IFRS 15 - Revenue Recognition

Question 1

Revenue Recognition (IFRS)

Answer 1

In a transaction involving the sale of goods or provision of services, the amount of revenue to recognize and how it is measured is determined by applying the following five steps:
* identify the contract with the customer
* identify separate performance obligations in the contract
* determine the overall transaction price
* allocate the transaction price to the separate performance obligations in the contract
* determine when the performance obligation(s) is satisfied, as revenue is recognized when (or as) the entity satisfies the performance obligation
o revenue is recognized as control is passed, either over time or at a point in time

Reference: IFRS 15

Question 2

Revenue Recognition – Identification of the performance obligations (IFRS)

Answer 2

Performance obligations are identified as each promise to transfer to the customer either:
* a good or service (or bundle of goods or services) that is distinct; or
* a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer
A good or service that is promised to a customer is distinct if:
* the customer can benefit from the good or service on its own or together with other resources readily available to the customer; and
* the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract
Two or more promises are not separately identifiable if the nature of the promise, within the context of the contract, is to transfer a combined item in which the promised goods or services are inputs.

If a promised good or service is not distinct, it is combined with other promised goods or services until the entity identifies a bundle of goods or services that is distinct.

Reference: IFRS 15.22-.30

Question 3

Warranties (IFRS)

Answer 3

• Two types of warranties:
  o those that provide a customer with assurance that the related product will function as the parties intended because it complies with agreed-upon specifications
  o those that provide the customer with a service in addition to the assurance that the product complies with agreed-upon specifications
• Warranty shall be accounted for in accordance with IAS 37 (Provisions, Contingent Liabilities and Contingent Assets) if:
  o The customer does not have the option to purchase a warranty separately, and
  o The warranty does not provide the customer with a service in addition to the assurance that the product complies with agreed-upon specifications.

Reference: IFRS 15.B28 – B31