Basics of Revenue from contract with customers

1. IFRS 15 Revenue from contracts with customers
We will learn:
• IFRS 15: Why and when to apply
• IFRS 15: Scope and contracts with more elements
• Introducing 5-step model for revenue recognition
• Illustrating 5-step model in a telecom business

2. IFRS 15 Revenue from Contracts with Customers
When and How to recognize revenue
Before the change After the change
• IAS 18 Revenue
• IAS 11 Construction Contracts
• SIC 31 Revenue
• IFRIC 13 Customer Loyalty Prog
• IFRIC 15 Agreements for the Construction of
Real Estate
• IFRIC 18 Transfers of Assets from Customer
IFRS 15 Revenue from
Contracts with Customers
1 January 2018

3. IFRS 15 Revenue from Contracts with Customers
=applies to ALL CONTRACTS with CUSTOMERS except for:
• Lease contracts (IAS 17)
• Insurance Contracts (IFRS 4)
• Financial Instruments & other contractual rights (IFRS 9, 10, 11, & IAS 27, 28,39)
• Non monetary exchanges between entities within the same business to facilitate sales

4. IFRS 15 Revenue from Contracts with Customers
Oral / written?
Contract
modification?
Are they
distinct?
Fixed?
Variable?
Stand-alone
selling prices
Over time? At
the point of
time?

5. IFRS 15 Revenue from Contracts with Customers
Lets take an example to understand this further: Telecom industry
Telecom operator, Airtel (for example) entered into a contract with Rakesh on 1 July 2018. In line with the
contract, Rakesh subscribes for Airtel’s monthly plan for 12 months and in return, Rakesh receives free handset
from Airtel. Rakesh will pay a monthly fee of INR 100. Rakesh gets the handset immediately after contract
signature.
Airtel sells the same handsets for INR 300 and the same monthly plans for INR 80/month without handset.
How should Airtel recognize revenues from the contract with Rakesh in 2018 under IFRS 15?

6. IFRS 15 Revenue from Contracts with Customers
Written Contract
b/w Rakesh and Airtel
PO #1: Network services
PO #2: Handset
Monthly fee: INR 100
Months of subscription: 12
Total transaction price: INR 1200 workings attached
workings attached

7. IFRS 15 Revenue from Contracts with Customers

8. IFRS 15 Revenue from Contracts with Customers
PO #1: Network services (monthly plan) => Over time, as monthly network services are provided
PO #2: Handset => At the point of time, when handset is delivered to Rakesh

9. IFRS 15 Revenue from Contracts with Customers

10. Thank You!!
Rakesh Sharma FCCA