Illustrative Examples International Financial Reporting ...

1 Illustrative Examples International Financial Reporting Standard May 2014 IFRS 15 Revenue from Contracts with CustomersIllustrative ExamplesIFRS 15 Revenue from Contracts withCustomersThese Illustrative Examples accompany IFRS 15 Revenue from Contracts with Customers(issuedMay 2014; see separate booklet) and is published by the International Accounting StandardsBoard (IASB).Disclaimer:the IASB, the IFRS Foundation, the authors and the publishers do not acceptresponsibility for any loss caused by acting or refraining from acting in reliance on thematerial in this publication, whether such loss is caused by negligence or Financial Reporting Standards (including International Accounting Standardsand SIC and IFRIC Interpretations), Exposure Drafts and other IASB and/or IFRS Foundationpublications are copyright of the IFRS 2014 IFRS Foundation ISBN for this part: 978-1-909704-36-7.

2 ISBN for the set of three parts: 978-1-909704-33-6 All rights part of this publication may be translated, reprinted, reproducedor used in any form either in whole or in part or by any electronic, mechanical or othermeans, now known or hereafter invented, including photocopying and recording, or in anyinformation storage and retrieval system, without prior permission in writing from theIFRS approved text of International Financial Reporting Standards and other IASB publications is that published by the IASB in the English language. Copies may be obtainedfrom the IFRS Foundation. Please address publications and copyright matters to:IFRS Foundation Publications Department30 Cannon Street, London EC4M 6XH, United KingdomTel: +44 (0)20 7332 2730 Fax: +44 (0)20 7332 2749 Email: Web.

3 IFRS Foundation logo/the IASB logo/the IFRS for SMEs logo/ Hexagon Device , IFRSF oundation , eIFRS , IASB , IFRS for SMEs , IAS , IASs , IFRIC , IFRS , IFRSs , SIC , International Accounting Standards and International Financial Reporting Standards areTrade Marks of the IFRS IFRS Foundation is a not-for-profit corporation under the General Corporation Law ofthe State of Delaware, USA and operates in England and Wales as an overseas company(Company number: FC023235) with its principal office as 15 REVENUE FROM CONTRACTS WITH CUSTOMERSILLUSTRATIVE EXAMPLESIDENTIFYING THE CONTRACTIE2 example 1 Collectability of the considerationExample 2 Consideration is not the stated price implicit price concessionExample 3 Implicit price concessionExample 4 Reassessing the criteria for identifying a contractCONTRACT MODIFICATIONSIE18 example 5 Modification of a contract for goodsExample 6 Change in the transaction price after a contract modificationExample 7 Modification of a services contractExample 8 Modification resulting in a cumulative catch-up adjustment torevenueExample 9 Unapproved change in scope and priceIDENTIFYING

4 PERFORMANCE OBLIGATIONSIE44 example 10 Goods and services are not distinctExample 11 Determining whether goods or services are distinctExample 12 Explicit and implicit promises in a contractPERFORMANCE OBLIGATIONS SATISFIED OVER TIMEIE66 example 13 Customer simultaneously receives and consumes the benefitsExample 14 Assessing alternative use and right to paymentExample 15 Asset has no alternative use to the entityExample 16 Enforceable right to payment for performance completed todateExample 17 Assessing whether a performance obligation is satisfied at apoint in time or over timeMEASURING PROGRESS TOWARDS COMPLETE SATISFACTION OF APERFORMANCE OBLIGATIONIE91 example 18 Measuring progress when making goods or services availableExample 19 Uninstalled materialsVARIABLE CONSIDERATIONIE101 example 20 Penalty gives rise to variable considerationExample 21 Estimating variable considerationCONSTRAINING ESTIMATES OF VARIABLE CONSIDERATIONIE109 example 22 Right of returnExample 23 Price concessionsExample 24 Volume discount incentiveExample 25 Management fees subject to the constraintIFRS 15 ILLUSTRATIVEEXAMPLES IFRS Foundation3 THE EXISTENCE OF A SIGNIFICANT FINANCING COMPONENT IN THECONTRACTIE134 example 26 Significant financing component and right of returnExample 27 Withheld payments on a long-term contractExample 28

5 Determining the discount rateExample 29 Advance payment and assessment of the discount rateExample 30 Advance paymentNON CASH CONSIDERATIONIE155 example 31 Entitlement to non-cash considerationCONSIDERATION PAYABLE TO A CUSTOMERIE159 example 32 Consideration payable to a customerALLOCATING THE TRANSACTION PRICE TO PERFORMANCE OBLIGATIONSIE163 example 33 Allocation methodologyExample 34 Allocating a discountExample 35 Allocation of variable considerationCONTRACT COSTSIE188 example 36 Incremental costs of obtaining a contractExample 37 Costs that give rise to an assetPRESENTATIONIE197 example 38 Contract liability and receivableExample 39 Contract asset recognised for the entity s performanceExample 40 Receivable recognised for the entity s performanceDISCLOSUREIE209 example 41 Disaggregation of revenue quantitative disclosureExample 42 Disclosure of the transaction price allocated to the remainingperformance obligationsExample 43 Disclosure of the transaction price allocated to the remainingperformance obligations qualitative disclosureWARRANTIESIE222 example 44 WarrantiesPRINCIPAL VERSUS AGENT CONSIDERATIONSIE230 example 45 Arranging for the provision of goods or services (entity is anagent) example 46 Promise to provide goods or services (entity is a principal)

6 example 47 Promise to provide goods or services (entity is a principal) example 48 Arranging for the provision of goods or services (entity is anagent)CUSTOMER OPTIONS FOR ADDITIONAL GOODS OR SERVICESIE249 example 49 Option that provides the customer with a material right(discount voucher) example 50 Option that does not provide the customer with a material right(additional goods or services)IFRS 15 REVENUE FROMCONTRACTS WITHCUSTOMERS IFRS Foundation4 example 51 Option that provides the customer with a material right(renewal option) example 52 Customer loyalty programmeNON-REFUNDABLE UPFRONT FEESIE271 example 53 Non-refundable upfront feeLICENSINGIE275 example 54 Right to use intellectual propertyExample 55 Licence of intellectual propertyExample 56 Identifying a distinct licenceExample 57 Franchise rightsExample 58 Access to intellectual propertyExample 59 Right to use intellectual propertyExample 60 Access to intellectual propertyExample 61 Access to intellectual propertyREPURCHASE AGREEMENTSIE314 example 62 Repurchase agreementsBILL-AND-HOLD ARRANGEMENTSIE322 example 63 Bill-and-hold arrangementAPPENDIXA mendments to guidance on other StandardsIFRS 15 ILLUSTRATIVEEXAMPLES IFRS

7 Foundation5 IFRS 15 Revenue from Contracts with CustomersIllustrative ExamplesThese Examples accompany, but are not part of, IFRS 15. They illustrate aspects of IFRS 15 but arenot intended to provide interpretative Examples portray hypothetical situations illustrating how an entity mightapply some of the requirements in IFRS 15 to particular aspects of a contractwith a customer on the basis of the limited facts presented. The analysis in eachexample is not intended to represent the only manner in which therequirements could be applied, nor are the Examples intended to apply only tothe specific industry illustrated. Although some aspects of the Examples may bepresent in actual fact patterns, all relevant facts and circumstances of aparticular fact pattern would need to be evaluated when applying IFRS the contractIE2 Examples 1 4 illustrate the requirements in paragraphs 9 16 of IFRS 15 onidentifying the contract.

8 In addition, the following requirements are illustratedin these Examples :(a)the interaction of paragraph 9 of IFRS 15 with paragraphs 47 and 52 ofIFRS 15 on estimating variable consideration ( Examples 2 3); and(b)paragraph B63 of IFRS 15 on consideration in the form of sales-based orusage-based royalties on licences of intellectual property ( example 4). example 1 Collectability of the considerationIE3An entity, a real estate developer, enters into a contract with a customer for thesale of a building for CU1 customer intends to open a restaurant inthe building. The building is located in an area where new restaurants face highlevels of competition and the customer has little experience in the customer pays a non-refundable deposit of CU50,000 at inception of thecontract and enters into a long-term financing agreement with the entity for theremaining 95 per cent of the promised consideration.

9 The financingarrangement is provided on a non-recourse basis, which means that if thecustomer defaults, the entity can repossess the building, but cannot seek furthercompensation from the customer, even if the collateral does not cover the fullvalue of the amount owed. The entity s cost of the building is CU600,000. Thecustomer obtains control of the building at contract assessing whether the contract meets the criteria in paragraph 9 of IFRS 15,the entity concludes that the criterion in paragraph 9(e) of IFRS 15 is not metbecause it is not probable that the entity will collect the consideration to whichit is entitled in exchange for the transfer of the building.

10 In reaching thisconclusion, the entity observes that the customer s ability and intention to paymay be in doubt because of the following factors:1 In these Examples monetary amounts are denominated in currency units (CU).IFRS 15 REVENUE FROMCONTRACTS WITHCUSTOMERS IFRS Foundation6(a)the customer intends to repay the loan (which has a significant balance)primarily from income derived from its restaurant business (which is abusiness facing significant risks because of high competition in theindustry and the customer s limited experience);(b)the customer lacks other income or assets that could be used to repay theloan; and(c)the customer s liability under the loan is limited because the loan the criteria in paragraph 9 of IFRS 15 are not met, the entity appliesparagraphs 15 16 of IFRS 15 to determine the accounting for the non-refundabledeposit