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TMI BlogRevenue from Contracts with Customers [Omitted w.e.f. 30.3.2016]X X X X Extracts X X X X X X X X Extracts X X X X ..... ects to be entitled in exchange for those goods or services. 3 An entity shall consider the terms of the contract and all relevant facts and circumstances when applying this Standard. An entity shall apply this Standard, including the use of any practical expedients, consistently to contracts with similar characteristics and in similar circumstances. 4 This Standard specifies the accounting for an individual contract with a customer. However, as a practical expedient, an entity may apply this Standard to a portfolio of contracts (or performance obligations) with similar characteristics if the entity reasonably expects that the effects on the financial statements of applying this Standard to the portfolio would not differ materially from applying this Standard to the individual contracts (or performance obligations) within that portfolio. When accounting for a portfolio, an entity shall use estimates and assumptions that reflect the size and composition of the portfolio. Scope 5 An entity shall apply this Standard to all contracts with customers, except the following: (a) lease contracts within the scope of Ind AS 17, Leases; (b) insurance contracts within t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e part (or parts) of the contract. 8 This Standard specifies the accounting for the incremental costs of obtaining a contract with a customer and for the costs incurred to fulfil a contract with a customer if those costs are not within the scope of another Standard (see paragraphs 91 104). An entity shall apply those paragraphs only to the costs incurred that relate to a contract with a customer (or part of that contract) that is within the scope of this Standard. Recognition Identifying the contract 9 An entity shall account for a contract with a customer that is within the scope of this Standard only when all of the following criteria are met: (a) the parties to the contract have approved the contract (in writing, orally or in accordance with other customary business practices) and are committed to perform their respective obligations; (b) the entity can identify each party s rights regarding the goods or services to be transferred; (c) the entity can identify the payment terms for the goods or services to be transferred; (d) the contract has commercial substance (i.e. the risk, timing or amount of the entity s future cash flows is e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ract inception, an entity shall not reassess those criteria unless there is an indication of a significant change in facts and circumstances. For example, if a customer s ability to pay the consideration deteriorates significantly, an entity would reassess whether it is probable that the entity will collect the consideration to which the entity will be entitled in exchange for the remaining goods or services that will be transferred to the customer. 14 If a contract with a customer does not meet the criteria in paragraph 9, an entity shall continue to assess the contract to determine whether the criteria in paragraph 9 are subsequently met. 15 When a contract with a customer does not meet the criteria in paragraph 9 and an entity receives consideration from the customer, the entity shall recognise the consideration received as revenue only when either of the following events has occurred: (a) the entity has no remaining obligations to transfer goods or services to the customer and all, or substantially all, of the consideration promised by the customer has been received by the entity and is non-refundable; or (b) the contract has been terminated and the consideration re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reated or changed by a modification are enforceable, an entity shall consider all relevant facts and circumstances including the terms of the contract and other evidence. If the parties to a contract have approved a change in the scope of the contract but have not yet determined the corresponding change in price, an entity shall estimate the change to the transaction price arising from the modification in accordance with paragraphs 50 54 on estimating variable consideration and paragraphs 56 58 on constraining estimates of variable consideration. 20 An entity shall account for a contract modification as a separate contract if both of the following conditions are present: (a) the scope of the contract increases because of the addition of promised goods or services that are distinct (in accordance with paragraphs 26 30); and (b) the price of the contract increases by an amount of consideration that reflects the entity s stand-alone selling prices of the additional promised goods or services and any appropriate adjustments to that price to reflect the circumstances of the particular contract. For example, an entity may adjust the stand-alone selling price of an additional goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, an entity shall assess the goods or services promised in a contract with a customer and shall identify as a performance obligation each promise to transfer to the customer either: (a) a good or service (or a bundle of goods or services) that is distinct; or (b) a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer (see paragraph 23). 23 A series of distinct goods or services has the same pattern of transfer to the customer if both of the following criteria are met: (a) each distinct good or service in the series that the entity promises to transfer to the customer would meet the criteria in paragraph 35 to be a performance obligation satisfied over time; and (b) in accordance with paragraphs 39 40, the same method would be used to measure the entity s progress towards complete satisfaction of the performance obligation to transfer each distinct good or service in the series to the customer. Promises in contracts with customers 24 A contract with a customer generally explicitly states the goods or services that an entity promises to transfer to a customer. However, the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 63); and (j) granting options to purchase additional goods or services (when those options provide a customer with a material right, as described in paragraphs B39 B43). 27 A good or service that is promised to a customer is distinct if both of the following criteria are met: (a) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (ie the good or service is capable of being distinct); and (b) the entity s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (ie the good or service is distinct within the context of the contract). 28 A customer can benefit from a good or service in accordance with paragraph 27(a) if the good or service could be used, consumed, sold for an amount that is greater than scrap value or otherwise held in a way that generates economic benefits. For some goods or services, a customer may be able to benefit from a good or service on its own. For other goods or services, a customer may be able to benefit from the good or service only in conjunction with other readily available resources. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce (ie an asset) to a customer. An asset is transferred when (or as) the customer obtains control of that asset. 32 For each performance obligation identified in accordance with paragraphs 22 30, an entity shall determine at contract inception whether it satisfies the performance obligation over time (in accordance with paragraphs 35 37) or satisfies the performance obligation at a point in time (in accordance with paragraph 38). If an entity does not satisfy a performance obligation over time, the performance obligation is satisfied at a point in time. 33 Goods and services are assets, even if only momentarily, when they are received and used (as in the case of many services). Control of an asset refers to the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset. Control includes the ability to prevent other entities from directing the use of, and obtaining the benefits from, an asset. The benefits of an asset are the potential cash flows (inflows or savings in outflows) that can be obtained directly or indirectly in many ways, such as by: (a) using the asset to produce goods or provide services (including public services) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at at least compensates the entity for performance completed to date if the contract is terminated by the customer or another party for reasons other than the entity s failure to perform as promised. Paragraphs B9 B13 provide guidance for assessing the existence and enforceability of a right to payment and whether an entity s right to payment would entitle the entity to be paid for its performance completed to date. Performance obligations satisfied at a point in time 38 If a performance obligation is not satisfied over time in accordance with paragraphs 35 37, an entity satisfies the performance obligation at a point in time. To determine the point in time at which a customer obtains control of a promised asset and the entity satisfies a performance obligation, the entity shall consider the requirements for control in paragraphs 31 34. In addition, an entity shall consider indicators of the transfer of control, which include, but are not limited to, the following: (a) The entity has a present right to payment for the asset-if a customer is presently obliged to pay for an asset, then that may indicate that the customer has obtained the ability to direct the use of, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to direct the use of, and obtain substantially all of the remaining benefits from, the asset. To evaluate the effect of a contractual customer acceptance clause on when control of an asset is transferred, an entity shall consider the guidance in paragraphs B83 B86. Measuring progress towards complete satisfaction of a performance obligation 39 For each performance obligation satisfied over time in accordance with paragraphs 35 37, an entity shall recognise revenue over time by measuring the progress towards complete satisfaction of that performance obligation. The objective when measuring progress is to depict an entity s performance in transferring control of goods or services promised to a customer (ie the satisfaction of an entity s performance obligation). 40 An entity shall apply a single method of measuring progress for each performance obligation satisfied over time and the entity shall apply that method consistently to similar performance obligations and in similar circumstances. At the end of each reporting period, an entity shall remeasure its progress towards complete satisfaction of a performance obligation satisfied over time. Methods for measuring p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmance obligation. Determining the transaction price 47 An entity shall consider the terms of the contract and its customary business practices to determine the transaction price. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties (for example, some sales taxes). The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. 48 The nature, timing and amount of consideration promised by a customer affect the estimate of the transaction price. When determining the transaction price, an entity shall consider the effects of all of the following: (a) variable consideration (see paragraphs 50 55 and 59); (b) constraining estimates of variable consideration (see paragraphs 56 58); (c) the existence of a significant financing component in the contract (see paragraphs 60 65); (d) non-cash consideration (see paragraphs 66 69); and (e) consideration payable to a customer (see paragraphs 70 72). 49 For the purpose of determining the transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, when entering into the contract with the customer, is to offer a price concession to the customer. 53 An entity shall estimate an amount of variable consideration by using either of the following methods, depending on which method the entity expects to better predict the amount of consideration to which it will be entitled: (a) The expected value-the expected value is the sum of probability-weighted amounts in a range of possible consideration amounts. An expected value may be an appropriate estimate of the amount of variable consideration if an entity has a large number of contracts with similar characteristics. (b) The most likely amount-the most likely amount is the single most likely amount in a range of possible consideration amounts (ie the single most likely outcome of the contract). The most likely amount may be an appropriate estimate of the amount of variable consideration if the contract has only two possible outcomes (for example, an entity either achieves a performance bonus or does not). 54 An entity shall apply one method consistently throughout the contract when estimating the effect of an uncertainty on an amount of variable consideration to which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out the amount of consideration is not expected to be resolved for a long period of time. (c) the entity s experience (or other evidence) with similar types of contracts is limited, or that experience (or other evidence) has limited predictive value. (d) the entity has a practice of either offering a broad range of price concessions or changing the payment terms and conditions of similar contracts in similar circumstances. (e) the contract has a large number and broad range of possible consideration amounts. 58 An entity shall apply paragraph B63 to account for consideration in the form of a salesbased or usage-based royalty that is promised in exchange for a licence of intellectual property. Reassessment of variable consideration 59 At the end of each reporting period, an entity shall update the estimated transaction price (including updating its assessment of whether an estimate of variable consideration is constrained) to represent faithfully the circumstances present at the end of the reporting period and the changes in circumstances during the reporting period. The entity shall account for changes in the transaction price in accordance with paragraphs 87 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the consideration is a salesbased royalty). (c) the difference between the promised consideration and the cash selling price of the good or service (as described in paragraph 61) arises for reasons other than the provision of finance to either the customer or the entity, and the difference between those amounts is proportional to the reason for the difference. For example, the payment terms might provide the entity or the customer with protection from the other party failing to adequately complete some or all of its obligations under the contract. 63 As a practical expedient, an entity need not adjust the promised amount of consideration for the effects of a significant financing component if the entity expects, at contract inception, that the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. 64 To meet the objective in paragraph 61 when adjusting the promised amount of consideration for a significant financing component, an entity shall use the discount rate that would be reflected in a separate financing transaction between the entity and its customer at contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or services as non-cash consideration received from the customer. Consideration payable to a customer 70 Consideration payable to a customer includes cash amounts that an entity pays, or expects to pay, to the customer (or to other parties that purchase the entity s goods or services from the customer). Consideration payable to a customer also includes credit or other items (for example, a coupon or voucher) that can be applied against amounts owed to the entity (or to other parties that purchase the entity s goods or services from the customer). An entity shall account for consideration payable to a customer as a reduction of the transaction price and, therefore, of revenue unless the payment to the customer is in exchange for a distinct good or service (as described in paragraphs 26 30) that the customer transfers to the entity. If the consideration payable to a customer includes a variable amount, an entity shall estimate the transaction price (including assessing whether the estimate of variable consideration is constrained) in accordance with paragraphs 50 58. 71 If consideration payable to a customer is a payment for a distinct good or service from the customer, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d-alone selling price basis, an entity shall determine the stand-alone selling price at contract inception of the distinct good or service underlying each performance obligation in the contract and allocate the transaction price in proportion to those stand-alone selling prices. 77 The stand-alone selling price is the price at which an entity would sell a promised good or service separately to a customer. The best evidence of a stand-alone selling price is the observable price of a good or service when the entity sells that good or service separately in similar circumstances and to similar customers. A contractually stated price or a list price for a good or service may be (but shall not be presumed to be) the stand-alone selling price of that good or service. 78 If a stand-alone selling price is not directly observable, an entity shall estimate the standalone selling price at an amount that would result in the allocation of the transaction price meeting the allocation objective in paragraph 73. When estimating a stand-alone selling price, an entity shall consider all information (including market conditions, entity-specific factors and information about the customer or class ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relative to that estimated aggregate stand-alone selling price determined by the residual approach. When an entity uses a combination of methods to estimate the stand-alone selling price of each promised good or service in the contract, the entity shall evaluate whether allocating the transaction price at those estimated standalone selling prices would be consistent with the allocation objective in paragraph 73 and the requirements for estimating stand-alone selling prices in paragraph 78. Allocation of a discount 81 A customer receives a discount for purchasing a bundle of goods or services if the sum of the stand-alone selling prices of those promised goods or services in the contract exceeds the promised consideration in a contract. Except when an entity has observable evidence in accordance with paragraph 82 that the entire discount relates to only one or more, but not all, performance obligations in a contract, the entity shall allocate a discount proportionately to all performance obligations in the contract. The proportionate allocation of the discount in those circumstances is a consequence of the entity allocating the transaction price to each performance obligati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riable payment relate specifically to the entity s efforts to satisfy the performance obligation or transfer the distinct good or service (or to a specific outcome from satisfying the performance obligation or transferring the distinct good or service); and (b) allocating the variable amount of consideration entirely to the performance obligation or the distinct good or service is consistent with the allocation objective in paragraph 73 when considering all of the performance obligations and payment terms in the contract. 86 The allocation requirements in paragraphs 73 83 shall be applied to allocate the remaining amount of the transaction price that does not meet the criteria in paragraph 85. Changes in the transaction price 87 After contract inception, the transaction price can change for various reasons, including the resolution of uncertain events or other changes in circumstances that change the amount of consideration to which an entity expects to be entitled in exchange for the promised goods or services. 88 An entity shall allocate to the performance obligations in the contract any subsequent changes in the transaction price on the same basis as at contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en incurred, unless those costs are explicitly chargeable to the customer regardless of whether the contract is obtained. 94 As a practical expedient, an entity may recognise the incremental costs of obtaining a contract as an expense when incurred if the amortisation period of the asset that the entity otherwise would have recognised is one year or less. Costs to fulfil a contract 95 If the costs incurred in fulfilling a contract with a customer are not within the scope of another Standard (for example, Ind AS 2, Inventories, Ind AS 16, Property, Plant and Equipment or Ind AS 38, Intangible Assets), an entity shall recognise an asset from the costs incurred to fulfil a contract only if those costs meet all of the following criteria: (a) the costs relate directly to a contract or to an anticipated contract that the entity can specifically identify (for example, costs relating to services to be provided under renewal of an existing contract or costs of designing an asset to be transferred under a specific contract that has not yet been approved); (b) the costs generate or enhance resources of the entity that will be used in satisfying (or in continuing to sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the customer of the goods or services to which the asset relates. Such a change shall be accounted for as a change in accounting estimate in accordance with Ind AS 8. 101 An entity shall recognise an impairment loss in profit or loss to the extent that the carrying amount of an asset recognised in accordance with paragraph 91 or 95 exceeds: (a) the remaining amount of consideration that the entity expects to receive in exchange for the goods or services to which the asset relates; less (b) the costs that relate directly to providing those goods or services and that have not been recognised as expenses (see paragraph 97). 102 For the purposes of applying paragraph 101 to determine the amount of consideration that an entity expects to receive, an entity shall use the principles for determining the transaction price (except for the requirements in paragraphs 56 58 on constraining estimates of variable consideration) and adjust that amount to reflect the effects of the customer s credit risk. 103 Before an entity recognises an impairment loss for an asset recognised in accordance with paragraph 91 or 95, the entity shall recognise any impairment loss for assets related t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 108 A receivable is an entity s right to consideration that is unconditional. A right to consideration is unconditional if only the passage of time is required before payment of that consideration is due. For example, an entity would recognise a receivable if it has a present right to payment even though that amount may be subject to refund in the future. An entity shall account for a receivable in accordance with Ind AS 109. Upon initial recognition of a receivable from a contract with a customer, any difference between the measurement of the receivable in accordance with Ind AS 109 and the corresponding amount of revenue recognised shall be presented as an expense (for example, as an impairment loss). 109 This Standard uses the terms contract asset and contract liability but does not prohibit an entity from using alternative descriptions in the balance sheet for those items. If an entity uses an alternative description for a contract asset, the entity shall provide sufficient information for a user of the financial statements to distinguish between receivables and contract assets. 109AA An entity shall present separately the amount of excise duty included in the reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition, an entity shall disclose sufficient information to enable users of financial statements to understand the relationship between the disclosure of disaggregated revenue (in accordance with paragraph 114) and revenue information that is disclosed for each reportable segment, if the entity applies Ind AS 108, Operating Segments. Contract balances 116 An entity shall disclose all of the following: (a) the opening and closing balances of receivables, contract assets and contract liabilities from contracts with customers, if not otherwise separately presented or disclosed; (b) revenue recognised in the reporting period that was included in the contract liability balance at the beginning of the period; and (c) revenue recognised in the reporting period from performance obligations satisfied (or partially satisfied) in previous periods (for example, changes in transaction price). 117 An entity shall explain how the timing of satisfaction of its performance obligations (see paragraph 119(a)) relates to the typical timing of payment (see paragraph 119(b)) and the effect that those factors have on the contract asset and the contract liability balances. The explana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emaining performance obligations: (a) the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period; and (b) an explanation of when the entity expects to recognise as revenue the amount disclosed in accordance with paragraph 120(a), which the entity shall disclose in either of the following ways: (i) on a quantitative basis using the time bands that would be most appropriate for the duration of the remaining performance obligations; or (ii) by using qualitative information. 121 As a practical expedient, an entity need not disclose the information in paragraph 120 for a performance obligation if either of the following conditions is met: (a) the performance obligation is part of a contract that has an original expected duration of one year or less; or (b) the entity recognises revenue from the satisfaction of the performance obligation in accordance with paragraph B16. 122 An entity shall explain qualitatively whether it is applying the practical expedient in paragraph 121 and whether any consideration from contracts with customers is not included i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le the amount of revenue recognised in the statement of profit and loss with the contracted price showing separately each of the adjustments made to the contract price, for example, on account of discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, etc., specifying the nature and amount of each such adjustment separately. Assets recognised from the costs to obtain or fulfil a contract with a customer 127 An entity shall describe both of the following: (a) the judgements made in determining the amount of the costs incurred to obtain or fulfil a contract with a customer (in accordance with paragraph 91 or 95); and (b) the method it uses to determine the amortisation for each reporting period. 128 An entity shall disclose all of the following: (a) the closing balances of assets recognised from the costs incurred to obtain or fulfil a contract with a customer (in accordance with paragraph 91 or 95), by main category of asset (for example, costs to obtain contracts with customers, precontract costs and setup costs); and (b) the amount of amortisation and any impairment losses recognised in the reporting period. Practical e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts collected on behalf of third parties. Appendix B Application Guidance This appendix is an integral part of the Standard. It describes the application of paragraphs 1 29 and has the same authority as the other parts of the Standard. B1 This application guidance is organised into the following categories: (a) performance obligations satisfied over time (paragraphs B2 B13); (b) methods for measuring progress towards complete satisfaction of a performance obligation (paragraphs B14 B19); (c) sale with a right of return (paragraphs B20 B27); (d) warranties (paragraphs B28 B33); (e) principal versus agent considerations (paragraphs B34 B38); (f) customer options for additional goods or services (paragraphs B39 B43); (g) customers unexercised rights (paragraphs B44 B47); (h) non-refundable upfront fees (and some related costs) (paragraphs B48 B51); (i) licensing (paragraphs B52 B63); (j) repurchase agreements (paragraphs B64 B76); (k) consignment arrangements (paragraphs B77 B78); (l) bill-and-hold arrangements (paragraphs B79 B82); (m) customer acceptance (paragraphs B83 B86); and (n) disclosure o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the entity and that would remain controlled by the entity if the performance obligation were to transfer to another entity. Customer controls the asset as it is created or enhanced (paragraph 35(b)) B5 In determining whether a customer controls an asset as it is created or enhanced in accordance with paragraph 35(b), an entity shall apply the requirements for control in paragraphs 31 34 and 38. The asset that is being created or enhanced (for example, a work-in-progress asset) could be either tangible or intangible. Entity s performance does not create an asset with an alternative use (paragraph 35(c)) B6 In assessing whether an asset has an alternative use to an entity in accordance with paragraph 36, an entity shall consider the effects of contractual restrictions and practical limitations on the entity s ability to readily direct that asset for another use, such as selling it to a different customer. The possibility of the contract with the customer being terminated is not a relevant consideration in assessing whether the entity would be able to readily direct the asset for another use. B7 A contractual restriction on an entity s ability to direct an asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r (b) a reasonable return on the entity s cost of capital for similar contracts (or the entity s typical operating margin for similar contracts) if the contract-specific margin is higher than the return the entity usually generates from similar contracts. B10 An entity s right to payment for performance completed to date need not be a present unconditional right to payment. In many cases, an entity will have an unconditional right to payment only at an agreed-upon milestone or upon complete satisfaction of the performance obligation. In assessing whether it has a right to payment for performance completed to date, an entity shall consider whether it would have an enforceable right to demand or retain payment for performance completed to date if the contract were to be terminated before completion for reasons other than the entity s failure to perform as promised. B11 In some contracts, a customer may have a right to terminate the contract only at specified times during the life of the contract or the customer might not have any right to terminate the contract. If a customer acts to terminate a contract without having the right to terminate the contract at that time (includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e satisfaction of a performance obligation B14 Methods that can be used to measure an entity s progress towards complete satisfaction of a performance obligation satisfied over time in accordance with paragraphs 35 37 include the following: (a) output methods (see paragraphs B15 B17); and (b) input methods (see paragraphs B18 B19). Output methods B15 Output methods recognise revenue on the basis of direct measurements of the value to the customer of the goods or services transferred to date relative to the remaining goods or services promised under the contract. Output methods include methods such as surveys of performance completed to date, appraisals of results achieved, milestones reached, time elapsed and units produced or units delivered. When an entity evaluates whether to apply an output method to measure its progress, the entity shall consider whether the output selected would faithfully depict the entity s performance towards complete satisfaction of the performance obligation. An output method would not provide a faithful depiction of the entity s performance if the output selected would fail to measure some of the goods or services for which control h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficiencies in the entity s performance that were not reflected in the price of the contract (for example, the costs of unexpected amounts of wasted materials, labour or other resources that were incurred to satisfy the performance obligation). (b) When a cost incurred is not proportionate to the entity s progress in satisfying the performance obligation. In those circumstances, the best depiction of the entity s performance may be to adjust the input method to recognise revenue only to the extent of that cost incurred. For example, a faithful depiction of an entity s performance might be to recognise revenue at an amount equal to the cost of a good used to satisfy a performance obligation if the entity expects at contract inception that all of the following conditions would be met: (i) the good is not distinct; (ii) the customer is expected to obtain control of the good significantly before receiving services related to the good; (iii) the cost of the transferred good is significant relative to the total expected costs to completely satisfy the performance obligation; and (iv) the entity procures the good from a third party and is not significantly involved in design ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end of each reporting period, the entity shall update its assessment of amounts for which it expects to be entitled in exchange for the transferred products and make a corresponding change to the transaction price and, therefore, in the amount of revenue recognised. B24 An entity shall update the measurement of the refund liability at the end of each reporting period for changes in expectations about the amount of refunds. An entity shall recognise corresponding adjustments as revenue (or reductions of revenue). B25 An asset recognised for an entity s right to recover products from a customer on settling a refund liability shall initially be measured by reference to the former carrying amount of the product (for example, inventory) less any expected costs to recover those products (including potential decreases in the value to the entity of returned products). At the end of each reporting period, an entity shall update the measurement of the asset arising from changes in expectations about products to be returned. An entity shall present the asset separately from the refund liability. B26 Exchanges by customers of one product for another of the same type, quality, conditi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sk of purchasing defective products. (b) The length of the warranty coverage period-the longer the coverage period, the more likely it is that the promised warranty is a performance obligation because it is more likely to provide a service in addition to the assurance that the product complies with agreed-upon specifications. (c) The nature of the tasks that the entity promises to perform-if it is necessary for an entity to perform specified tasks to provide the assurance that a product complies with agreed-upon specifications (for example, a return shipping service for a defective product), then those tasks likely do not give rise to a performance obligation. B32 If a warranty, or a part of a warranty, provides a customer with a service in addition to the assurance that the product complies with agreed-upon specifications, the promised service is a performance obligation. Therefore, an entity shall allocate the transaction price to the product and the service. If an entity promises both an assurance-type warranty and a service-type warranty but cannot reasonably account for them separately, the entity shall account for both of the warranties together as a single performa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived in exchange for the goods or services to be provided by that party. B37 Indicators that an entity is an agent (and therefore does not control the good or service before it is provided to a customer) include the following: (a) another party is primarily responsible for fulfilling the contract; (b) the entity does not have inventory risk before or after the goods have been ordered by a customer, during shipping or on return; (c) the entity does not have discretion in establishing prices for the other party s goods or services and, therefore, the benefit that the entity can receive from those goods or services is limited; (d) the entity s consideration is in the form of a commission; and (e) the entity is not exposed to credit risk for the amount receivable from a customer in exchange for the other party s goods or services. B38 If another entity assumes the entity s performance obligations and contractual rights in the contract so that the entity is no longer obliged to satisfy the performance obligation to transfer the promised good or service to the customer (ie the entity is no longer acting as the principal), the entity shall not recognise revenue for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods or services and those goods or services are similar to the original goods or services in the contract and are provided in accordance with the terms of the original contract, then an entity may, as a practical alternative to estimating the stand-alone selling price of the option, allocate the transaction price to the optional goods or services by reference to the goods or services expected to be provided and the corresponding expected consideration. Typically, those types of options are for contract renewals. Customers unexercised rights B44 In accordance with paragraph 106, upon receipt of a prepayment from a customer, an entity shall recognise a contract liability in the amount of the prepayment for its performance obligation to transfer, or to stand ready to transfer, goods or services in the future. An entity shall derecognise that contract liability (and recognise revenue) when it transfers those goods or services and, therefore, satisfies its performance obligation. B45 A customer s non-refundable prepayment to an entity gives the customer a right to receive a good or service in the future (and obliges the entity to stand ready to transfer a good or service). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the good or service as a separate performance obligation in accordance with paragraphs 22 30. B51 An entity may charge a non-refundable fee in part as compensation for costs incurred in setting up a contract (or other administrative tasks as described in paragraph 25). If those setup activities do not satisfy a performance obligation, the entity shall disregard those activities (and related costs) when measuring progress in accordance with paragraph B19. That is because the costs of setup activities do not depict the transfer of services to the customer. The entity shall assess whether costs incurred in setting up a contract have resulted in an asset that shall be recognised in accordance with paragraph 95. Licensing B52 A licence establishes a customer s rights to the intellectual property of an entity. Licences of intellectual property may include, but are not limited to, any of the following: (a) software and technology; (b) motion pictures, music and other forms of media and entertainment; (c) franchises; and (d) patents, trademarks and copyrights. B53 In addition to a promise to grant a licence to a customer, an entity may also promise to trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight to use an entity s intellectual property, an entity shall consider whether a customer can direct the use of, and obtain substantially all of the remaining benefits from, a licence at the point in time at which the licence is granted. A customer cannot direct the use of, and obtain substantially all of the remaining benefits from, a licence at the point in time at which the licence is granted if the intellectual property to which the customer has rights changes throughout the licence period. The intellectual property will change (and thus affect the entity s assessment of when the customer controls the licence) when the entity continues to be involved with its intellectual property and the entity undertakes activities that significantly affect the intellectual property to which the customer has rights. In these cases, the licence provides the customer with a right to access the entity s intellectual property (see paragraph B58). In contrast, a customer can direct the use of, and obtain substantially all of the remaining benefits from, the licence at the point in time at which the licence is granted if the intellectual property to which the customer has rights will not change (s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the licence is granted to the customer. This means that the customer can direct the use of, and obtain substantially all of the remaining benefits from, the licence at the point in time at which the licence transfers. An entity shall account for the promise to provide a right to use the entity s intellectual property as a performance obligation satisfied at a point in time. An entity shall apply paragraph 38 to determine the point in time at which the licence transfers to the customer. However, revenue cannot be recognised for a licence that provides a right to use the entity s intellectual property before the beginning of the period during which the customer is able to use and benefit from the licence. For example, if a software licence period begins before an entity provides (or otherwise makes available) to the customer a code that enables the customer to immediately use the software, the entity would not recognise revenue before that code has been provided (or otherwise made available). B62 An entity shall disregard the following factors when determining whether a licence provides a right to access the entity s intellectual property or a right to use the entity s inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e following: (a) a lease in accordance with Ind AS 17, Leases, if the entity can or must repurchase the asset for an amount that is less than the original selling price of the asset; or (b) a financing arrangement in accordance with paragraph B68 if the entity can or must repurchase the asset for an amount that is equal to or more than the original selling price of the asset. B67 When comparing the repurchase price with the selling price, an entity shall consider the time value of money. B68 If the repurchase agreement is a financing arrangement, the entity shall continue to recognise the asset and also recognise a financial liability for any consideration received from the customer. The entity shall recognise the difference between the amount of consideration received from the customer and the amount of consideration to be paid to the customer as interest and, if applicable, as processing or holding costs (for example, insurance). B69 If the option lapses unexercised, an entity shall derecognise the liability and recognise revenue. A put option B70 If an entity has an obligation to repurchase the asset at the customer s request (a put option) at a price tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntity shall evaluate whether that other party has obtained control of the product at that point in time. A product that has been delivered to another party may be held in a consignment arrangement if that other party has not obtained control of the product. Accordingly, an entity shall not recognise revenue upon delivery of a product to another party if the delivered product is held on consignment. B78 Indicators that an arrangement is a consignment arrangement include, but are not limited to, the following: (a) the product is controlled by the entity until a specified event occurs, such as the sale of the product to a customer of the dealer or until a specified period expires; (b) the entity is able to require the return of the product or transfer the product to a third party (such as another dealer); and (c) the dealer does not have an unconditional obligation to pay for the product (although it might be required to pay a deposit). Bill-and-hold arrangements B79 A bill-and-hold arrangement is a contract under which an entity bills a customer for a product but the entity retains physical possession of the product until it is transferred to the customer at a po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meet agreed-upon specifications. An entity shall consider such clauses when evaluating when a customer obtains control of a good or service. B84 If an entity can objectively determine that control of a good or service has been transferred to the customer in accordance with the agreed-upon specifications in the contract, then customer acceptance is a formality that would not affect the entity s determination of when the customer has obtained control of the good or service. For example, if the customer acceptance clause is based on meeting specified size and weight characteristics, an entity would be able to determine whether those criteria have been met before receiving confirmation of the customer s acceptance. The entity s experience with contracts for similar goods or services may provide evidence that a good or service provided to the customer is in accordance with the agreed-upon specifications in the contract. If revenue is recognised before customer acceptance, the entity still must consider whether there are any remaining performance obligations (for example, installation of equipment) and evaluate whether to account for them separately. B85 However, if an entity canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f good or service (for example, major product lines); (b) geographical region (for example, country or region); (c) market or type of customer (for example, government and non-government customers); (d) type of contract (for example, fixed-price and time-and-materials contracts); (e) contract duration (for example, short-term and long-term contracts); (f) timing of transfer of goods or services (for example, revenue from goods or services transferred to customers at a point in time and revenue from goods or services transferred over time); and (g) sales channels (for example, goods sold directly to consumers and goods sold through intermediaries). Appendix C Service Concession Arrangements This appendix is an integral part of the Standard. Background 1 Infrastructure for public services-such as roads, bridges, tunnels, prisons, hospitals, airports, water distribution facilities, energy supply and telecommunication networks- has traditionally been constructed, operated and maintained by the public sector and financed through public budget appropriation. 2 In recent times, governments have introduced contractual service arr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rantor controls or regulates what services the operator must provide with the infrastructure, to whom it must provide them, and at what price; and (b) the grantor controls-through ownership, beneficial entitlement or otherwise- any significant residual interest in the infrastructure at the end of the term of the arrangement. 6 Infrastructure used in a public-to-private service concession arrangement for its entire useful life (whole of life assets) is within the scope of this Appendix if the conditions in paragraph 5(a) of this Appendix are met. Paragraphs AG1 AG8 of the Application Guidance of this Appendix provide guidance on determining whether, and to what extent, public-to-private service concession arrangements are within the scope of this Appendix. 7 This Appendix applies to both: (a) infrastructure that the operator constructs or acquires from a third party for the purpose of the service arrangement; and (b) existing infrastructure to which the grantor gives the operator access for the purpose of the service arrangement. 8 This Appendix does not specify the accounting for infrastructure that was held and recognised as property, plant and equipment by the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15 If the operator provides construction or upgrade services the consideration received or receivable by the operator shall be recognised in accordance with Ind AS 115. The consideration may be rights to: (a) a financial asset, or (b) an intangible asset. 16 The operator shall recognise a financial asset to the extent that it has an unconditional contractual right to receive cash or another financial asset from or at the direction of the grantor for the construction services; the grantor has little, if any, discretion to avoid payment, usually because the agreement is enforceable by law. The operator has an unconditional right to receive cash if the grantor contractually guarantees to pay the operator (a) specified or determinable amounts or (b) the shortfall, if any, between amounts received from users of the public service and specified or determinable amounts, even if payment is contingent on the operator ensuring that the infrastructure meets specified quality or efficiency requirements. 17 The operator shall recognise an intangible asset to the extent that it receives a right (a licence) to charge users of the public service. A right to charge users of the pub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x. 24 The amount due from or at the direction of the grantor is accounted for in accordance with Ind AS 109 as measured at: (a) amortised cost; (b) fair value through other comprehensive income; or (c) fair value through profit or loss. 25 If the amount due from the grantor is measured at amortised cost or fair value through other comprehensive income, Ind AS 109 requires interest calculated using the effective interest method to be recognised in profit or loss. Intangible asset 26 Ind AS 38 applies to the intangible asset recognised in accordance with paragraphs 17 and 18 of this Appendix. Paragraphs 45 47 of Ind AS 38 provide guidance on measuring intangible assets acquired in exchange for a non-monetary asset or assets or a combination of monetary and non-monetary assets. Items provided to the operator by the grantor 27 In accordance with paragraph 11 of this Appendix, infrastructure items to which the operator is given access by the grantor for the purposes of the service arrangement are not recognised as property, plant and equipment of the operator. The grantor may also provide other items to the operator that the operator can keep or deal wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest in the infrastructure is the estimated current value of the infrastructure as if it were already of the age and in the condition expected at the end of the period of the arrangement. AG5 Control should be distinguished from management. If the grantor retains both the degree of control described in paragraph 5(a) of Appendix C and any significant residual interest in the infrastructure, the operator is only managing the infrastructure on the grantor s behalf-even though, in many cases, it may have wide managerial discretion. AG6 Conditions (a) and (b) together identify when the infrastructure, including any replacements required (see paragraph 21 of Appendix C), is controlled by the grantor for the whole of its economic life. For example, if the operator has to replace part of an item of infrastructure during the period of the arrangement (eg the top layer of a road or the roof of a building), the item of infrastructure shall be considered as a whole. Thus condition (b) is met for the whole of the infrastructure, including the part that is replaced, if the grantor controls any significant residual interest in the final replacement of that part. AG7 Sometimes the use o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied tangible assets, intangible assets, or financial assets, in exchange for the operator: (c) committing to provide the services according to certain terms and conditions during the concession period, and (d) when applicable, committing to return at the end of the concession period the rights received at the beginning of the concession period and/or acquired during the concession period. 3 The common characteristic of all service concession arrangements is that the operator both receives a right and incurs an obligation to provide public services. 4 The issue is what information should be disclosed in the notes in the financial statements of an operator and a grantor. 5 Certain aspects and disclosures relating to some service concession arrangements are addressed by Indian Accounting Standards (eg Ind AS 16 applies to acquisitions of items of property, plant and equipment, Ind AS 17 applies to leases of assets, and Ind AS 38 applies to acquisitions of intangible assets). However, a service concession arrangement may involve executory contracts that are not addressed in Indian Accounting Standards, unless the contracts are onerous, in which case Ind AS 37 applies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndard. The purpose of this appendix is only to bring out the major differences, if any, between Indian Accounting Standard (Ind AS) 115 and the corresponding International Financial Reporting Standard (IFRS) 15, Revenue from Contracts with Customers, IFRIC 12, Service Concession Arrangements and SIC 29 Service Concession Arrangements: Disclosures, issued by the International Accounting Standards Board. Comparison with IFRS 15, Revenue from Contracts with Customers, IFRIC 12 and SIC 29 1. Different terminology is used in Ind AS 115 eg the term balance sheet is used instead of statement of financial position and statement of profit and loss is used instead of statement of comprehensive income . 2. The transitional provisions given in IFRS 15 have not been given in Ind AS 115, since all transitional provisions related to Ind ASs, wherever considered appropriate, have been included in Ind AS 101, First-time Adoption of Indian Accounting Standards corresponding to IFRS 1, Firsttime Adoption of International Financial Reporting Standards. 3. As per paragraph of 15 of IFRS 15, an amount of consideration, among other things, can vary because of penalties. However, par ..... X X X X Extracts X X X X X X X X Extracts X X X X
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