MFRS Revenue from contracts with customers

1. MFRS 15
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Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.

2. MFRS 15
This new Revenue Standard replaces several Standards listed below:
• MFRS 118 Revenue Recognition
• MFRS 111 Construction Contracts
• IFRIC 15 Agreements for the Construction of Real Estate
• IFRIC 13 Customer Loyalty Programmes
• IFRIC 18 Transfers of Assets from Customers
• SIC 31 Revenue – Barter Transactions involving Advertising Services
• FRS 201(2004) Property Development Activities (Malaysian Standard)
© Copyright of KTP & THK
Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
MFRS 15 must be applied retrospectively to each prior period, BUT an alternative
method is also offered.

3.  The core principles are that : -
MFRS 15
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Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
• An entity should recognise revenue when it transfers goods or services to a
customer – based upon the amount of consideration to which the entity
expects to be entitled from the customer.
• The goods or services are transferred when the
customer has control of them.

4.  Who is affected?
• For most straightforward contracts, there will be
few changes to the amount and timing of
revenue recognition.
• BUT for contracts that extend over time or have
multiple elements, there could be changes.
• For some entities, those changes could be
significant.
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Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
MFRS 15

5.  5 steps in Revenue Recognition:
MFRS 15
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Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
• STEP 1: Identify the contract with the customer (sales contract, contract for
services, contract for manufacture of machinery, etc);
• STEP 2: Identify separate performance obligations in the contract;
• STEP 3: Determine the transaction price;
• STEP 4: Allocate transaction price to the separate performance obligations;
• STEP 5: Recognise revenue when a performance obligation is satisfied.

6. MFRS 15
© Copyright of KTP & THK
Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
 STEP 1: Identify the contract with the customer
• A contract creates enforceable rights and obligations.
• It may be written, verbal or implied by customary business practice.
• The contract must have commercial substance and a collectability threshold.
• It must be probable (i.e. more likely than not) that an entity will collect
consideration from the customer before it can apply this standard.

7. MFRS 15
© Copyright of KTP & THK
Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
 STEP 1: Identify the contract with the customer
• A contract does not exist if each party has a unilateral right to terminate a wholly
unperformed contract without requiring any compensation to be paid to the other
party.
• Wholly unperformed contract = The contract where the entity has not yet
performed any promised goods or services to the customer; and
• It has not yet received, and is not entitled to received, any consideration in exchange
for goods or services.

8. Generate eco. benefit
MFRS 15
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Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
 STEP 2: Identify separate performance obligations in the contract
• A contract may contain ≥ 1 performance obligations.
• These are promises to transfer ‘distinct’ goods/services to customer - so necessary
to break individual contracts down into a series of ‘distinct’ goods & services.
• Goods and services are distinct if:
The customer can benefit from the goods or services on its own or together with
other resources that are readily available to customer (Capable of being distinct); and
The promise to transfer the goods and services is separately identifiable from other
promises in the contract (Distinct in the context of the contract).
Sold $ > scrapConsume
Refer Para29

9. MFRS 15
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Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
 STEP 2: Identify separate performance obligations in the contract
• The goods or services are NOT distinct (Single performance obligation) if:
• The entity provides a significant service of integrating the goods or services with
other goods or services into a combined outputs.
• Goods or services are significantly customised by other goods or services.
• The goods or services are highly interrelated. E.g. two or more goods or services are
significantly affected by each other because the entity would not be able to fulfil its
promise by transferring each of the goods or services independently.

10. MFRS 15
© Copyright of KTP & THK
Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
 STEP 2: Identify separate performance obligations in the contract
 Case A - Significant integration service
Construct a hospital Engineering Construction Piping & wiring Equipment installationProcurement
 Capable of being distinct para 27(a)
× Distinct in the context of the contract para 27(b)
Single performance obligation

11. MFRS 15
© Copyright of KTP & THK
Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
 STEP 2: Identify separate performance obligations in the contract
 Case B - Promises are separately identifiable (installation)
 Capable of being distinct para 27(a)
Separate performance
obligations
Sell equipment Installation services
• Equipment is operational without modification
• Installation is not complex & can be performed by alternative service providers
 Distinct in the context of the contract para 27(b)
• Both are not inputs to a combined item (no significant integration service)
• Installation doesn’t significantly modify the equipment
• Installation doesn’t significantly affect the equipment (not highly interrelated)

12. MFRS 15
© Copyright of KTP & THK
Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
 STEP 2: Identify separate performance obligations in the contract
• Performance obligations Satisfied Over Time – where an entity transfers control of
goods or services over time, then the entity is regarded as satisfying performance obligation
over time if any one of the following are met: -
 The customer simultaneously receives and consumes the benefits provided by the entity’s
performance;
 The entity’s performance creates or enhances an asset that the customer controls; or
 The entity’s performance doesn’t create an asset with alternative use to the entity, and the entity has
an enforceable right to payment for the performance completed to date.

13. MFRS 15
© Copyright of KTP & THK
Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
 STEP 2: Identify separate performance obligations in the contract
• Performance obligations Satisfied at A Point of Time– If a performance obligation is
not satisfied over time, an entity satisfies the performance obligation at a point in time.
• To determine the point in time when the customer obtains control of the asset by
considering the indicators below: -
 The entity has a present right to payment for the asset;
 The customer has a legal title of the asset;
 The entity has transferred physical possession of the asset (except for bill & hold agreement);
 The customer has the significant risks and rewards of ownership of the asset, and
 The customer has accepted the asset.

14. MFRS 15
© Copyright of KTP & THK
Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
 STEP 2: Identify separate performance obligations in the contract
 Case C – Determine whether the performance obligation is
Construct 5 shop lots on customer’s land
RM2.5mil
Satisfied Over Time / at A Point of Time?
• The entity’s performance creates/enhance the assets (5 shop lots) that the customer controlled
• The entity’s performance doesn’t create an asset with alternative use to the entity
• The entity has an enforceable right to payment for the performance completed to date.
Performance obligation Satisfied over time

15. MFRS 15
© Copyright of KTP & THK
Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
 STEP 2: Identify separate performance obligations in the contract
Manufacture &
sell equipment
 Case D – Performance obligation Satisfied at A Point of Time
RM750k
• Contract: To manufacture an equipment which is complex, highly
specialised and can only be used for the customer’s operations
• Deposit of RM200k is collected
• As at 31-12-2018, the equipment is 80% complete.
Should the revenue up to 80% recognised as at financial year end?
 At 31-12-2018, the equipment is incomplete and hence the performance
obligation has not been completed.
 No revenue can be taken up for year ended 31-12-2018
 The revenue of RM750k can only be taken up once the equipment is 100%
complete and is transferred to the customer (when control is transferred).

16. MFRS 15
© Copyright of KTP & THK
Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
 STEP 2: Identify separate performance obligations in the contract
• Performance obligations in a Bill & Hole Sales – In a bill and hold agreement, the seller
holds the goods on the customer’s behalf.
• MFRS 15 provides that if ALL the 4 conditions are met, then the buyer has obtained
control of the goods at the time of bill and hold.
 The reason for the bill and hold is substantive;
 The goods are identified separately as belonging to the customer;
 The goods is ready for physical transfer to the customer; and
 The goods have no alternative use.

17. MFRS 15
© Copyright of KTP & THK
Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
 STEP 3: Determine the transaction price
• An entity must consider the contract terms and its customary business practices to
determine the transaction price. Perhaps standard practice to give volume discounts!
• Usually, it will simply be the price specified by the contract or price list.
• Transaction price is usually easy to determine when it is a fixed amount at the time
of sale.
• BUT it will be more complicated if, e.g. when the amount could vary in future based
on contract terms or if consideration is in forms other than cash.

18. MFRS 15
© Copyright of KTP & THK
Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
 STEP 3: Determine the transaction price
• The nature, timing and amount of the consideration promised by a customer affect the
estimate of the transaction price.
• The effects of the following points to be considered in determining the transaction price: -
i. Variable consideration;
ii. Constraints in the estimation of a variable consideration;
iii. The existence of a significant financing component in the contract;
iv. Non-cash consideration;
v. Option for additional goods or services

19. MFRS 15
© Copyright of KTP & THK
Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
 STEP 3: Determine the transaction price
i. Variable consideration
• Consideration may vary due to discounts, rebates, refunds, credits, incentives, etc.
• The promised consideration can also be variable if the consideration is subject to contingent
clauses, i.e. the happening or non-happening of a future event.
• Variable consideration shall be estimated by using either of the following methods: -
 Expected Value Method
 Most Likely Amount Method

20. MFRS 15
© Copyright of KTP & THK
Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
 STEP 3: Determine the transaction price
ii. Constraints in the estimation of a variable consideration
• Consideration which is susceptible to outside factors (e.g. possible obsolescence of goods);
• Contract includes a large range of variable amounts as consideration;
• Consideration that has yet to be finalised;
• The contract may have a broad range of price concessions depending on several factors.

21. MFRS 15
© Copyright of KTP & THK
Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
 STEP 3: Determine the transaction price
 Case E – Volume discount incentive (variable consideration & constraints in estimation of it)
Contract with customer on 1-1-2018
- to sell Product A for RM100 per unit
- if the customer purchases >1,000
units of Product A in a calendar
year, the contract specifies that the
price per unit is retrospectively
reduced to RM90 per unit.
(Variable consideration)
31-3-2018
1-1-2018
Sign contract
Sell 75 units
Recognise revenue of RM7,500
(75 units x RM100 per unit)
31-5-2018
Sell 500 units
Recognise revenue of RM44,250
(500 units x RM90 per unit –
75 units x RM10 price reduction)
Customer may
not purchase
>1000 in 2018
Customer may
purchase >1000
in 2018

22. MFRS 15
© Copyright of KTP & THK
Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
 STEP 3: Determine the transaction price
iii. The existence of a significant financing component in the contract
• If goods or services are contracted for with the consideration being payable after a
period of time (>12 months), MFRS requires the amount to include a financing
component;
• The entity shall adjust the promised amount of consideration for the effects of the
time value of money.
• If the credit period given < 12 months, MFRS does not require the financing
component to be calculated as it is deemed to be not significant.

23. MFRS 15
© Copyright of KTP & THK
Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
 STEP 3: Determine the transaction price
 Case F – Advance payment (existence of a significant financing component)
Contract with customer - sell an asset
- Control of the asset will transfer
in 2 years (performance obligation
satisfied at a point in time)
- Option 1: Advance payment of
RM4,000
- Option 2: Payment of RM5,000
after 2 years
(Significant financing component)
After 1 year
When contract signed
Recognised
contract liability
Recognise interest
e.g. RM494
Dr Interest expenses RM494
Cr Contract liability RM494
After 2 years
Recognise revenue
Dr Contract liability RM4,494
Cr Revenue RM4,494
Dr Cash RM4,000
Cr Contract liability RM4,000

24. MFRS 15
© Copyright of KTP & THK
Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
 STEP 3: Determine the transaction price
iv. Non-cash consideration
• Where goods or services are exchanged for a consideration other
than cash – the non-cash consideration has to be measured at
fair value (MFRS 13).
• If fair value of the non-cash consideration cannot be reasonably
estimated, the entity shall measure the consideration indirectly by
reference to the stand-alone selling price of the goods or
services promised to the customer in exchange for the
consideration.
Non-cash
consideration by
customer
Stand-alone selling
price of our goods
exchanged

25. MFRS 15
© Copyright of KTP & THK
Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
 STEP 3: Determine the transaction price
v. Option for additional goods or services
• In some instances, customers are given an option with “material right” to acquire additional
goods or services for free or at a discounted price.
• Under MFRS 15, the option with material right should be accounted for as a separate
performance obligation under the same contract.
• But if the option does not provide a material right to the customer to acquire additional
goods or services at a discounted price, but at normal selling prices, then MFRS 15 requires
that such option be accounted for as a separate contract when customer exercises that
option.

26. MFRS 15
© Copyright of KTP & THK
Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
 STEP 4: Allocate transaction price to the separate performance obligations
• When a contract contains more than 1 performance obligation, it will be necessary
to allocate the transaction price to each performance obligations.
• If a stand-alone selling price is not directly observable, it should be estimated by
considering all information that is reasonably available (e.g. market conditions)
• This is most commonly used in the telecoms sector when accounting for contracts
that bundle together the sale of a phone with the provision of network services.

27. MFRS 15
© Copyright of KTP & THK
Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
 Case G – Multiple-element arrangement
 STEP 4: Allocate transaction price to the separate performance obligations
Stand-alone selling price:
Smartphone RM1,800
Calling & data plan for 2 years RM1,440
Total RM3,240
Maxis offers a bundled
service: if payment is made
upfront using selected
Banks’ credit cards where
the customer pays the bank
in 12 instalments, Maxis
charges an upfront bundled
amount of RM2,800.
Stand-alone price Allocation of fair
value
Allocated amount
Smartphone 1,800 1,800/3,240×2,800 1,556
2 years plan 1,440 1,440/3,240×2,800 1,244
Total 3,240 2,800

28. MFRS 15
© Copyright of KTP & THK
Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
 Case G – Multiple-element arrangement
 STEP 4: Allocate transaction price to the separate performance obligations
Dr Cr
Cash received – customer or credit card company 2,800
Revenue – sale of smartphone 1,556
Deferred revenue – call & data charges 1,244
At inception of arrangement: -
Stand-alone
price
Allocation of fair
value
Allocated
amount
Smartphone 1,800 1,800/3,240×2,800 1,556
2 years plan 1,440 1,440/3,240×2,800 1,244
Total 3,240 2,800

29. MFRS 15
© Copyright of KTP & THK
Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
 Case G – Multiple-element arrangement
 STEP 4: Allocate transaction price to the separate performance obligations
At each of the 2 year: -
Stand-alone
price
Allocation of fair
value
Allocated
amount
Smartphone 1,800 1,800/3,240×2,800 1,556
2 years plan 1,440 1,440/3,240×2,800 1,244
Total 3,240 2,800
Dr Cr
Deferred revenue – call & data
charges (RM1,244/2)
622
Revenue (for each of the 2 years) 622

30. MFRS 15
© Copyright of KTP & THK
Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
 STEP 5: Recognise revenue when a performance obligation is satisfied
• Performance obligations are settled by transferring the good or service to the
customer.
• This occurs when the customer obtains control of the goods or services.
• Performance obligations may be satisfied (and therefore control transferred)
over time or at point in time.
• Revenue is recognised when control is transferred.

31. MFRS 15
 MFRS 15 must be applied retrospectively to each prior period, BUT an entity can choose
whether to apply the Standard: -
© Copyright of KTP & THK
Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
1. Full Retrospective Approach – Retrospectively to each prior period presented; or
2. Modified Retrospective Approach – Retrospectively according to an alternative
transition method that requires the cumulative effect of applying the Standard to
be recognized in equity of initial application but does not require restatement of
comparative periods (In applying this method, apply retrospectively only to the
contracts that are not completed at the date of initial application).