BDO is a specialised automotive service provider assisting franchised dealers, manufacturers and industry associations with a wide range of financial and consulting services. Background Transition. Identifying the number of performance obligations. We know that not-for-profit organisations are founded upon strong relationships. At 30 June 2017, Construction Co had incurred 50% of costs and their senior project manager estimated they had completed 50% of the build. However, sometimes, entity needs to ascertain that whether a contract for the construction of group of assets will be treated as a single contract or each asset in group of assets will be treated as a separate contract; in such circumstances the entity should apply the following: 1. Examples of such costs include: cost of inventories, cost of property, plant and equipment, New sub-sectors, emerging industries, new funding sources and a truly global landscape are shaping industry dynamics. Construction Co’s financial year end is 30 June 2017. To find out more, see our Cookies Policy Terms & Conditions Articles. Each BDO member firm in Australia is a separate legal entity and has no liability for another entity’s acts and omissions. o Supersedes IAS 18 Revenue, IAS 11 Construction contracts, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from … BDO’s Real Estate and Construction professionals are ready to... It’s our job to stay on top of changes in the fast-paced retail sector. 25. In addition to the substantially more detailed guidance for revenue recognition, IFRS... Legal, Privacy & Terms and Conditions of use, Identifying that there are two related contracts, Determining whether related contracts should be combined. The following decision should be used to determine whether multiple contracts should be combined or not: Question BDO has an extensive and diverse range of food and agribusiness clients, from producers to retailers and everything in between. 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. Transition . These examples represent how some of the disclosures required by IFRS 15 (in paragraphs 114-115 and B87-B89) in relation to dissagregation of revenue from contracts with customers might be tagged using detailed XBRL tagging. BDO has an extensive and diverse range of food and agribusiness clients, from producers to retailers and everything in between. Under IFRS 15.18, contract modification is a change in the scope or price of a contract, or both. 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. This includes the percentage-of-completion method and the related construction cost accounting guidance as a stand-alone model. IFRS 15 permits either output or input methods to be used to calculate the amount of revenue to be recognised. The percentage of completion method falls in-line with IFRS 15, which indicates that revenue from performance obligations recognized over a period of time should be based on the percentage of completion. New accounting standards mean that construction companies need to pay attention to when they recognize revenue. EXAMPLE: MODIFICATION OF A CONTRACT FOR GOODS 55 EXAMPLE: MODIFICATION OF A CONTRACT TO CONSTRUCT A BUILDING 56 . This example is based on Example 37 accompanying IFRS 15. Live Webinar; On-Demand Webinar; Bundled Courses; CPE Courses; Live Webinar; On-Demand Webinar; Bundled Courses; CPE Courses For example, in the case of construction contracts, or other long-term service contracts, modifications are frequent. IFRS 15 Revenue from Contracts with Customers, issued in April 2014: o Introduces a single revenue model for entities to apply in accounting for revenue arising from contracts with customers. However, timing of revenue recognition for both parts is not necessarily the same. • IFRS 15 is principles-based, consistent with legacy revenue requirements, What are the transition options under IFRS 15… BDO’s technology specialists have deep experience in helping clients around the globe to navigate the various issues affecting the industry. The contracts were negotiated with the same customer, at the same time and pricing on one contract is dependent on the other. Free IFRS Quizzes IFRS 15 – Revenue from Contracts with Customers Quiz ) , () ) Previous Lesson. Consequently, and particularly if an input method is being used for the purposes of revenue recognition, in many cases the vendor would recognise an equal amount of revenue and cost of sales for the elevators, with profit margin only being recognised on the construction and installation services. IFRS 15 takes the view that although it is appropriate to recognise revenue from the sale of the elevators at the point at which control is transferred to the customer, it is not appropriate to recognise profit. Either people feel that this is A CHALLENGE and they ask me how IFRS 15 can possibly affect them; OR BDO refers to one or more of the independent member firms of BDO International Ltd, a UK company limited by guarantee. Answer 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. BDO is a specialised automotive service provider assisting franchised dealers, manufacturers and industry associations with a wide range of financial and consulting services. The standard provides a single, principles based five-step model to be applied to all contracts with customers. On 1 January 20X1 Entity A enters into a contract with Customer X to manage his information technology data … Paragraphs in bold … 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. This site uses cookies. BDO’s Healthcare team has the knowledge, expertise and resources to help navigate this complex and integrated new world. 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. Simple explanation of IFRS 15 Construction Contracts that should cover most exam questions. It includes the reasons for accepting particular views and rejecting others. There are two … The amount is payable on completion. When a contract modification is approved, it creates or changes the enforceable rights and obligations of the parties to the contract. Over the past five years, we – like you – have wrestled with the many challenges of implementing IFRS 15. For example, if the ship could be easily sold to another customer and/or the construction company’s legal framework did not allow for it to legally enforce payment; then revenue could not be recognised over time under IFRS 15. 57 . • IFRS 15 is principles-based, consistent with legacy revenue requirements, If this is the case, these other standards should be applied to account for these costs (IFRS 15.96). This standard applies to each contract on individual basis. The ship has no alternative use as it has been built to Customer A’s specific requirements, and. A contract is an agreement between 2 parties that creates enforceable rights and obligations (IFRS 15, Appendix A). Therefore, costs would be the most objective method of measuring completion. 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. • IFRS 15 is principles-based, consistent with legacy revenue requirements, How should these be accounted for in the context of IFRS 15? In some cases, IFRS 15 requires an entity to combine contracts and account for them as one contract. You are attempting to documents.. Revenue would be recognised as follows: The common practice under IAS 11 would be to account for these two contracts separately and recognise the revenue for both the house and garage on a percentage of completion basis. Costs on the contract comprise: The elevator is delivered by Building Co to the customer’s premises on 31 December 2018. The maximum number of documents that can be ed at once is 1000. 57 . • IFRS 15 is principles-based, consistent with legacy revenue requirements, For example, a construction company can be engaged to provide design and engineering services as well as the actual construction. For example, a construction contract might involve the vendor procuring high value items for installation, such as elevators. Your essential guide to preparing financial statements under the new revenue standard IFRS 15 – Illustrative disclosures. 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. The manufacturing and wholesale sector covers many industries and product lines. Background How should these be accounted for in the context of IFRS 15? How should Construction Co account for this arrangement as at 30 June 2017? Inline XBRL; ZIP; Example 19: Credit Risk Exposure . Assume Building Co qualifies for ‘over time’ revenue recognition under IFRS 15, paragraph 35(c), and recognises revenue using an ‘input method’ to determine percentage of completion. Construction | IFRS 15 Revenue – Are you good to go? Free IFRS Quizzes IFRS 15 – Revenue from Contracts with Customers Quiz ) , () ) Previous Lesson. New sub-sectors, emerging industries, new funding sources and a truly global landscape are shaping industry dynamics. 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. Liability limited by a scheme approved under Professional Standards Legislation. We go through the new IFRS standard with examples as to what guidance will be provided in future. IFRS 15 also provides requirements for the accounting for contract modifications. Question Even the construction itself could be seen as comprising many component services such as site clearance, foundations, procurement, construction of the structure, piping and wiring, etc. Under IFRS 15, an entity recognises as an asset the incremental costs of obtaining a contract with a IFRS 15.IE.Ex36–37 customer only if it expects to recover those costs. BDO understands the unique audit, tax and advisory requirements of the not-for-profit sector, which comes from our experience in acting for the sector over many years. The requirements of IFRS 15 apply to each contract that has been agreed upon with a customer and meets specified criteria. What are the transition options under IFRS 15… So this feels like the right time to . IFRS 15 also provides requirements for the accounting for contract modifications. 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. IFRS 15 Revenue from Contracts with Customers does not . Contents IFRS 15 Revenue from Contracts with Customers Illustrative Examples IE1 Identifying the contract IE2 - IE17Contract modifications IE18 - IE43Identifying performance obligations IE44 - IE65A 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. The cost of the elevator would be included in Building Co’s calculation of percentage of completion using the input method. Construction Co would be entitled to sue for damages which would include costs incurred to date plus lost profit). IFRS 15 for the construction industry – Multiple contracts that should be combined, Technology, Media & Entertainment and Telecommunications, Information Security and Privacy Statement. Over the past five years, we – like you – have wrestled with the many challenges of implementing IFRS 15. To make your more manageable, we have automatically split your selection into separate batches of up to 25 documents.. batch IFRS 15, policies, judgements, paras 110-128 certain disclosures, construction, support services; IFRS 15 adopted, revenue policies including lump sum royalties, returns, warranties; IFRS 15, policies, judgements and estimates, contract assets and liabilities, paras 110-129 certain disclosures, contracting Building Co therefore excludes from an input method the effects of any inputs that do not depict the entity’s performance in transferring control of goods or services to the customer, i.e. © 2020 BDO Australia Ltd. All rights reserved. The manufacturing and wholesale sector covers many industries and product lines. Trends are shifting in the real estate and construction industry. This may be described as a change order, a variation, or an amendment. 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. Construction Co also has an enforceable right to payment under the legal system it operates within. Answer This site uses cookies. Has the entity transferred physical possession of the asset to the customer? Paragraphs 28 and 30 have not been amended but have been included for ease of … 57 . 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. 03 Revenue from Contracts with Customers | A guide to IFRS 15 Foreword. EXAMPLE: MODIFICATION OF A CONTRACT FOR GOODS 55 EXAMPLE: MODIFICATION OF A CONTRACT TO CONSTRUCT A BUILDING 56 . 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