REASONS FOR ISSUING IFRS 15

Previous revenue recognition requirement in IFRS (including IAS 18 Revenue and IAS 11 Construction contracts) provided limited guidance and it was difficult to apply them to complex transactions.

Also, previous revenue recognition requirements in IFRS differed from those in US GAAP, and both sets fo requirements were in need of improvement.

IASB and FASB initiated a joint project to develop a common revenue standard for IFRS and US GAAP.

OBJECTIVES AND KEY PRINCIPLE

to establish principles that an entity shall apply to report useful information to users of financial statements about the nature amount timing and uncertainty of revenue arising from the contract with customers.

RECOGNITION AND MEASUREMENT

FIVE STEP APPROACH

STEP1: Identify the contract with a customer

The entity will apply the revenue standard to each contract with a customer when all of the following criteria are met:

• parties have approved the contract and intend to perform respective obligations
• each parties rights regarding the goods and services to be transferred can be identified
• payment terms can be identified
• affect future cash flows
• it is probable that the entity will collect the consideration of which it will be entitled in exchange for goods or services transferred

STEP2: Identify the performance obligations in the contract

• a good or service that is distinct
• or a series of distinct goods and services that are substantially the same

STEP3: Determine the transaction price

• REVENUE=expected consideration-sales taxes-consideration payable to customers/discounts
• determining transaction price can be complex in case of variable consideration (included only if highly probable) and a significant financing component

STEP4: Allocate the transaction price to the performance obligations in the contract

• it is done based on their relative standalone selling prices

STEP5: Recognize revenue when or as the entity satifsfies a performance obligation

• revenue is recognized when or as performance obligations are satisfied by transferring control of a promised good or service to a customer
• control transfers to a customer over time (determing progress towards satisfaction of performance obligation by using input or output method) or at a point in time.