The IFRS 15 (the International Financial
Reporting Standards) is a principle where an entity applies in the action of
reporting information about amount, timing, nature, and uncertainty of revenue
and cash flow form a contract with a customer. It was made widely known by the
International Accounting Standards Boards (IASB) to provide guidance on
accounting for revenue from contracts with customers. By applying this, the
entity will recognize the revenue to depict the transfer of promised goods or
services to the customers with the amount that will be reflecting the
consideration of which entity expects to be entitled in exchange for the good
services. The IFRS 15 was adopted in 2014 but only has been effective for
annual reporting periods from beginning on or after 1 January 2018 with earlier
application permitted.
How to recognize revenue under the IFRS 15?
Recognizing revenue under the IFRS 15 will
need to apply entity in the following 5 steps:
- You need to identify the contract or
contracts with a customer - You need to identify the performance
obligation in the contract - You need to determine the transaction price
- You need to allocate the transaction price
to each performance - You need to recognize the revenue when a
performance obligation is satisfied by transferring a promised good or service
to a customer
After identifying the contract or contracts
with a customer you need to identify the performance obligations in the
contract. This is a promise in a contract for transferring to a distinct
customer goods and services. Then when you determine the transaction price. It
is the amount of consideration what to expect of the entity to be entitled in
exchange of transferring promised goods or services to customers. If it is a
variable amount in a contract, an entity must estimate the amount of
consideration to which it expects to be entitled in exchange for transferring
the promised goods or services to a customer. Then you must allocate the
transaction price to each performance obligation. This is based on the relative
stand-alone selling prices of each distinct good or service promised in the
contract. Then you must recognise revenue when a performance obligation is
satisfied by transferring a promised good or service to a customer. A
performance obligation may be satisfied at a point in time over time. For a
performance obligation satisfied over time, an entity would select an
appropriate measure of progress to determine how much revenue should be
recognised as the performance obligation is satisfied
How should I start an IFRS 15?
A contract with customers will fall into the
IFRS 15 when these criteria are met:
- All the parties of the contract have
approved the contract - All the party’s rights in relations to the
goods or services that will be transferred has to be able to be identified - Commercial substance exists in the contract
- The collection of an amount of
consideration to which the entity is entitled to in exchange for the goods or
services is probable
If all of these criteria are met, only then
a contract is accepted into the IFRS 15. If you have any further questions, go
to www.annualreporting.info
