Construction Co operates in a jurisdiction where if Customer A terminated the contract, Construction Co would be entitled to payment for the percentage they had completed (i.e. If the contracts were accounted for separately, revenue would be recognised as follows: However, the entity needs to determine if the contracts for the building of the house and garage should be accounted for separately or as one combined contract. Construction Co also has an enforceable right to payment under the legal system it operates within. The following indicators should be considered to determine whether control of an asset or service has been transferred: If revenue is recognised over time, the overall principle is that revenue is recognised to the extent that each of the vendor’s performance obligations has been satisfied. The following decision should be used to determine whether multiple contracts should be combined or not: Question A customer engages Construction Co to provide construction services to build a house (contract price of $500,000) and a garage (contract price of $50,000). Some of the practical implications on systems and processes for Construction Co and Building Co include: Subscribe to receive the latest BDO News and Insights. IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers and SIC-31 Revenue – Barter Transaction involving Advertising Services. take stock – to pull together, in one place, what we have learned about this new world of revenue recognition. Free IFRS Quizzes IFRS 15 – Revenue from Contracts with Customers Quiz ) , () ) Previous Lesson. IFRS 15 requires a series of distinct goods or services that are substantially the same with the same pattern of transfer, to be regarded as a single performance obligation. Each BDO member firm in Australia is a separate legal entity and has no liability for another entity’s acts and omissions. (i think we should use ifrs 15 as it replaces ias 11)… so please answer to question 2&3 if we must use ifrs 15 in exam: 2-if a contract is a normal one without any extra cost(eg:contract price=$20m and cost=$15m) How should we use ifrs 15? The contracts were negotiated with the same customer, at the same time and pricing on one contract is dependent on the other. There are two … Answer 57 . So your request will be limited to the first 1000 documents. BDO is a specialised automotive service provider assisting franchised dealers, manufacturers and industry associations with a wide range of financial and consulting services. The ship was completed on 31 December 2017. Question BDO has an extensive and diverse range of food and agribusiness clients, from producers to retailers and everything in between. Global factors continue to impact efficiency and negatively influence margins. Liability limited by a scheme approved under Professional Standards Legislation. Free IFRS Quizzes IFRS 15 – Revenue from Contracts with Customers Quiz ) , () ) Previous Lesson. 57 . Find out how we can help you succeed at every stage of Private Equity investment. Costs on the contract comprise: The elevator is delivered by Building Co to the customer’s premises on 31 December 2018. Construction Co also assesses that they have two separate performance obligations, because they will complete and handover the house 3 months before the completion of the garage. In May 2014, IFRS 15 (International Financial Reporting Standards) Revenue from Contracts with Customers was issued. The amount is payable on completion. Big Bed enters in a contract with a customer to sell beds for $400 per bed on 1 January 2017. Existing standards IAS 18 Revenue and IAS 11 Construction Contracts contain only limited guidance, mainly on applying the percentage of completion method (under which contract revenue and costs are recognised with reference to the stage of completion). Live Webinar; On-Demand Webinar; Bundled Courses; CPE Courses; Live Webinar; On-Demand Webinar; Bundled Courses; CPE Courses Reporting revenue under IFRS 15 is now one of the ordinary activities of companies in the 100+ countries that use IFRS Standards. IFRS 15 specifies how and when an IFRS reporter will recognise revenue as well as requiring such entities to provide users of financial statements with more informative, relevant disclosures. Accounting for contract costs, such as pre-contract costs and costs to fulfill a contract The revenue standards (ASC 606 and IFRS 15, Revenue from Contracts with Customers) will replace substantially all revenue guidance under US GAAP and IFRS, including the industry-specific guidance for construction-type and production-type contracts. It started a contract for the construction of a school building for one of its client, spanning 2 years. This may be described as a change order, a variation, or an amendment. Example (based on example 10 in IFRS 15 illustrative examples): An entity, a contractor, enters into a contract to build a hospital for a customer. Some of the practical implications on systems and processes for Construction Co include: Subscribe to receive the latest BDO News and Insights. IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers and SIC-31 Revenue – Barter Transaction involving Advertising Services. If this is the case, these other standards should be applied to account for these costs (IFRS 15.96). Subscribe to receive the latest BDO news and insights. Construction Co would be entitled to sue for damages which would include costs incurred to date plus lost profit). BDO’s Healthcare team has the knowledge, expertise and resources to help navigate this complex and integrated new world. We know that not-for-profit organisations are founded upon strong relationships. CLARIFICATIONS TO IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS—APRIL 2016 Amendments to the Illustrative Examples on IFRS 15 Revenue from Contracts with Customers Paragraphs IE45, IE47, IE50–IE51, IE55–IE57, IE61, IE63, IE225–IE227, IE230–IE232, IE237–IE238, IE240–IE245, IE247–IE248, IE275, IE277–IE280, IE286–IE287, A contract is an agreement between 2 parties that creates enforceable rights and obligations (IFRS 15, Appendix A). BDO’s technology specialists have deep experience in helping clients around the globe to navigate the various issues affecting the industry. • IFRS 15 is principles-based, consistent with legacy revenue requirements, This includes the percentage-of-completion method and the related construction cost accounting guidance as a stand-alone model. Paragraphs in bold … c. the customer pays a portion of the purchase price for the real estate unit as the unit is being constructed, and pays the remainder (a majority) after construction is complete. 57 . IFRS 15 example – sale of a product A company enters into a contract to sell 200 units of a product for £16,000 (£80 each) and will supply 50 units per month over a four month period (control over each unit passes to the customer on delivery). IFRS 15 specifies how and when an IFRS reporter will recognise revenue as well as requiring such entities to provide users of financial statements with more informative, relevant disclosures. The power of industry experience is perspective - perspective we bring to help you best leverage your own capabilities and resources. If the customer purchases more than 1000 beds in a calendar year, the contract states that the price per unit is … Our Tourism, Leisure & Hospitality (TLH) team provides specialist accountancy and business advisory expertise to a wide variety of businesses across the Sports and Leisure, Hotels and Tourism and Pubs and Clubs sectors. EXAMPLE: MODIFICATION OF A CONTRACT FOR GOODS 55 EXAMPLE: MODIFICATION OF A CONTRACT TO CONSTRUCT A BUILDING 56 . IFRS 15, paragraph B19 notes that with the input method, depending on the timing or pattern of costs incurred, there may not be a direct relationship between an entity’s inputs and the transfer of control of goods or services to a customer. We go through the new IFRS standard with examples as to what guidance will be provided in future. BDO refers to one or more of the independent member firms of BDO International Ltd, a UK company limited by guarantee. In some cases, IFRS 15 requires an entity to combine contracts and account for them as one contract. c. the customer pays a portion of the purchase price for the real estate unit as the unit is being constructed, and pays the remainder (a majority) after construction is complete. Construction Co would have processed the following journal entry as they incurred the construction costs during the year ended 30 June 2017: The journal entries at 30 June 2017 in relation to the revenue recognised is as follows: There would be similar treatment under IAS 11, however, there are more specific requirements under IFRS 15. Background They were negotiated together and a discount was given on the garage build as Construction Co would already have the necessary equipment on site from the house construction, and could also build the foundations simultaneously with the house. © 2020 BDO Australia Ltd. All rights reserved. Construction | IFRS 15 Revenue – Are you good to go? Each BDO member firm in Australia is a separate legal entity and has no liability for another entity’s acts and omissions. BDO is the brand name for the BDO network and for each of the BDO member firms. Our Tourism, Leisure & Hospitality (TLH) team provides specialist accountancy and business advisory expertise to a wide variety of businesses across the Sports and Leisure, Hotels and Tourism and Pubs and Clubs sectors. Backed by our significant practical experience, our team provides no-nonsense strategic advice, helping you make... BDO specialises in understanding the distinct needs of government and public sector organisations operating in an environment where policy, legislative and budgetary requirements can make delivering cost-effective services challenging. Question Processes needed to identify the appropriate revenue recognition pattern using specific fact patterns for each transaction, Systems to calculate ‘over time’ or ‘point in time’ revenue recognition, Systems to isolate significant amounts of ‘uninstalled materials’ such as elevators and other significant costs which are not proportionate to the entity’s progress in satisfying its performance obligation. 53 . The general principle is that revenue is recognised at a point in time. For companies with real estate development, property management or construction activities, IFRS 15 replaces several familiar standards and provides significant new guidance in a number of key areas. The manufacturing and wholesale sector covers many industries and product lines. Reporting revenue under IFRS 15 is now one of the ordinary activities of companies in the 100+ countries that use IFRS Standards. You are attempting to documents.. This is an adaptation from IFRS 15, Illustrative examples, Example 24. The session discusses the implications of contract modifications and accounting thereof IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers and SIC-31 Revenue – Barter Transaction involving Advertising Services. ILLUSTRATIVE EXAMPLES (see separate booklet) APPENDIX Amendments to the guidance on other Standards IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS IFRS Foundation 4. International Financial Reporting Standard 15 Revenue from Contracts with Customers (IFRS 15) is set out in paragraphs 1–129 and Appendices A–D. Transition. Does the customer have legal title to the asset? Accounting for contract costs, such as pre-contract costs and costs to fulfill a contract The revenue standards (ASC 606 and IFRS 15, Revenue from Contracts with Customers) will replace substantially all revenue guidance under US GAAP and IFRS, including the industry-specific guidance for construction-type and production-type contracts. The following decision tree is a useful tool to determine whether revenue should be recognised at a point in time or over time: If revenue is recognised at a point in time, the overall principle is that revenue should be recognised at the point in time at which it transfers control of the good or service to the customer. However, if any of the criteria in IFRS 15, paragraph 35 are met, revenue should be recognised over time. A good or service which has been delivered may not be distinct if it cannot be used without another good or service that has not yet been delivered. 57 . IFRS 15 permits either output or input methods to be used to calculate the amount of revenue to be recognised. Background 53 . To find out more, see our Cookies Policy Terms & Conditions Articles. The ship has been designed specifically to suit the needs of Customer A and includes a number of features that may not be useful for other customers. To find out more, see our Cookies Policy Terms & Conditions Articles. 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