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Basis For Conclusions On IFRS 15 Measurement Of Revenue

Basis For Conclusions On IFRS 15 Measurement Of Revenue

Basis For Conclusions On IFRS 15 Measurement Of Revenue : The boards decided that an entity should measure revenue based on an allocated transaction price approach. Using that approach, an entity allocates the transaction price to each performance obligation at an amount that depicts the amount of consideration to which the entity expects to be entitled in exchange for satisfying each performance obligation. That allocation determines the amount of revenue that an entity recognises when (or as) it satisfies each performance obligation. Most respondents supported the allocated transaction price approach.

Basis For Conclusions On IFRS 15 Measurement Of Revenue

Basis For Conclusions On IFRS 15 Measurement Of Revenue :The boards considered, but rejected, an alternative measurement approach, which would have been to measure the remaining performance obligations directly at the end of each reporting period. The boards observed that this alternative would have made accounting for the contract more complex. In addition, the boards expected that in many cases it would have provided users of financial statements with little additional information, either because the values of goods or services promised are not inherently volatile or because the effect of any volatility that might exist is limited when an entity transfers the goods or services to the customer over a relatively short time.

Basis For Conclusions On IFRS 15 Measurement Of Revenue

Basis For Conclusions On IFRS 15 Measurement Of Revenue : The allocated transaction price approach generally requires an entity to follow
three main steps to determine the amount of revenue that can be recognised for
satisfied performance obligations. Those steps are as follows:(a) determine the transaction price for the contract;
(b) allocate the transaction price to performance obligations; and
(c) recognise revenue at the amount allocated to the satisfied performance
obligation.

Basis For Conclusions On IFRS 15 Measurement Of Revenue

Basis For Conclusions On IFRS 15 Measurement Of Revenue : An entity, a contractor, enters into a contract to build a hospital for a customer. The entity is responsible for the overall management of the project and identifies various goods and services to be provided, including engineering, site clearance, foundation, procurement, construction of the structure, piping and wiring, installation of equipment and finishing.

Basis For Conclusions On IFRS 15 Measurement Of Revenue

Basis For Conclusions On IFRS 15 Measurement Of Revenue :The promised goods and services are capable of being distinct in accordance. That is, the customer can benefit from the goods and services either on their own or together with other readily available resources. This is evidenced by the fact that the entity, or competitors of the entity, regularly sells many of these goods and services separately to other customers. In addition, the customer could generate economic benefit from the individual goods and services by using, consuming, selling or holding those goods or services.

Basis For Conclusions On IFRS 15 Measurement Of Revenue

Basis For Conclusions On IFRS 15 Measurement Of Revenue :However, the goods and services are not distinct within the context of the contract in accordance  of IFRS 15 . That is, the entity’s promise to transfer individual goods and services in the contract are not separately identifiable from other promises in the contract. This is evidenced by the fact that the entity provides a significant service of integrating the goods and services (the inputs) into the hospital (the combined output) for which the customer has contracted.

Basis For Conclusions On IFRS 15 Measurement Of Revenue

Basis For Conclusions On IFRS 15 Measurement Of Revenue : FRS 15 applies to a single contract with a customer. In many cases, the contract that is accounted for separately will be the individual contract negotiated with the customer. However, the structure and scope of a contract can vary depending on how the parties to the contract decide to record their agreement. For instance, there may be legal or commercial reasons for the parties to use more than one contract to document the sale of related goods or services or to use a single contract to document the sale of unrelated goods or services. One of the boards’ objectives in developing IFRS 15 is that the accounting for a contract should depend on an entity’s present rights and obligations rather than on how the entity structures the contract.

Basis For Conclusions On IFRS 15 Measurement Of Revenue

Basis For Conclusions On IFRS 15 Measurement Of Revenue : The boards decided that entering into contracts at or near the same time is a necessary condition for the contracts to be combined. That decision is consistent with the objective of identifying the contract that is to be accounted for as the unit of account because that assessment is also performed at contract inception.

Basis For Conclusions On IFRS 15 Measurement Of Revenue

Basis For Conclusions On IFRS 15 Measurement Of Revenue :

 (a) dividends received (although these requirements existed in previous revenue Standards in IFRS, the IASB has moved them unchanged, and without changing their effect, into IFRS 9 Financial Instruments);
(b) non-exchange transactions (for example, donations or contributions received);
(c) for IFRS, changes in the value of biological assets, investment properties and the inventory of commodity broker-traders; and
(d) for US GAAP, changes in regulatory assets and liabilities arising from alternative revenue programmes for rate-regulated entities in the scope of Topic 980 on regulated operations. (The FASB decided that the revenue arising from those assets or liabilities should be presented separately from revenue arising from contracts with customers.

Basis For Conclusions On IFRS 15 Measurement Of Revenue

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