the supply of goods on February 5 for a year at a price of 500. If the quantity of goods during the term of the contract exceeds 1000 units, then the price of goods is retrospectively reduced to 450. Thus, the transaction price under this contract includes an element of variable rewards.

As of May 5, the customer purchased only 100 units of the item, which results in the entity assessing that purchases will not exceed the threshold over the life of the contract to allow the 50 discount to be applied.

Therefore, based on its experience with this customer and this type of commodity, the entity believes that it is highly probable that the cumulative revenue recognized at the price of 500 will not be recovered if the uncertainty associated with the variable consideration (the application of the volume discount) sales), subsequently (when the actual volume of sales with this buyer is known) is realized.

Therefore, for the first quarter of the contract, the entity recognizes revenue of 500 × 100 = 50,000.
During the next quarter there is a change of ownership of the buyer. For the second quarter, purchases reach 700 units of goods. Thus, new facts and circumstances arise that make it possible to estimate with a high degree of probability that purchases during the term of the contract will exceed the threshold value of 1000. This leads to the need for retrospective price reduction.

Therefore, the entity recognizes second quarter revenue of 450 × 700 = 315,000. In addition, the entity reduces previously recognized first quarter revenue by the change in transaction price (500 − 450) × 100 = 5,000.

The transaction price is also adjusted for the time value of money effect if the contract includes a material financial component. Indicators of the presence of such a component are the difference between the amount of the promised consideration and the "cash" sale price and the expected time interval between delivery and payment of more than one year.
In order to adjust the amount of the fee, an entity should use a discount rate that should reflect the credit risk specific to the recipient of the funding, as well as the possible collateral on the financial liability. This discount rate is fixed and does not change if interest rates change or other circumstances change.

Example 12
The organization sells computer equipment for 2000 in case of an advance payment for it. Delivery of goods - two years after payment. The attraction rate, taking into account the credit risk of the seller, is 5%.
At the time of receipt of payment:

Dt"Cash Accounts"
ct"Contractual obligation" - 2000

Interest expense should be recognized within two years prior to the date of delivery of the goods:

Dt"Interest expenses"
ct"Contractual obligation" - 2000 − 2000 × 1.05 × 1.05= 205 (at the time of delivery).

At the time of transfer of goods after two years:

Dt"Commitment"
ct"Revenue" - 2000 + 205 = 2205 (for the purposes of the example, the tax effect is ignored).

The amount of proceeds (2205) will be greater than the amount of cash actually received (2000).

Any part of consideration other than cash and/or at a price other than the market price shall be measured at fair value. If an entity is unable to measure non-cash consideration at fair value, it shall use the indirect method of valuation by using separate selling prices for related goods/services.

Example 13
The organization provides services on a weekly basis throughout the year. Services are a separate obligation under a service contract because they are a series of separable services that are essentially the same, having a similar pattern of transfer of services to the buyer.

These services are provided over a period (in this case, a year) and have the same method of assessing the progress of the provision of services - distribution in time (time-based measure of progress).
In exchange for the services rendered, every week during the year after the successful completion of the services, the organization receives from the buyer 30 shares per week (1560 in total per year) at their market value.

Market value is determined based on stock prices at the date of transfer of each batch of 30 shares, which in this case is the transaction price and revenue recognized as services are rendered on a weekly basis. An entity does not recognize any change in revenue if the market value of shares received or receivable subsequently changes.

After the transaction price is determined, the entity evaluates the likelihood of receiving the amount of the consideration.
If the entity believes that it is probable that revenue will be received, revenue is recognized. If there is a subsequent change in circumstances that affects that likelihood, the entity assesses their materiality and impact on the likelihood of receiving the remaining revenue.
An example of a material change in circumstances affecting the likelihood of proceeds could be a significant deterioration in a customer's credit risk and ability to access credit due to losses for most customers. If an entity believes that it is not probable that the amount of revenue will be received, no revenue is recognized. Accounts receivable for uncollected but already recognized revenue are assessed for impairment in accordance with IAS 39
"Financial Instruments - Recognition and Measurement" or IFRS 9 "Financial Instruments" with the recognition of losses, if impaired, in the income statement. Credit losses are recognized as a separate line item and not as a reduction in revenue.

Example 14
The entity has set a price of 500 for the item. However, it is offering the customer a concession (concession) of 100 because it believes that establishing a positive relationship with this customer can help build relationships with other potential customers. Therefore, the price for this transaction is 400. After fulfilling the obligations under the contract, for example, the delivery of goods, the entity must evaluate the likelihood of receiving revenue from it. If revenue is likely to be received from the entity's point of view, the entity recognizes revenue in full: 400. If it is not probable that all or part of the revenue will be received, revenue is not recognized before:

• its receipt will become probable;
• it will actually be received by the organization in full or in large part after the fulfillment of all obligations under the contract (as a result of which the organization has no obligation to return it to the buyer);
• the contract will be terminated if the amounts of the proceeds received are not refundable to the buyer.

If, after revenue was recognized but before it was actually received, circumstances change that affect the customer's ability to pay the revenue receivable, resulting in the entity believing that it will receive only 250 instead of 400, it shall recognize an impairment loss for the receivable in the amount of 150 without reducing the amount of revenue recognized.
If circumstances cause the concession offered to the buyer to be cancelled, the change is recorded as a change in the transaction price and as a result the amount of revenue recognized, which increases by 100 to 500.

13. Stage 4: how to allocate the transaction price to contractual obligations?

An entity allocates the transaction price to each contract liability using the relative stand-alone selling price for each separable good or service in the contract as a basis.
If an individual price is unobservable, the entity estimates it. IFRS 15 provides for three possible valuation methods:
adjusted market price method;
method "expected cost plus margin" (expected cost plus a margin approach);
residual value method (residual approach) (in limited cases).

Example 15
The organization entered into a contract for the sale of products 1, 2 and 3 for 200. The fulfillment of obligations to supply these products is carried out at different times. Because the entity sells item 2 on an ongoing basis, the individual selling price for that item is directly observable. The individual selling prices for items 1 and 3 are not directly observable, so the entity must estimate them. For item 1, the entity uses the expected cost plus margin method (hereinafter referred to as the expected cost method), and for item 3, the adjusted market price method, making maximum use of observable inputs for valuation.
As a result, the following individual sales prices are determined:




Total 230

Since the individual sales prices are higher than the value of the contract, this means that the buyer was given a discount on the package of goods 1, 2, 3. Since the terms of the contract do not see that this discount relates to obligations to supply certain goods, it is necessary to distribute it among all goods under this contract on the basis of a separate sale price:

Item 1 70 = 200: 230 × 80
Item 2 78 = 200: 230 × 90
Item 3 52 = 200: 230 × 60
Total 200

Example 16
In the conditions of example 15, the organization, in addition to the above obligations under the contract, supplies product 4. There is no previous experience in selling this product. The discount does not apply to item 4. The transaction price becomes 250.
The individual price of item 4, based on the residual value method, is 50 = 250 − 200. Then the transaction price, based on the individual sales prices of items 1−4:

Item 1 80 Expected cost method
Item 2 90 Directly observable individual selling price
Commodity 3 60 Adjusted market price method
Item 4 50 Residual value method
Total 280

Then the distribution of prices for contractual obligations used when recognizing revenue from these obligations at the time of their fulfillment:

Item 1 70 = 200: 230 × 80
Item 2 78 = 200: 230 × 90
Item 3 52 = 200: 230 × 60
Product 4 50 Discount does not apply to product 4
Total 250

All subsequent changes in the transaction price must be allocated to contractual obligations in the same manner as the original transaction price. The amounts of price changes allocated to the related contractual obligations should be recognized as revenue or as a reduction in revenue in the periods when those prices change.

14. Stage 5: how to recognize revenue as the contractual obligations are fulfilled?

Revenue can only be recognized when the entity has fulfilled its obligations under the contract. It may be recognized at a specific point in time or over a period of time.
An entity recognizes revenue at a point in time when the promised goods or services are delivered to the customer. In essence, goods (services) are transferred (provided) when the buyer obtains control over them. Therefore, revenue is recognized when the customer obtains control of the related assets (because the goods and services are assets when they are received).

FOR REFERENCE
Control is the ability to manage use and obtain substantially all of the existing benefits of an asset. In particular, control includes the ability to prevent control over the use of an asset or obtain benefits from its use by another person (organization).

The benefits of using the asset by the buyer include the potential cash flows (cash inflows and reduced cash outflows) that could come from,
For example:

• the use of an asset to produce goods or provide services;
• increase in the value of other assets;
• settlement of obligations;
• cost reduction;
• sale or exchange of an asset;
• the use of an asset as collateral for a loan received;
• holding the asset.

Factors that may mean that control of an asset has been transferred at a particular point in time include, but are not limited to:

• the entity is entitled to receive payment for the transferred asset;
• the buyer has title to the asset;
• the entity has transferred physical possession of the goods;
• the buyer has taken over the asset;
• the buyer bears the significant risks and benefits associated with ownership of the asset.

An entity recognizes revenue over time if one of the following criteria is met:

• the buyer simultaneously receives and consumes the benefits, as the selling organization delivers (provides) them;
• fulfillment by the selling entity results in the creation or improvement of an asset that the acquirer has the ability to control as the asset is created;
• the fulfillment of obligations by the selling entity does not result in the creation of an asset with an alternative use, and the entity is entitled to receive payment for obligations settled to a specific date.

In order to determine whether an alternative use of an asset is possible, the impact of contractual and practical restrictions on an entity's ability to easily transfer goods or services to another customer must be assessed.

Example 17
The selling entity has an alternative use of an asset if it is substantially fungible with other assets that the entity could transfer to the buyer without breaching the contract and without incurring significant costs that would otherwise be incurred under the contract. Conversely, an asset has no alternative use if the contract contains essential conditions that preclude the transfer of the asset to other customers, or if the entity would incur significant costs to do so (for example, the cost of reworking the asset).

Revenue from obligations settled over a period of time is recognized as the obligations are fulfilled. To determine it, the organization selects the appropriate methods for assessing progress in fulfilling obligations under the contract - methods of initial data (output methods) or methods of input data (input methods).

Input methods are used when revenue is recognized based on a direct measurement of the value of the goods or services transferred to the customer at the date in relation to the remaining goods or services promised in the contract.

They include a method of surveying the degree of production at a specific date, assessing the results and stages achieved, the time spent, the units produced and delivered. Such methods can be used if the initial data are directly observable and their acquisition does not entail significant costs. If an entity believes that the use of a particular input data method will adequately assess the degree of performance under a contract, it uses that method.

Example 18
The input data method based on the number of units produced or delivered will not allow a reliable assessment of the degree of fulfillment of obligations under the contract if, at the reporting date, there is work in progress or such finished products, which has not yet been transferred to the buyer (not controlled by him) and which, accordingly, is not included in the initial data for evaluation. In this case, the raw data method cannot be used.

If an entity is entitled to a consideration from a customer in an amount that directly corresponds to the cost of services provided on a specific date (for example, if under a service contract the entity bills a fixed amount for each unit of time during the service period), it may recognize revenue of for which she is entitled to invoice.

Example 19
The organization provides comprehensive wellness services, including use of the pool and sauna, fitness and physical condition monitoring, including weight and blood pressure measurement. The buyer entered into a contract for a period of one year. Monthly payment in the amount of 200. According to the contract, the buyer is given free access to the services and he has the right to use them during the month as many times as he wishes. Thus, the following can be stated:

• the extent to which the buyer uses the services during the month does not affect the amount of remaining contractual services to which the buyer is entitled;
• the buyer simultaneously receives and consumes the benefits provided to him by the organization - the seller of services;
• therefore, revenue should be recognized over the period in which the services are rendered, and not at a specific point in time;
• it can be assumed that services are provided evenly throughout the year, since they are available to the buyer, regardless of whether he uses them or not;
• This means that it is possible to apply the method of assessing the progress in fulfilling obligations under this agreement, based on a uniform distribution over the duration of the agreement, and recognize revenue on a systematic basis during the year at 200 each month.

Using the input data method, revenue should be recognized based on the resources spent on fulfilling obligations under the contract on a certain date (the cost of consumed material resources; machine hours; labor or other types of costs, including time) relative to the total amount of resources required for fulfillment obligations under the contract. If these resources are used evenly over the course of fulfilling obligations under the contract, revenue can be recognized on a straight-line basis.

The disadvantage of the input method is that in some cases there is no direct relationship between the input and the transfer of control over goods or services to the buyer. In such cases, an entity should remove from the input method the effect of any input that, according to the method's purpose of measuring performance under the contract, does not represent the outcome of the entity's performance in transferring control of the goods or services to the customer.

Thus, when applying the “input data - costs” method, when assessing the progress in fulfilling obligations under the contract, an adjustment is required:

• if these costs did not participate in the performance of obligations
• under contract.

For example, an entity does not recognize revenue based on costs incurred that relate to a significant decrease in the efficiency of fulfilling obligations and that were not provided for in the price of the contract (unforeseen costs for the loss of raw materials, labor or other resources that were used in fulfilling obligations under the contract, etc. . P.);
if these costs are disproportionate to the degree of fulfillment of obligations under the contract. In this case, revenue should be recognized only to the extent of the costs incurred.

For example, revenue should be recognized in an amount equal to the value of the goods used to fulfill obligations under the contract if the entity assumes that the following conditions are met when entering into the contract:
the goods are inseparable from other components of the contract to be transferred under the contract;
the buyer is expected to gain control of the goods before receiving services related to the goods;
the value of the goods transferred is significant in relation to the total expected costs required for the full performance of obligations under the contract;
the entity, acting as a principal, purchases a good from a third party and is not involved in the design and manufacture of the good.

2015-02-24 37

IFRS 15 Revenue from Contracts with Customers: a summary of the provisions of the new standard

KFO No. 9 2014
Asadova E.V.,
Director of PwC Russia

The article was provided by the editors of the journal “Corporate Financial Reporting. International Standards” within the framework of the joint project “IFRS Methodology for Companies and Experts” of the Methodology Publishing House and the Aktiv Financial Academy for experts in the field of IFRS.

The entire IFRS methodology, expert comments, practical developments, industry recommendations are available with an annual and semi-annual subscription to the journal.

IFRS 15 Revenue from Contracts with Customers (hereinafter IFRS 15) introduces a new revenue recognition model and introduces a significant increase in disclosure requirements. The standard will certainly affect, and in many cases significantly change, companies' current approaches to revenue recognition. The purpose of this article is to review individual theoretical provisions of the standard and analyze how they will affect existing approaches companies to revenue recognition.

IFRS 15 introduces a fundamentally new concept of revenue recognition. A number of new concepts and new guidance are introduced on some revenue recognition issues, for example:

• individual obligations to fulfill the contract;
• new guidance on when revenue is recognized;
• the concept of variable consideration, which is used to determine the amount of revenue recognized when the amount of revenue may change;
• new guidance on allocating the transaction price to individual commitments;
• accounting for the time value of money.

FOR REFERENCE

The new IFRS 15 is the result of years of efforts to bring IFRS and US GAAP closer together. Probably, due to this circumstance, the new revenue standard turned out to be very voluminous - it is about 350 pages, which is an order of magnitude more impressive than the current guidance on revenue recognition.

The current guidance on revenue recognition is contained in two standards - IAS 18 Revenue and IAS 11 Construction Contracts - and a number of clarifications: IFRIC 13 Customer Loyalty Programs, IFRIC ( IFRIC) 15 Real Estate Construction Agreements, SIC 31 Revenue - Barter Transactions Including Advertising Services.

Given the large amount of work, a working group on the transition to IFRS 15 was created, which will monitor implementation practice, determine the need for additional guidance, and act as a forum for discussing complex issues practical application new standard between various groups users, etc.

The standard becomes effective for annual periods, starting January 1, 2017 , and requires retrospective application; however, the standard provides for a number of practical exceptions. Alternatively, a simplified approach to retrospective application is possible.

In accordance with the simplified approach, comparative data is revised only for contracts in force (in progress) as of January 1, 2017.

Thus, companies are given considerable time to prepare and transition to the new standard. This is primarily due to a completely different revenue recognition model, which could potentially require significant changes to existing IT solutions and business processes.

The table below presents the main changes in the revenue recognition model compared to the current guidance.

The current guidance provides for different approaches to revenue recognition depending on the type of transactions (delivery of goods, provision of services, construction contracts). IFRS 15 introduces a single model for accounting and determining when revenue is recognized, regardless of the type of transactions. This model should be applied for each individual performance obligation under the contract.

The determination of when revenue is recognized in accordance with the guidance in IAS 18 is based on the criteria for the transfer of risks and rewards. The new standard introduces the concept of a transfer of control. The standard states that professional judgment is required to determine when control is transferred and one of the indicators of a transfer of control is the transfer of risks and rewards. At the same time, there are other indicators that need to be considered to resolve the issue of the moment of transfer of control: the right to pay, the right to physical use, the fact of acceptance of the product / service by the client. In general, the concept of control is broader, and in theory, when new guidance is applied to a number of transactions, the timing of revenue recognition may be different compared to that regulated by the current guidance.

One more distinctive feature new standard is a large number of detailed guides on specific issues such as: how to separate individual performance obligations; how to allocate the transaction price to the individual performance obligations; what to do when the amount of remuneration can change (the approach to the so-called variable consideration); how to take into account the proceeds from the transfer of licenses, etc.

Scope of IFRS 15

The new revenue standard applies to all contracts with customers. In doing so, the standard offers guidance on what constitutes a contract and introduces a definition of a customer.

It establishes a closed list of operations that are outside the scope of the new standard, namely:

• rent;
• insurance;
• financial instruments;
• financial guarantees;
• exchange of a homogeneous product between companies in the same industry in order to simplify the logistics of selling to customers.

In practice, there may be complex cases where the same contract has elements that are subject to the new revenue standard and elements that should be governed by the requirements of other standards.

New model

The new revenue recognition model under IFRS 15 is a mandatory five steps:

Step 1. Determination of the relevant contract with the client

Step 2 Determination of individual obligations for the performance of the contract

Step 3 Determining the price of an operation

Step 4 Transaction price distribution

Step 5 Recognition of revenue when (or as) the obligation to fulfill the contract is fulfilled

Step 1. Determining the contract with the client

The new standard introduces the concept of a client.

Customer is a party that receives goods or services that are the result of the ordinary activities of the company.

Consider an example.

Example 1

A pharmaceutical company entered into an agreement with a biotechnology company to jointly develop a new drug. As part of the application of the new standard, the question arises of what the essence of the transaction is:

1. that a biotechnology company sells a substance and provides R&D services, or
2. that the parties have entered into a cooperation agreement under which they share the risks of developing a new drug?

The second type of agreement is outside the scope of the new revenue standard, since the parties to the agreement are not the supplier and the customer, but the cooperating parties. In contrast, in the first option, the pharmaceutical company is a customer of the biotechnology company, so the contract must be accounted for in accordance with IFRS 15.

Consolidation of treaties

At this stage, it is also necessary to determine whether several contracts should be combined into one. It is important to take into account the following factors:

• contracts are negotiated within the framework of the entire package in order to achieve a single commercial goal;
• the price is interrelated, i.e. the remuneration under one contract depends on the price or result under another contract;
• goods, works and services under different contracts represent a single performance obligation.

Changing the terms of contracts

In practice, it is not uncommon for agreements to change: new services are added, volumes and prices change. In this regard, the question arises as to whether the change in the contract should be treated as a new contract and revenue from it should be recognized separately or as a continuation of the old contract (in this case, it is possible to recalculate revenue and recognize the results of the change as an adjustment immediately). catch-up adjustment). Changes to the terms of the contract are subject to consideration as a new separate contract if both conditions are met:

• the volume of goods/services under the contract increases;
• The incremental consideration under the contract reflects the individual cost of selling the additional volume of goods/services, adjusted for the specific agreement.

Step 2. Determination of individual performance obligations of the contract (or individual components in accordance with current guidance)

Often, one contract may contain several components (for example, the sale of goods with the provision of installation or service).

In doing so, it is necessary to determine whether the various elements of the contract constitute separate performance obligations. The importance of this decision is also due to the fact that for different performance obligations, a different moment of revenue recognition can be determined.

A separate obligation to fulfill the contract is allocated in cases where the product / service:

• provides a benefit to the client on its own or together with other resources available to the client, and
• does not depend on other elements (goods / services) under the contract and is not interconnected with them - in other words, it is a separately identifiable product / service.

A number of essentially similar goods or services can also be considered as a separate performance obligation if there is a consistent, systematically applied procedure for transferring results to the client, for example: daily cleaning of the premises, call center services.

To determine whether a product/service is separately identifiable, the standard uses indicators, for example, it is necessary to establish whether integration services.

It should be noted that in many cases professional judgment is required to resolve this issue.

Example 2

The company is building a compressor station. At the same time, the contract describes certain types of work that involve the development of the necessary specifications and parameters, supply of individual equipment units, assembly. The key question here is the following: does the company provide services for the integration of individual parts in order to deliver the facility on a turnkey basis? If so, then there is one obligation.

Another indicator is level of customization . If a company is implementing custom software that requires a license to use, then selling the license is unlikely to be a separate performance obligation.

And finally, how interconnected are the elements, can they be bought separately? For example, a guarantee: if it can be bought separately, then we most likely have a separate obligation.

When, under an existing contract, the client is granted the right to purchase additional goods, works, services (for example, within the framework of loyalty programs), then a separate obligation to fulfill the contract arises only if the buyer receives a material right that he would not have received in another situation ( i.e. without the primary transaction for the acquisition of goods / services).

Step 3. Determination of the transaction price

The transaction price is how much the company will receive as a result of the transaction in exchange for the work or services provided. One of the key decisions regarding transaction pricing is determining the amount of variable consideration.

There are a large number of cases where the amount of reimbursement may vary, for example:

• discounts;
• fines;
• bonuses, incentives;
• performance bonuses;
• other.

The most probable cost or estimated cost using expectations is used to determine the amount of variable consideration, whichever is more applicable in a particular case.

For variable remuneration, the standard is conservative: the amount of variable remuneration is recognized as revenue at an amount for which it is highly probable that it will not have to be reversed in subsequent periods. At the same time, the standard describes a number of factors that can adversely affect the assessment of the likelihood of receiving variable remuneration, for example: the presence of uncertainty over a long period, limited experience with similar contracts, exposure to uncontrollable factors, a wide range of prices and results.

Example 3

When discounting a new product line in a new market, which involves limited experience and a wide range of results, you need to determine the minimum amount that is safe to recognize and not have to reverse in the future.

Thus, it should be recognized "minimum amount" revenue with a high degree of probability that it will not result in a reversal, and revaluation amounts at the end of each reporting period.

Note that in many cases professional judgment is required to resolve this issue.

Example 4

The company sells equipment for 100 million conventional units (c.u.) with a bonus of up to 5%, depending on the achievement of future performance targets. Bonus is taken into account if it exists high probability that there will be no significant reversal in relation to the bonus amount.

At initial recognition, there is evidence that it is highly probable that the bonus will be at least 3%. The transaction price is 103 million USD. i.e., such an amount is recognized as revenue at the time control is transferred.

When revalued at the reporting date, there is a high probability that the bonus will be received in full. The transaction price is 105 million USD. e. At the reporting date, an additional 2 million c.u. are recognized. e. revenue, even though some uncertainty remains.

Exception! By general rule variable consideration is recognized at an amount that it is highly probable that it will not need to be reversed. However, there is an exception - for intellectual property licenses.

For intellectual property licenses for which royalties are based on sales or use, revenue is only recognized when the sale or use occurs. Thus, for intellectual property licenses, the “high probability” limitation does not apply. It should be noted that this exception is not intended to be applied by analogy.

Example 5

Film screening rights. The consideration in the form of royalties from impressions will be recognized only when revenue is received from the final consumers (viewers) as a result of the sale of tickets.

The next component that can affect the amount of remuneration is the financial component. Revenue should be adjusted if there is a significant financial component.

It should be noted that in many cases professional judgment is required to resolve this issue.

Note! IAS 18 also requires the effect of discounting to be taken into account when recognizing revenue if a deferred payment involves a significant financial component. However, the effect of discounting was not taken into account in situations where the company received an advance payment.

Under IFRS 15, revenue is subject to adjustment for the effect of discounting even if an advance payment is received (provided there is a significant financial component). In this case, the total amount of revenue recognized in relation to the performance obligation under the guidance of the new standard may be higher than the amount of the transaction consideration, because the income statement will separately reflect the amount of revenue, taking into account the financial component and the financial expense in respect of this financial component.

Step 4. Distribution of the transaction price

The distribution of the transaction price between individual obligations to fulfill the contract must be carried out according to the following algorithm:

1. Define a separate sale price:
   • actual or estimated;
   • "residual" method if the selling price is very uncertain or variable (change from current practice). The residual method involves not allocating the transaction price proportionally between the individual components, but determining the fair value of one component (for example, the fair value of loyalty points) and attributing the difference between the transaction price and the fair value of the above component to the cost of the remaining component.
2. Allocate the transaction price based on the relative individual selling prices, as if the products were sold individually. However, if there are compelling reasons, the amount of the contract discount (the difference between the transaction price and the sum of the individual selling prices of the individual components) may be allocated to a specific performance obligation.

Step 5. Revenue recognition

The key question for this stage is this: when does the transfer of control take place - all at once or over a period? When should revenue be recognized?

In accordance with the new guidance, you first need to analyze whether revenue should be recognized during the period (in essence, this is analogous to the revenue recognition model based on the percentage of completion in the terminology of the current guidance). There are three clear criteria for this. If none of these are met, revenue is recognized immediately when control is transferred.

FOR REFERENCE

Three criteria for recognizing revenue during a period:

• the client receives benefits as the activity is carried out, for example, from the provision of transportation, cleaning services;
• the activity creates or improves an asset controlled by the client, for example: in the case of the construction of a building or structure on the client’s land, the right to the unfinished building almost always remains with the client (unless under the terms of the contract, if the contract is not completed, this structure cannot be dismantled and the right to it does not pass to the contractor);
• an asset is created for which there is no alternative use (i.e., only the customer can use it) and the company has the right to receive payment for the work performed as of any time (and not just the right to recover the costs actually incurred).

Diagram 1 shows the algorithm for determining the moment of revenue recognition in accordance with the provisions of IFRS 15.

Figure 1. Separate guidance for recognizing revenue from licenses

The new standard has separate guidance for recording license revenues: franchises, software rights, films, patents, etc.

If the license is a separate performance obligation, then it must be determined whether the license gives the holder a right of use or a right of access.

The right to use is taken into account immediately. Access right - during the period. The license granting the right to access assumes that:

1. the object of the license - intellectual property - changes over time due to the actions of the company that grants the license;
2. the client is exposed to the risks associated with the consequences of the activities of the licensor company;
3. the activity of the company granting the license is not a separate product or service.

Example 6

Granting the right to use the logo of a sports team for a period is a right of access as the intellectual property changes as the sports team plays and gains popularity.

In contrast, the right to use an existing music library is more of a right to use.

Impact of IFRS 15 on an organization's business processes

The impact of the new standard on the organization's business processes is shown in Figure 2.

Scheme 2. The impact of the new standard on the organization's business processes

The impact of the standard in various industries depends on existing business models and will at least be expressed in the following:

• impact on disclosure;
• the need for staff training and education;
• the need to analyze all contracts or major types of contracts;
• assessment of the collection of revenue, the time value of money and other factors.

The expected impact of the standard on companies in various industries is presented in the table:

Impact of IFRS 15 on companies in various industries

Key Considerations When Applying IFRS 15

In preparing for the application of the new revenue standard, attention should be paid to the following aspects:

P.S. You can see the full post

In 2014, the IASB approved a new revenue standard, IFRS 15 Revenue from Contracts with Customers. This standard introduces the so-called “five-step” revenue recognition model. In other words, in order to recognize revenue, you need to do 5 certain actions. To understand how this works, let's look at a simple example of revenue accounting for the supply of serviced equipment. This example was created by examiner Dipifre Paul Robins and submitted to the exam in December 2015.

Five-step revenue recognition model in IFRS

Step 1. Identify the contract

A contract is an agreement between two or more parties that creates secured legal protection rights and obligations. In some cases, IFRS 15 requires an entity to combine contracts and account for them as one contract. The standard also defines accounting requirements for previously concluded contracts.

Step 2: Identify performance obligations.

The contract includes a promise to transfer goods or services. If goods and services are distinct(distinct), these promises are performance obligations (term) and should be accounted for separately.

Step 3. Determine the price of the transaction.

The transaction price is the amount of consideration under the contract that the company expects to receive for the transferred goods or services.

Step 4. Allocation of the transaction price to performance obligations.

isolated

Step 5. Revenue recognition

Revenue must be recognized either at a point in time or as the entity satisfies performance obligations.

Let's consider the application of this model on the example of revenue recognition for the supply of equipment with after-sales service. I made small additions to the condition in bold italics.

Example 1. Sale of equipment with after-sales service.

September 1, 2015 Kappa sold (and handed over) equipment buyer (machine) . Kappa has also agreed to service the equipment for a two-year period beginning September 1, 2015, at no additional charge. The total amount payable by the buyer for this transaction has been agreed to amount as shown below:

• $800,000 if buyer pays by December 31, 2015.
• $810,000 if buyer pays by January 31, 2016.
• $820,000 if buyer pays by February 28, 2016.

Kappa's management believes that it is highly likely that the buyer will make payment under the contract in January 2016. If the equipment were sold separately without service, then its price would be equal to 700 thousand dollars. For servicing the equipment for two years (without delivery), Kappa would have received a refund of $140,000. Alternative amounts receivable ($800,000, $810,000, $820,000) should be treated as variable consideration.

How should the revenue from this transaction be reported for the year ended September 30, 2015?

Step 1. Identify the contract

IFRS 15 sets out certain requirements for contracts that must be accounted for in accordance with the standard. This is done to filter out invalid or fictitious contracts that do not represent real transactions.

According to IFRS 15, paragraph 9, the contract is considered only if ALL conditions are met:

• 1) agreement was approved and each party undertakes to fulfill its obligations under the contract
• 2) defined parties' rights in relation to goods and services
• 3) defined terms of payment
• 4) the contract must have commercial content
• 5) receiving reimbursement likely(buyer is able and willing to pay a refund)

The requirement in clause 4 (clause 4) that the contract has a commercial content is necessary to prevent artificial overstatement of revenue. Without this requirement, it would be possible to transfer goods back and forth.

Essentially, all of the above criteria require the seller to assess whether the contract is valid and whether it represents a real deal. The assessment of the buyer's credit risk (point 5) is also related to the assessment of the validity of the contract, since the transaction is real only if the buyer able and has intention pay the promised reward (have the ability and intention to pay). Companies generally only enter into contracts where it is likely that they will receive a refund. And if not, then such an agreement will be a fictitious transaction.

The contract with the buyer must give rise to enforceable rights and obligations. The contract does not exist if each party has the right to terminate the contract unilaterally without fulfilling it and without paying compensation.

It can be assumed that in this problem, Kappa and the equipment buyer have entered into a contract that satisfies all the criteria listed in IAS 15: the contract has commercial substance, payment terms are in place, and Kappa is highly likely to receive a refund.

Step 2: Identify performance obligations.

The unit of account for revenue recognition is performance obligation(performance obligation). This term was implied in the old revenue standard, but exact definition did not have. I use the word obligation as a translation of the English word obligation, because it is this term that is contained in the Russian translation of IFRS 15. The word obligation can also be translated as an obligation.

Obligation to perform- This distinguishable(distinct) a good or service that the seller promises to deliver to the buyer.

In essence, the term "distinct goods" means that the product can be separated from other goods: the seller supplies it separately, and the buyer can use it (=benefit) separately from the seller's other goods. The same applies to services.

Much more is written in the standard about this (paragraphs 27-30 of the standard), but here, for simplicity of explanation, we will limit ourselves to this.

Goods and services that are not distinct are combined with other goods or services promised in the contract until a package of goods or services is obtained that is distinct. In some cases, this will result in an entity accounting for all of the goods or services promised in the contract as a single performance obligation.

In our example, Kappa has two performance obligations:

• provide equipment
• provide maintenance services.

This is a distinct product and service, since the buyer can benefit from the product or service separately, because the problem indicates the possibility of selling Kappa service without supplying equipment (there is a separate price).

In IFRS 15 - transfer of control, in IFRS 18 - transfer of risks and rewards of ownership

To satisfy a performance obligation means to transfer an asset (good or service) to a customer. Goods and services are assets at the moment they are received and used (in the case of services, the asset exists for a moment - it is consumed immediately). An asset is transferred when (or as) the acquirer obtains control of the asset.

Control over an asset is:

• 1) the ability to determine how the asset will be used
• 2) the ability to obtain substantially all of the remaining benefits from the asset.
• 3) the ability to prevent other parties from receiving benefits from the asset.

IMPORTANT: Under the new IFRS 15, revenue is recognized when control is transferred from the seller to the buyer. Under IAS 18, revenue was recognized when the risks and rewards of ownership of the goods are transferred.

Why the transfer of control and not the risks and rewards of the old revenue standard?

What does the Basis for Conclusions to IFRS 15 (Basis for Conclusions) BC.118 say about this:

1) IFRS 15 defines revenue as income arising in the ordinary course of an entity's activities. Income (see definition) arises from an increase in a contract asset or a decrease in a contract liability. And the current definition of an asset in the Conceptual Framework describes an asset as a resource, controlled company. Therefore, it is methodologically more correct to associate an increase in assets with the transfer of control.

The definition of income in the standard is as follows:

Income* is the increase in economic benefits during the reporting period in the form of inflows or improvements in the quality of assets or reductions in liabilities that result in an increase in equity that is not related to contributions from equity participants.

2) It is sometimes difficult to determine when risks and rewards pass if some of the risks and rewards remain with the seller (see item 3 of the list). In this case, the use of the transfer of control criterion for revenue recognition leads to more reasonable conclusions.

3) The risk-reward approach may conflict with the concept of performance obligations. If the goods require subsequent maintenance by the seller, then part of the risks associated with the goods remain with the seller. Based on the concept of the transfer of risks and rewards, a company may come to the conclusion that it has only one performance obligation: the sale of goods along with service. In this case, revenue will be recognized only after all risks have been eliminated. When applying the concept of change of control, the seller will be identified with two responsibilities: 1) delivery of goods and 2) provision of service for maintenance. These performance obligations will be satisfied at different times and revenue will be recognized accordingly.

Step 3. Determine the price of the transaction.

Operation price is the amount of consideration in exchange for transferring the promised goods or services to the customer.

In the simplest case, the amount of compensation is fixed and directly specified in the contract, and this step is not difficult to complete. But, of course, in real life, things can be much more complicated. IFRS 15 details the following complication options:

• a) variable compensation;
• b) the presence of a significant financing component in the contract
• c) non-monetary compensation;
• d) compensation payable to the buyer

In our case we have variable compensation: The payment amount will be $800,000, $810,000, or $820,000 depending on the payment term.

Generally speaking, refunds may vary due to discounts, refunds, credits, price concessions, incentives, performance bonuses, penalties or other similar items. The promised reimbursement may also vary if the company's right to reimbursement depends on the occurrence or non-occurrence of a future event. For example, the amount of the refund would be variable if the product was sold with a return right, or if a fixed amount was promised as a performance bonus if a certain milestone was completed ahead of schedule.

Variable consideration should be estimated using one of two methods:

• Expected value method(The expected value) – expected return, weighted by the probability of possible values ​​from the range.
• Most probable value method(The most likely amount) — the single most likely value of the expected reimbursement from the range of its possible values

To estimate variable consideration, an entity should use the method that gives the best estimate of the amount to which the entity will be entitled.

Important note

The variable part of the refund is included in the price of the transaction only in the amount that will not need to be reversed later (highly probable that a significant reversal of revenue will not occur) . That is, if the selling company is certain of the amount to be reimbursed, that amount can be recognized as revenue. The rest of the variable consideration will only be recognized after the uncertainty has been resolved.

Information from the condition of the problem allows using only the second method - the method of the most probable value. Insofar as:

"Kappa's management believes that it is highly likely that the buyer will make payment under the contract in January 2016,"

then, in that case, the estimated reimbursement is $810,000. It is this amount that was agreed with the buyer under the terms of the task when paying in January 2016.

Step 4. Allocation of the transaction price to performance obligations.

The distribution is based on isolated(stand alone) prices for goods or services. If there is a discount, it can be distributed either to all obligations proportionally, or only to some of the obligations.

Since Kappa has two performance obligations, it is necessary to determine how much of the $810,000 is in each of them. To do this, you need to make a proportion:

• 810 x 700/840 \u003d 675 - equipment revenue
• 810 x 140/840 \u003d 135 - total revenue from services

Step 5. Revenue recognition

Revenue must be recognized either over time or at a point in time. The IFRS 15 standard defines the criteria for recognizing revenue over time. If none of the criteria is met, then revenue is recognized at a point in time (ie immediately).

The entity transfers control of the good or service and recognizes revenue over the period if the ANY (ONE) from the following criteria:

• buyer simultaneously receives andconsumesbenefits as the seller fulfills the performance obligation (an asset is a service);
• the seller creates or improves an asset (for example, work in progress), over which the buyer gains control as the asset is created or improved(tangible asset);
• fulfillment by the seller of a performance obligation a) does not result in the creation of an asset that it can use for alternative purposes (resell to another buyer), and wherein b) the seller is entitled to receive payment for the part of the contract work completed to date.

This topic is discussed in more detail in the article about construction contracts ().

In our example, service revenue should be recognized over time because the first of these criteria is met. And the sale of equipment should be recognized immediately at the time control is transferred to the buyer.

Kappa recognizes all proceeds from the sale of the equipment on September 1, 2015, as control of the equipment was transferred on that date (the machine was delivered to the buyer's plant). The maintenance service is performed over two years, at the reporting date 1/24 of this amount should be recognized.

Therefore, Kappa will make entries in accounting:

At the time of transfer of control over the equipment:

• Dr Accounts receivable Cr Revenue (goods) — 675,000
• Dr Accounts receivable Cr Contractual obligation (service) — 135,000

Dr Contractual obligation Cr Revenue - 5,625 (135,000/24 ​​months = 5,625)

Extracts from the financial statements of Kappa

Accounts receivable - 810,000
Contractual obligation - 129.375 = 135.000 - 5.625

Revenue from the sale of equipment - 675,000
Service revenue — 5,625

This article is of an overview nature, IFRS 15 describes many aspects of revenue accounting in much more detail. The articles on this site are intended to generate interest in an in-depth study of IFRS, but certainly cannot replace a detailed self-analysis of the provisions of the standards. If you are building a career in international accounting standards, then, by and large, for this you need to read the original texts of IFRS in English.

With the introduction of IFRS 15, the accounting for long-term contracts has changed. The biggest change is in the definition of which contracts revenue should be recognized as work progresses. This was discussed in detail in a previous article. This article will discuss how to calculate the revenue from such contracts in accordance with the new standard (two examples). In this case, according to IFRS 15, revenue for the reporting period should be recognized at an amount that reflects progress in satisfying the performance obligation. To measure this progress, or are used.

At first there will be some boring theory, but it is necessary. Those who want to immediately delve into the practice can follow the link to at the end of the article.

Fundamentals of IFRS 15 Revenue from Contracts with Customers

The new IFRS 15 introduces the concept of a performance obligation. The word "obligation" can be translated both as "obligation" and as "obligation". In the official translation into Russian, the term "performance obligation" is used. I will use both translations.

Obligation to perform is a distinct good or service (or set of goods and services) that the seller promises to deliver to the buyer.

A performance obligation is the unit of account for revenue recognition. This term was implied in the old revenue standard, but there was no precise definition.

The term "distinct goods" means that the goods can be separated from other goods: the seller supplies it separately, and the buyer can use it (=benefit) separately from the seller's other goods. The same applies to services.

The selling company recognizes revenue if and when it satisfies the performance obligation. This may happen or at a certain point in time, or as the company performs the work under the contract. In the second case, the seller recognizes revenue gradually over time, using an appropriate method to measure the extent to which the obligation under the contract has been satisfied. This will be discussed in this article.

Recognition of revenue over time (in different reporting periods) does not depend on the long-term contract, as it was before, when IFRS 11 was in force. Certain . If they are not met, then all contract revenue is recognized at a point in time after the obligation under the contract is fully satisfied.

If the criteria are met, then revenue is recognized based on the progress towards complete satisfaction of that performance obligation. That is, the revenue for the reporting period is multiplied by the percentage of fulfillment of obligations under the contract. The question is how to calculate this percentage.

Methods for measuring progress in the implementation of the contract (methods for measuring progress)

IFRS 15 offers two methods for determining progress in meeting a contractual obligation:

• output method
• resource method

It is these terms that are used when translating the standard into Russian. More understandable names are "work performed method" and "cost incurred method". Both names will be used later in this article.

Results method recognizes revenue based on direct measurement of the results of work performed to the reporting date. Possible ways are listed in the standard in clause B15:

To be honest, I do not understand what the practical difference is between the words reviews (surveys) and evaluations (appraisals). Interestingly, in the old IFRS 11 “Contracts”, paragraph 30 (b), the name of the method “surveys of work performed” was translated into Russian as “expert evaluation of work performed”.

The developers of the standard draw attention to the fact that the method chosen should reflect as best as possible the extent to which the contracting company has fulfilled its obligations under the contract. If some results are not included in the calculation, then the amount of revenue will be underestimated. For example, the method based on the count of units produced or delivered does not take into account work in progress. Where work in progress is significant, these methods will distort the results of work performed and underestimate revenue because the calculation will not take into account revenue from work in progress that is controlled by the customer.

In some cases, for simplicity, the contractor may recognize revenue in the amount for which he received the right to invoice (has a right to invoice). This is possible if there is a direct correlation between the cost of results for the buyer and the amount of compensation to which the seller is entitled. For example, if in a contract for the provision of services, the seller issues an invoice for each hour of his work.

In the original draft version, only this method was spelled out. Which is not surprising, since there is a direct logical relationship between performance and revenue due. The main disadvantage of this method is the complexity and cost of obtaining information. Therefore, after the initial discussion of the draft version of the standard, a second method was added, which was widely used earlier when IFRS 11 was in force. This is the cost method or the resource method.

Resource method provides for the recognition of revenue based on the efforts made by the seller to fulfill an obligation under the contract, or the resources consumed for this. That is, we take the costs incurred and look at what percentage they are of the total expected costs under the contract. It remains to determine in what units to measure the costs incurred: in hours, in money, in the amount of materials or other resources. In the standard, the options are listed in clause B18:

Here, too, something is not clear. How is "elapsed time" in a resource method different from "elapsed time" in a result method? In the cost method, the time spent on work by personnel or equipment is allocated separately. What then is meant by the expression "elapsed time"?

"Elapsed time" in the results method is also not a very clear term. Since leases are not within the scope of IFRS 15, the timing of the rental or lease of an asset does not apply here. I think that's the way to measure results for service contracts, where obligations are measured in terms of time. Let's say 100 hours advisory services or an annual subscription to a fitness club or sports competitions.

The resource method is less expensive to use, since it is much easier to estimate the amount of resources spent than the amount of results obtained. This is his advantage. The disadvantage is that there may not be a direct relationship between costs and results. Indeed, costs and revenues are not always directly correlated with each other. This is especially obvious if there are inefficient costs, defects in work, losses. In this case, costs will be incurred, but they will not lead to the fulfillment of the obligation under the contract.

To recognize revenue, it is necessary to estimate the volume of assets (goods and services) control over which was transferred to the client during the reporting period. And if there is no direct relationship, then the use of the method of incurred costs can lead to a distortion of the amount of revenue under the contract for the reporting period.

Therefore, when applying the resource method (cost method), the contracting company must exclude the impact on the revenue estimate of those consumed resources that did not affect the results of operations. Therefore, if a company chooses the cost method, then it must adjust the calculation of the % from which revenue will be calculated:

• 1) in case of loss of materials, labor and other resources (inefficiency, marriage)
• 2) if the costs are not proportional to the results

In these cases, such costs are simply not taken into account in the calculations. But in the second case, if certain conditions are met, revenue can be recognized in the amount of costs incurred (see example 1 below). These conditions are listed in paragraph B19(b):

If at the time of conclusion of the contract all the following conditions are expected to be met:

• (i) the product is not distinct*;
• (ii) the buyer is expected to gain control of the goods well in advance of receiving services related to the goods;
• (iii) the actual cost of the transferred goods is significant compared to the total expected cost of satisfying the full performance obligation; and
• (iv) the company purchases the good from a third party and is not significantly involved in the design and manufacture of the good (but it acts as a principal, not an agent, i.e. it controls the promised good or service before it is handed over to the buyer).

*the term "distinct" means that the product can be separated from other products: the seller supplies it separately, and the buyer can use it (=benefit) separately from the seller's other products.

Important note. The basis for the conclusions to the standard states that the presence of two methods does not mean at all that the company has “free choice”. The contracting company should select the measurement method that best represents the performance of the company in fulfilling its contractual obligations. To do this, the company must analyze the nature of its activities, what is the created asset or the service provided, and make the most appropriate choice of method based on this analysis. (BC 159). For those who know English language I will quote this paragraph in English:

BC 159 Accordingly, an entity should use judgment when selecting an appropriate method of measuring progress towards complete satisfaction of a performance obligation. That does not mean that an entity has a ‘free choice’. The requirements state that an entity should select a method of measuring progress that is consistent with the clearly stated objective of depicting the entity's performance-that is, the satisfaction of an entity's performance obligation-in transferring control of goods or services to the customer.

An entity must apply the chosen method for a particular performance obligation consistently throughout the contract. The same method should be applied to all contracts with similar performance obligations.

Examples of revenue recognition over time

The first example is taken from the IFRS 15 illustrative examples, the second is from the P2 exam of the ACCA core course.

Example 1. Illustrative example of IFRS 15.

In November 2012, Omega entered into a contract with a client to refurbish and refurbish a three-storey building, including the installation of new elevators. Omega purchases elevators from an elevator equipment manufacturer and installs them as they are (without modification) in the client's building. The price of the contract is 5 million dollars. The expected cost of the work is 4 million, of which 1.5 million is the cost of elevators.

Contract price - 5,000,000 (expected revenue under the contract)

Elevators - 1,500,000
Other expenses - 2,500,000
Total expected contract costs — 4,000,000

As at 31 December 2012, Omega incurred costs of 500,000 excluding the cost of elevators. The elevators were delivered to the building in early December 2012 but are not expected to be installed until June 2013 at the earliest. Omega uses the resource method (the ratio of costs incurred to total contract costs) to estimate outputs for similar projects.

Decision

1) Omega has one obligation to fulfill - house refurbishment

2) This performance obligation is satisfied over time, as

• a) the buyer simultaneously receives and consumes the benefits of the promised asset (work is carried out at the buyer's site)
• b) the asset created by Omega has no alternative use for it (cannot be sold to another buyer) and Omega is entitled to payment according to the contract.

3) Omega acts as a principal in respect of the elevators as it gains control of them before handing them over to the buyer.

4) Control of the elevators has passed to the buyer since they were delivered to the site in December 2012. The cost of elevators is significant in relation to all project costs. However, Omega is not involved in the production of elevators, so the cost of acquiring elevators (1.5 million) does not reflect the extent to which Omega is meeting its performance obligation. Thus, 1.5 million should be excluded from the calculation of the percentage of fulfillment of the obligation under the contract.

5) Omega recognizes revenue from the transfer of elevators in an amount equal to their purchase price (with zero profit).

6) Calculations
The degree of fulfillment of the obligation under the contract: 500,000 / 2,500,000 = 20%
Revenue (without elevators): 20% x (5,000,000 – 1,500,000) = 700,000
Revenue from the transfer of elevators: 1,500,000

OSD for the year ended 12/31/12

Revenue: 1,500,000 + 700,000 = 2,200,000
Cost: 1,500,000 + 500,000 = 2,000,000
Project profit: 200,000

This example illustrates the accounting treatment for material resources that were not installed in the course of work (uninstalled materials). If the client obtains control of the asset (goods) before it is installed/installed by the contractor, then it would be inappropriate to recognize such goods as inventories on the contractor's balance sheet. Instead, the contracting company should recognize revenue for the transferred goods in accordance with the basic principle of IFRS 15. But recognizing all profits on these goods before they are installed may overstate revenue. And recognizing profit (margin) on these products that differs from profitability (margin) on the contract as a whole can be a difficult exercise.

Therefore, the drafters of the standard decided that in certain circumstances, a company should recognize revenue for the transfer of goods, but only in the amount of costs incurred. In this case, the value of these costs should be excluded from the calculations by the resource method.

The second task was in the P2 exam "Corporate Reporting" of the main ACCA program. As a rule, the tasks in this exam test knowledge of several provisions of international standards at once. In this case, the examiner on the P2 paper tested knowledge of IFRS 15 regarding revenue recognition over time, variable consideration, and contract modifications. At the Dipifre exam through December 2016 this topic(revenue over time) has not yet been tested.

On December 1, 2014, Delta entered into an agreement for the construction of printing equipment at the client's site. The contract value is $1,500,000 plus a bonus of $100,000 if the equipment is built within 24 months. At contract inception, Delta correctly chose to account for equipment fabrication as its sole performance obligation under IFRS 15. The contract costs are expected to be $800,000. Since the manufacture of printing equipment is sensitive to external factors(due to the supply of many components by third parties), there is a strong possibility that the equipment will not be manufactured in 24 months and Delta will not be eligible for the bonus.

As of November 30, 2015, Delta incurred costs of $520,000 to complete the contract. As of this date, Delta's management still believes that it is unlikely that the conditions for the bonus will be met. However, on December 4, 2015, the contract was changed. As a result, the fixed fee and expected contract costs increased by $110,000 and $60,000, respectively. The time required to claim the bonus has also been increased by 6 months. As a result of this, Delta management now believes that the conditions for the bonus are likely to be met. The contract still has a single performance obligation.

How should this contract be reflected in Delta's financial statements as of November 30, 2015 and December 4, 2015?

Decision.

The condition expressly states that the only performance obligation is the manufacture of the printing equipment.

The $100,000 bonus is not included in the remuneration under the contract because at the time of its inception it is not certain that this bonus will not have to be reversed in the future.

• Estimated Revenue: $1,500,000
• Estimated Costs: $800,000

The percentage of fulfillment of the obligation under the contract can be calculated using the cost incurred method:

520,000/800,000 = 65%

• Revenue - $975,000 (1,500,000 x 65%)
• Costs - $520,000 (all costs incurred)

Since the contract was amended on December 4, 2015, the contract fee and expected costs have increased. In addition, the allowable time for receiving the bonus was extended by six months, causing Delta's management to conclude that the inclusion of the bonus in the price of the contract would not result in a future reversal of that amount. Therefore, a premium of $100,000 can be included in the transaction price.

Delta's management also concluded that the manufacture of printing equipment remains the only performance obligation. Therefore, the modification of the contract in accordance with IAS 15 must be accounted for as part of the original contract. There is a separate article about it.

After modification of the contract:

• The expected revenue under the contract is 1,710,000 (1,500,000 + 110,000 + 100,000 bonus)
• Estimated contract costs are 860,000 (800,000 + 60,000)

Since the contract change occurred after the balance sheet date, this will not affect the accounts as of November 30, 2015 (non-adjusting event).

But on December 4, 2015, additional revenue of $59,550 must be recorded.

• new commitment percentage: 520,000/860,000 = 60.5%
• contract revenue as of December 4, 2015: 1,710,000 x 60.5% = 1,034,550
• adjustment net of previously recognized revenue: 1,034,500 – 975,000 = 59,550

Difference between IFRS 15 and IFRS 11

The old IFRS IAS 11 Work Contracts required that long-term contracts be accounted for by percentage of completion: for income statement, the total expected contract revenue and expenses were multiplied by the percentage of completion of the contract at the reporting date. The balance sheet reflected the amounts for settlements with customers, calculated according to the formula prescribed in the standard.

IFRS 11 offered such ways of assessing the degree of completion of work under the contract

• (a) a comparison of the contract costs incurred to complete the work to date against the total contract costs;
• (b) expert evaluation of the work performed; or
• (c) calculation of the proportion of work performed under the contract in kind.

Mathematically, the new IFRS 15 uses the same methods as before. But the calculated percentage is applied only in revenue, and the cost is recognized in the amount of costs incurred. The difference in numbers will appear when using the results approach, since the costs incurred may not be directly correlated with progress in fulfilling a contractual obligation.

In general, the approaches to accounting for long-term contracts in the old IFRS 11 and in the new IFRS 15 differ markedly. Therefore, those who have been studying international standards for a long time and know IFRS 11 should carefully read the provisions of the new revenue standard, and not rely on old knowledge.

Polina Sungurova Deputy Director of the International Reporting Department at FBK
Journal "Actual Accounting"

The start date for mandatory application in Russia of IFRS 15 Revenue from Contracts with Customers (hereinafter IFRS 15) has yet to be agreed upon. The fact is that the International Accounting Standards Board (IASB) recently issued clarifications, according to which the start date for its general application was postponed from January 1, 2017 to January 1, 2018. At the same time, no clarifications have yet been made in Russian legislation (Order of the Ministry of Finance of Russia dated January 21, 2015 No. 9n).

However, this standard can also be applied ahead of schedule - from the moment of its official publication by the IASB in May 2014.

In favor of early application is the fact that the new standard has formed uniform approaches to accounting for revenue for different types of contracts and it replaces IAS 11 "Construction Contracts" (hereinafter - IAS 11) and IAS 18 "Revenue" (hereinafter - IAS (IAS) 18).

IFRS 15 offers a more structured approach to accounting for revenue, providing universal criteria for different contracts, avoiding all the understatement and unnecessary general provisions previous standards. If earlier there were different accounting models depending on what exactly was the subject of the contract - the sale of goods, the provision of services or construction, now all this is connected into a single mechanism with more detailed accounting details.

Features of the application of IFRS 15

The new standard proposes several basic steps to be followed in order to recognize revenue for a specific contract. Let's consider them.

Step 1. First you need to understand whether all the criteria for recognition of the contract are met:

• the contract must be approved in any form by all parties;
• the contract must define the rights of the parties in relation to the transferred goods, works, services and the terms of their payment;
• payment must be probable.

At this stage, differences between the old and new standards, which may affect accounting, most often do not arise. However, because IFRS 15 requires the buyer's ability and intent to pay the consideration when due, an entity needs to consider criteria such as the buyer's solvency and interest in the work.

Step 2 Next, determine the obligations under the contract, that is, what exactly the company sells. As a rule, it is a product, work or service that is distinguishable from others. It is the sale of a distinct item that will be the unit of revenue accounting.

Distinguishable goods, works or services (products) are determined in the contract only if two conditions are met simultaneously:

• the buyer can independently use these products separately from other products under the contract;
• these products can be separately identified.

For most operations, revenue accounting under the old and new standards will not differ in the composition of the products sold. However, in cases where the contracts provide for the sale of combined products (for example, the provision of services with the simultaneous provision of equipment for their use; the provision of a discount on one product in the event of the purchase of another product; the sale of a license agreement for a product with the simultaneous provision of services to promote it; the sale of equipment with additional services for its post-warranty service), there will be differences that can significantly change the reporting figures.

Step 3 Upon completion of the process of identifying obligations under the contract, the total price of the contract is determined, that is, the proceeds from its conclusion are estimated. At this stage, the company must take into account the following nuances:

• variable component of the contract value;
• significant funding component;
• non-monetary compensation.

Let's deal with each item in more detail.

Variable component of the contract value (discounts, credits, product returns, bonuses). IAS 18 only offered to determine whether future economic benefits from the transaction are highly probable and whether all the risks and rewards of ownership of the product have been transferred to the customer, and if these criteria were not met, then revenue should not be recognized.

IFRS 15 uses the concept of "transfer of control" instead of "transfer of risks and rewards" and sets out in detail the criteria for assessing the likelihood of occurrence of those events that determine the possibility of revenue recognition. Revenue can now be recognized if, based on experience, statistics, the company can determine the minimum amount that will be received with a high degree of probability.

It turns out that in some cases revenue recognition can be carried out at an earlier stage than suggested by IAS 18.

Significant funding component. IAS 18 dealt with the provision of so-called commodity credit only by the seller.

The opposite situation, when the buyer finances the seller, was not considered, since according to IAS (IAS) 18, revenue must be measured at the fair value of the consideration received. It turns out that the situation with financing from the buyer - in fact, a mirror image - is reflected in accounting in a completely different way.

IFRS 15 has significantly changed the treatment of the financing component. The amount of revenue reflects the price the buyer would pay in cash at the time of transfer of the promised goods or services. A new term has appeared - the "cash" selling price.

Let's look at an example.

Example

According to IAS (IAS) 18. If the company sold the goods for 1,210,000 rubles. with payment in two years, it was necessary to discount the amount of revenue (assume a discount rate of 10%) for a period of two years.

The company could report revenue in the amount of:

RUB 1,210,000 : (1 + 10%) x 2 years = RUB 1,000,000, and then recognize within two years interest income in the amount of 210,000 rubles. (for the entire period).

If the buyer paid an advance in the amount of 1,000,000 rubles, and the goods were delivered to him only after two years, the seller first recognized the advance payment payable in full (1,000,000 rubles), and then, after two years - revenue in the same size.

Under IFRS 15. The situation with the provision of trade credit to the buyer under IFRS 15 will be treated similarly.

In the case of advance delivery, if the buyer paid an advance two years before the receipt of the goods, then first a contractual obligation (advance payable) in the amount of 1,000,000 rubles should be recognized, and then, within two years, interest expenses will be recognized, increasing this contractual obligation to 1,210,000 rubles. After two years, revenue will be recognized to the extent of the resulting liability. The result will be the recognition of revenue in the amount of 1,210,000 rubles. and interest expenses in the amount of 210,000 rubles.

Note that the difference between the amount under the contract and the cash price of the sale may not be the result of financing, but be caused by other factors, for example, the reflection of the risks of non-fulfillment of obligations under the contract for one of the parties. In such a situation, the effect of financing should not be reflected.

In case of non-monetary compensation, the requirements of the old and new standards do not differ in essence. If payment for the good or service under the contract is not in the form of cash consideration, then revenue should be recognized at the fair value of the assets received.

Step 4 IFRS 15 introduced a new stage - the allocation of price per unit of revenue accounting. As we discussed above, one contract may provide for the supply of goods and services that are distinct from each other. The timing of revenue recognition for these distinct components may vary. Among other things, the new standard determines how the general discounts under the contract for each component separately should be distributed.

IAS 18 does not prescribe the distribution of the discount. The only provision of the standard that can be relied upon in the distribution is that revenue should be measured at the fair value of the consideration received. Thus, in each individual case, it is necessary to analyze the sale transaction and prescribe the details in the accounting policy.

IFRS 15 is clear that the selling price must be allocated to each performance obligation, that is, to each distinct product in proportion to the stand-alone selling price. The stand-alone selling price is the price at which a company would sell a promised good or service to a customer separately. Its best evidence is the observable price of a distinct good or service, including list prices.

Example

Consider sales accounting mobile operator package "service + product" (mobile communication for a year and a smartphone). The total cost of the package is 5000 rubles. The cost of a smartphone in the case of its separate purchase is 2990 rubles, and the monthly cost of the service package after the first year is 400 rubles. per month. Thus, when buying a package, the discount is:

2990 rub. + 400 rub. x 12 months - 5000 rub. = 2790 rubles.

It is necessary to distribute a discount in the amount of 2790 rubles. for both components.

The individual price of a smartphone is:

2990 rub. : (2990 rubles + 400 rubles x 12 months) x 100% = 38% of the total cost.

The separate cost of mobile communication service for one year is:

(400 rubles x 12 months) : 7790 rubles x 100% = 62% of the total cost.

Therefore, the company must recognize the revenue from the sale of the smartphone at a time in the amount of:

5000 rub. x 38% = 1900 rub.

and monthly revenue from the sale of mobile services in the amount of:

(5000 - 1900) : 12 months = 258.33 rubles.

Another fairly common situation is when companies provide services, while providing free equipment to the buyer for using these services, for example, a modem when providing services to provide an Internet connection. For IAS 18, the sale of such a component is imperceptible, the proceeds from its sale are nil, only the revenue from the Internet connection service will be recognized. Under IFRS 15, revenue will be distributed pro rata to the standalone selling price.

Step 5 It is necessary to determine the moment of recognition of revenue. At the final stage, the company decides the question: will revenue be recognized immediately or over a certain period of time?

IAS 18 requires revenue to be recognized when or as the firm satisfies its performance obligation by transferring the promised good or service to the customer. The asset is transferred at the time or as the acquirer obtains control of it. However, in some cases, revenue must be recognized over a period of time using either the output method or the input method, depending on the nature of the good or service being sold. Such cases occur when:

• the buyer simultaneously receives and consumes the benefits associated with the fulfillment by the seller of the obligation as it is fulfilled, that is, it provides periodic recurring services;
• in the course of fulfilling the seller's obligation, an asset is created or improved, control over which the buyer obtains as the asset is created or improved, such as constructing a building;
• at created product there is no alternative use, and the seller's right to receive payment for the work performed is protected, for example, he creates unique software for the needs of the client.

In all other cases, revenue is recognized immediately.

IFRS 15 clarifies the possibility and features of revenue recognition for different situations(right of return, warranties, options, repurchase agreements, and others). For example, to account for the transfer of products with a right of return, the selling company must recognize:

• revenue from the transferred product to the extent of the consideration to which it expects to be entitled (so no revenue will be recognized for products that are expected to be returned);
• obligation to refund;
• an asset (and a corresponding adjustment to cost of sales) in relation to the right to receive products from customers upon satisfaction of the refund obligation.

Example

Under IAS 18, if an entity wholesale trade sells goods to a retail store, and after the purchase of goods, the store had the opportunity to return unsold goods within a month, in the reporting of the wholesale company, revenue was recognized only at the moment when it became impossible to return goods from the store.

Similarly, when apartments were sold by an investor at an early stage of construction, revenue was recognized in the financial statements only when the buyer signed the act of transferring the apartment, and this happened only after the house was fully built and accepted by the state commission.

Under IFRS 15, a wholesaler may recognize revenue based on returns statistics from a retail store. Revenue for items that are highly unlikely to be returned may be recognized as soon as they are handed over to the retail store for sale. And for those goods for which a possible return is expected, to recognize the obligation. For example, if a company sells goods for only 120 rubles, of which it is sure that goods worth 100 rubles will not be returned, then revenue for 100 rubles should be recognized in the reporting. and an obligation to return 20 rubles.

The investor in many cases can reflect the sale of apartments to an individual at the moment when he, having analyzed the experience and statistics of sales and acceptance of similar objects by the state commission, has the right to assert that with a very high degree of probability the act of transferring the apartment in the future will be signed by the buyer.

The new standard also provides much more guidance on how to account for areas such as contract costs (including, for example, costs to obtain a contract), warranties and licenses. However, companies will have to provide information in disclosures in more detail.

In conclusion, revenue accounting by applying IFRS 15 instead of IAS 11 and IAS 18 will change significantly for many entities. Companies that are involved in the licensing and sale of software, telecommunications, construction, the defense industry, and asset management turned out to be at risk. They will have to form new estimates and professional judgments, and possibly rebuild accounting processes, as the moment and, in general, the possibility of recognizing revenue and its valuation will change.