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Revenue from Contracts with Customers

4 important questions on Revenue from Contracts with Customers

What's the core principle of IFRS 15?

The core principle of IFRS 15 is that an entity will recognise revenue at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer, which requires entities to apply a five-step model.

To help determine whether arrangements fall within the scope, which five criteria must be met at the commencement of the arrangement?

1. The contract is approved by all parties (even customary business practices
comply) and the parties are committed to carrying out their respective
obligations.
2. The entity can identify the rights of each party.
3. The entity can identify the payment terms for the goods or services.
4. The contract has commercial substance.
5. Collectability of the amount of consideration and goods/services transferred is probable

What should you do when arrangements do not meet the definition of a contract?

If there is an arrangement that does not meet the definition of a contract, but an entity receives consideration from the customer, it can only be recognised if these are nun-refundable and the entity has completed all performance obligations or the contract has been terminated.

When can entities combine individual contracts?

In some cases, entities combine individual contracts entered into at (near) the same time if they meet one of the following criteria:
• The contracts are negotiated as a package with the intent of meeting a singular business purpose.
• The amount of consideration that a customer has to pay in one contract is
impacted by the price or performance of the other.
• Some or all of the goods or services promised in the individual contracts form a single performance obligation.

The question on the page originate from the summary of the following study material:

Samenvatting Efi

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