Detailed Analysis of IFRS 15: Revenue from Contracts with Customers

This report offers a comprehensive overview of IFRS 15, Revenue from Contracts with Customers. It begins with an executive summary highlighting the purpose of the report, which is to provide insights into the application of IFRS 15 and its step-by-step model for recognizing revenue from various contracts. The report then delves into the five-step model: contract identification, identification of performance obligations, price determination, allocation of contract price, and recognition of revenue. It explains the criteria for each step, including the distinctive nature of goods/services, price estimation, and allocation methods. The report emphasizes the importance of full disclosures regarding contracts with customers to ensure transparency and understanding for financial statement users. The conclusion reinforces the need for comprehensive disclosure and provides references to support the information presented.

IFRS 15:REVENUE FROM CONTRACTS WITH CUSTOMERS 1
STUDENT NAME
UNIVERSITY NAME
COURSE
DATE

IFRS 15:REVENUE FROM CONTRACTS WITH CUSTOMERS 2
EXECUTIVE SUMMARY
The purpose of this report is to write short notes regarding the application of IFRS 15 that is
revenue from contracts with customers. This report provides a step by step model that is applied
to recognize the revenues from various contracts with customers. The report also provides a
summary of reasons why the company should make full disclosures regarding contracts with
customers.

IFRS 15:REVENUE FROM CONTRACTS WITH CUSTOMERS 3
Table of Contents
INTRODUCTION...........................................................................................................................4
IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS...........................................4
STEP 1:IDENTIFICATION OF THE CONTRACT......................................................................4
STEP 2:IDENTIFICATION OF OBLIGATIONS..........................................................................4
DISTINCTIVE NATURE OF GOODS/SERVICE.....................................................................4
STEP 3: PRICE DETERMINATION.............................................................................................4
STEP 4:ALLOCATION OF CONTRACT PRICE.........................................................................5
Step.5:RECOGNITION OF THE REVENUE AFTER THE COMPANY SATISFY THE
OBLIGATION.................................................................................................................................5
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

IFRS 15:REVENUE FROM CONTRACTS WITH CUSTOMERS 4
INTRODUCTION.
IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS
 This provision gives five-step model that is used to establish how and when to recognize
incomes from contracts (Pacter, 2014).
 It also requires companies responsible for preparation of annual reports to give more
relevant facts and disclose relevant information regarding such transaction.
STEP 1: IDENTIFICATION OF THE CONTRACT.
It involves the following;
 Approval of the work by all relevant parties involved.
 Transferability of rights relating to the services/goods can be traced
 Work has profitable impacts
 terms are clearly defined
 there is probability that consideration is collectible from the company.
STEP 2: IDENTIFICATION OF OBLIGATIONS
at the inauguration of the contract, the company evaluate services to be offered to the customer
 evaluation of goods/services that is different
 distinctive services that have same characteristics of transferability to the client.
 A method that will be used to access progress will be chosen and utilized to measure step
by step progress until the customer is satisfied. Performance obligation is evaluated to
ensure that the correct service is transferred to the client
DISTINCTIVE NATURE OF GOODS/SERVICE.
 Client can benefit from such services singly or with other resources
 Goods/services can materially change other goods /services that have been promised
in the contract.
 Goods/services are related.

IFRS 15:REVENUE FROM CONTRACTS WITH CUSTOMERS 5
STEP 3: PRICE DETERMINATION
 This price refers to the amount that the company expect to earn in return of provision of
goods/services promised in the contract.in determination of contract price, the company
considers past prices (Frank, 2009).
 If the contract seems to have some sort of variation in consideration, estimation is used
for instance in the events of discounts and incentives, there will be variations.
 Variation in consideration also arise if there is likelihood of a future event occurring.
 Variability in the price is included in transaction price when it is really seen to be
probable to occur and also it can be reversed when it has been fully solved.
 In case of sales or royalties, it will only be recognized when sales or usage occur.
STEP 4: ALLOCATION OF CONTRACT PRICE
 In the event that a contract has a number of single contracts, the company will give prices
to the obligations in the contract by way of their individual contract price.
 If individual prices of contract are not easily identifiable, it will be estimated using either
adjusted, expected cost plus or residual approach (Nobes, 2015).
 If the contract is paid in advance or arrears, the company will then make relevant
adjustments for time value of money.
Step.5: RECOGNITION OF THE REVENUE AFTER THE COMPANY SATISFY THE
OBLIGATION.
 This will happen after the company has satisfied the performance of the obligation
and the transfer of the use and benefits of the asset happens (Tong, 2014).
 The benefits of the assets refer to cash inflows from direct or indirect use of the asset
It involves;
 Use of the asset to generate goods/services
 Use of asset to increase value of related assets
 Use of asset to pay obligations
 Disposing of the asset
 Using the asset as collateral

IFRS 15:REVENUE FROM CONTRACTS WITH CUSTOMERS 6
CONCLUSION
In conclusion, the application of the IFRS 15 in the preparation of financial statements
should be adequately disclosed so that users of such information can understand the
nature, value, timeliness of such information, uncertainty of revenue and future expected
cash inflows. The company must therefore provide full information concerning their
judgements and changes in such judgments regarding the contract.

IFRS 15:REVENUE FROM CONTRACTS WITH CUSTOMERS 7
REFERENCES.
Frank, F. (2009). IFRS for SMEs: The Next Standard for US Private Companies? Journal of
accountancy, 208(6), 50.
Nobes, C. (2015). IFRS ten years on: Has the IASB imposed extensive use of fair value? Has the
EU learnt to love IFRS? And does the use of fair value make IFRS illegal in the
EU? Accounting in Europe, 12(2), 153-170.
Pacter, P. (2014). IFRS as global standards: A pocket guide. London: IFRS Foundation.
Tong, T. L. (2014). A Review of IFRS 15 Revenue from Contracts with Customers. Çevrimiçi)
http://www. masb. org/my/images/2014-09-15% 20Review% 20of%-20IFRS, 20.