Revenue – IFRS 15 handbook - KPMG
Revenue
IFRS?15 handbook
June 2019 home.kpmg/ifrs
Contents
Facing new challenges
1
Overview
2
1 Step 1 ? Identify the contract with a customer 3
1.1 Criteria to determine whether a contract
exists
3
1.2 Contract term
14
1.3 Consideration received before a contract
exists
17
1.4 Combination of contracts
19
2 Step 2 ? Identify the performance obligations
in the contract
23
2.1 Distinct goods or services
24
2.2 Implied promises and administrative tasks 35
2.3 Series of distinct goods or services
39
3 Step 3 ? Determine the transaction price
46
3.1 Variable consideration (and the constraint) 47
3.2 Significant financing component
63
3.3 Non-cash consideration
78
3.4 Consideration payable to a customer
81
3.5 Sales taxes
88
4 Step 4 ? Allocate the transaction price to the
performance obligations in the contract
90
4.1 Determine stand-alone selling prices
91
4.2 Allocate the transaction price
98
4.3 Changes in the transaction price
111
5 Step 5 ? Recognise revenue when or as the
entity satisfies a performance obligation
113
5.1 Transfer of control
114
5.2 Performance obligations satisfied over time 115
5.3 Measuring progress towards complete
satisfaction of a performance obligation
131
5.4 Performance obligations satisfied at a point
in time
148
5.5 Repurchase agreements
151
5.6 Consignment arrangements
156
5.7 Bill-and-hold arrangements
159
5.8 Customer acceptance
161
6 Scope
162
6.1 In scope
162
6.2 Out of scope
163
6.3 Partially in scope
165
6.4 Portfolio approach
171
7 Contract costs
173
7.1 Costs of obtaining a contract
173
7.2 Costs of fulfilling a contract
179
7.3 Amortisation
187
7.4 Impairment
192
8 Contract modifications
194
8.1 Identifying a contract modification
194
8.2 Accounting for a contract modification
198
9 Licensing
206
9.1 Licences of intellectual property
207
9.2 Determining whether a licence is distinct 209
9.3 Determining the nature of a distinct licence 214
9.4 Timing and pattern of revenue recognition 220
9.5 Contractual restrictions and attributes of
licences
223
9.6 Sales- or usage-based royalties
225
10 Other application issues
234
10.1 Sale with a right of return
234
10.2 Warranties
239
10.3 Principal vs agent considerations
244
10.4 Customer options for additional goods
or services
263
10.5 Customers' unexercised rights (breakage) 285
10.6 Non-refundable up-front fees
289
10.7 Sales outside ordinary activities
295
11 Presentation
299
11.1 Statement of financial position
299
11.2 Statements of profit or loss and cash flows 312
12 Disclosure
316
12.1 Annual disclosure
316
12.2 Interim disclosures
325
13 Effective date and transition
326
13.1 Transition
326
13.2 Retrospective method
328
13.3 Cumulative effect method
337
13.4 Consequential amendments to other IFRS
requirements
341
13.5 First-time adoption
342
Guidance referenced
344
Detailed contents
345
Index of examples
348
Index of KPMG insights
355
About this publication
363
Keeping in touch
364
Acknowledgments
366
Facing new chalenges
Reporting revenue under IFRS 15 is now one of the ordinary activities of companies in the 100+ countries that use IFRS Standards. So this feels like the right time to take stock ? to pull together, in one place, what we have learned about this new world of revenue recognition. Over the past five years, we ? like you ? have wrestled with the many challenges of implementing IFRS 15. In doing so, we have gained extensive insight and handson experience across different industries and geographies. And we are delighted to share our experience with you in our IFRS 15 handbook: Revenue. It provides detailed guidance, illustrative examples and extensive discussion of the areas that companies have found most complex. Looking forward, as your business grows and evolves ? whether by developing new products and services, embedding technological innovations or buying new businesses ? we hope this handbook will be your go-to resource as you apply IFRS 15 to new facts and circumstances.
Prabhakar Kalavacherla (PK) Brian O'Donovan Anne Schurbohm Kim Heng KPMG Global Revenue Recognition Leadership Team
? 2019 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
2 | Revenue ? IFRS 15 handbook
Overview
This handbook provides a detailed analysis of the revenue standard, IFRS 15 Revenue from Contracts with Customers, including insights and examples to help entities to navigate the revenue recognition requirements. In many cases, further analysis and interpretation may be needed for an entity to apply the requirements to its own facts, circumstances and individual transactions. Furthermore, some of our insights may change and new insights will be developed as issues from the implementation of the revenue standard arise and as practice evolves.
Organisation of the text
The following diagram highlights the layout of the revenue standard and the corresponding sections in this handbook. Each section provides an overview, the requirements of the standard, examples illustrating basic scenarios and our insights. Some sections also have additional application examples illustrating more complex scenarios or sector-specific issues.
(1) Step 1 ? Identify the contract
(2) Step 2 ? Identify performance obligations
5-step model
(3) Step 3 ? Determine the transaction
price
(4) Step 4 ? Allocate the transaction
price
(5) Step 5 ? Recognise revenue
(6) Scope
(7) Contract
costs
Other recognition and measurement guidance
(8) Contract modifications
(9) Licensing
(10) Other application
issues
(11) Presentation
Presentation and implementation
(12) Disclosure
(13) Effective date and transition
? 2019 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
1
1.1
IFRS 15.10 IFRS 15.12 IFRS 15.9
1 Step 1 ? Identify the contract with a customer | 3 1.1 Criteria to determine whether a contract exists |
Step 1 ? Identify the contract with a customer
Overview
A contract with a customer is in the scope of the standard when the contract is legally enforceable and certain criteria are met. If the criteria are not met, then the contract does not exist for the purpose of applying the general model of the standard, and any consideration received from the customer is generally recognised as a deposit (liability). Contracts entered into at or near the same time with the same customer (or a related party of the customer) are combined and treated as a single contract when certain criteria are met.
Criteria to determine whether a contract exists
The standard defines a `contract' as an agreement between two or more parties that creates enforceable rights and obligations and specifies that enforceability is a matter of law. Contracts can be written, oral or implied by an entity's customary business practices.
A contract does not exist when each party has the unilateral right to terminate a wholly unperformed contract without compensation.
A contract with a customer is in the scope of the standard when it is legally enforceable and meets all of the following criteria.
... collection of consideration is probable
... it has commercial substance
A contract exists if...
... rights to goods or services and
payment terms can be identified
... it is approved and the parties are
committed to their obligations
? 2019 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
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