A Practical Guide to Ind AS 115: Revenue from Contracts with Customers Paperback – 2018

Ind AS 115: Revenue from Contracts with Customers

As per Ind AS 115 notified vide G.S.R. 310(E) dt. 28 March 2018

CA. Santosh Maller Highlights • Contains more than 200 worked examples covering various practical aspects of Ind AS 115 • Contains simple explanations of the requirements of the new standard with lucid examples and diagrammatic illustrations • Extracts from real-life international companies that have early adopted IFRS 15 • Detailed sector-wise analysis of the impact of Ind AS 115 • Comparison with current Ind AS requirements in respective sections • Detailed illustration of disclosure requirements of Ind AS 115

Bloomsbury India Professional

A Practical Guide to

Contents at a glance About the author. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Table of contents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi List of examples. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxiii Comparison of Ind AS 115 with IFRS and US GAAP. . . . . . . . . . . . . . . . . . . . . . . . . xxxi INTRODUCTION AND SCOPE Chapter 1

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Chapter 2

Overview and Core Principle of the Standard. . . . . . . . . . . . . . . . . . . . 5

Chapter 3

Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 STEPS INVOLVED IN IND AS 115 STEP 1

Chapter 4

Identify the Contract with the Customer. . . . . . . . . . . . . . . . . . . . . . . 17 STEP 2

Chapter 5

Identifying Performance Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . 47

Chapter 6

Determine the Transaction Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

STEP 3 STEP 4 Chapter 7

Allocate the Transaction Price to the Performance Obligations . . . . 151 STEP 5

Chapter 8

Recognising Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 SPECIFIC ISSUES DEAL WITH BY IND AS 115

Chapter 9

Contract Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213

Chapter 10

Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229

Chapter 11

Repurchase Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239

Chapter 12

Customer Options to Acquire Additional Goods or Services . . . . . . 247

Chapter 13

Licenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265

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Ind AS 115 Revenue from Contracts with Customers

Chapter 14

Other Practical Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283 PRESENTATION AND DISCLOSURES

Chapter 15

Presentation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295

Chapter 16

Disclosures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305 TRANSITION

Chapter 17

Effective Date and Transition Methods. . . . . . . . . . . . . . . . . . . . . . . 333

Chapter 18

First-time Adoption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347 SECTOR SPECIFIC ISSUES

Chapter 19

Possible impact on companies in Pharmaceutical and Life Sciences sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351

Chapter 20

Possible impact on companies in Telecommunication sector . . . . . . 361

Chapter 21

Possible impact on companies in Technology and Software sector. . 367

Chapter 22

Possible impact on companies in automotive sector. . . . . . . . . . . . . 373

Chapter 23

Possible impact on companies in Consumer goods and retail sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377

Chapter 24

Possible impact on companies in Media and entertainment sectors . 385

Chapter 25

Possible impact on companies in Leisure and Hospitality sectors. . . . . . 393

Chapter 26

Possible impact on companies in Mining and Metals sectors. . . . . . 401

Chapter 27

Possible impact on companies in Industrial products sector. . . . . . . 405

Chapter 28

Possible impact on companies in Power and utility sector . . . . . . . . 409

Chapter 29

Possible impact on companies in engineering and construction sectors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 413 INTERNATIONAL PERSPECTIVES AND EXPERIENCE

Chapter 30

Possible impact on companies in Real Estate sector. . . . . . . . . . . . . 427

Chapter 31

Experiences of International Companies on IFRS 15. . . . . . . . . . . . 437

Chapter 32

Learning from Early Adopters of IFRS 15 . . . . . . . . . . . . . . . . . . . . 475

Chapter 33

Case Study Illustrating the Requirements and Checklists. . . . . . . . . 501

Key Terms Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 519 Annexure: Indian Accounting Standard (Ind AS) 115, Revenue from Contracts with Customers (Notified vide MCA Notification G.S.R. 310(E) dated 28 March 2018). . . . . . . . . . . . . . . . . . . . . . . 523 x

Table of contents About the author. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Contents at a glance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix List of examples. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxiii Comparison of Ind AS 115 with IFRS and US GAAP. . . . . . . . . . . . . . . . . . . . . . . . . xxxi INTRODUCTION AND SCOPE Chapter 1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Background of Ind AS 115 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Chapter 2 Overview and Core Principle of the Standard . . . . . . . . . . . . . . . . . 5 2.0 Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.1 Core Principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.2 Changes in Ind AS 115 since last notified. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Chapter 3 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.0 Scope of Ind AS 115 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.1 Other Considerations with regards to Scope of Ind AS 115. . . . . . . . . . . . . . . . 9 3.2 Who is a ‘customer’?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.2.1 Identifying ‘customer’ in a service concession arrangement. . . . . . 11 3.3 Collaborative arrangements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 3.4 Interaction with Other Ind AS Standards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Interaction with Ind AS 114. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 3.4.1 3.5 Practical Issues relating to Scope of Ind AS 115. . . . . . . . . . . . . . . . . . . . . . . . 15 3.5.1 Credit Card Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.5.3 Interaction with Ind AS 109. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 STEPS INVOLVED IN IND AS 115 STEP 1 Chapter 4 Identify the Contract with the Customer. . . . . . . . . . . . . . . . . . . . . 17 4.1 Contracts with Customers - Requisite Criteria . . . . . . . . . . . . . . . . . . . . . . . . . 18 4.1.1 Parties’ approval to the Contract and Commitment to perform their respective obligations. . . . . . . . . . . . . . . . . . . . . . . . . 20 4.1.2 Parties’ rights regarding the goods or services to be transferred can be identified. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 xi

Ind AS 115 Revenue from Contracts with Customers

4.2 4.3

4.4

4.5 4.6

4.1.3 Payment terms can be identified. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 4.1.4 Commercial substance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 4.1.5 Collectability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 4.1.6 Practical issues on Ind AS 115 criteria. . . . . . . . . . . . . . . . . . . . . . . 25 4.1.6.1 Applying collectability criterion to a group/ portfolio of contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 4.1.6.2 Reassessment of Collectability. . . . . . . . . . . . . . . . . . . . 26 4.1.6.3 Whether a Master Service Agreement represents a Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Reassessment of criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Arrangements that do not meet the definition of a contract under Ind AS 115. 28 4.3.1 When is a Contract considered Terminated for Purposes of applying Ind AS 115.15? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Contract Enforceability and Termination Clauses. . . . . . . . . . . . . . . . . . . . . . . 30 4.4.1 Wholly Unperformed Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 4.4.2 Practical Issues relating to Wholly Unperformed Contracts . . . . . . 32 4.4.2.1 Contract wherein only the Customer has the Right to Cancel the Contract Without Cause. . . . . . . . . . 32 4.4.2.2 Partial Cancellation of the Contract. . . . . . . . . . . . . . . . . 33 Combining contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 4.5.1 Portfolio Approach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Contract Modification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 4.6.1 Contract Modification representing a Separate Contract. . . . . . . . . 41 4.6.2 Contract Modification not representing a Separate Contract. . . . . . 42 STEP 2

Chapter 5 Identifying Performance Obligations. . . . . . . . . . . . . . . . . . . . . . . . 47 5.0 Performance Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 5.1 Identifying the promised goods and services in the contract. . . . . . . . . . . . . . . 48 5.2 Implicit promises in a Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 5.2.1 Are implicit promises required to be enforceable?. . . . . . . . . . . . . . 52 5.3 Determining when Promises are Performance Obligations. . . . . . . . . . . . . . . . 53 5.3.1 Meaning of ‘distinct’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 5.3.2 Capable of being ‘distinct’. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 5.3.3 Distinct in the Context of the Contract. . . . . . . . . . . . . . . . . . . . . . . 57 5.3.3.2 Significant modification or customisation. . . . . . . . . . . . 61 5.3.3.3 Highly Interdependent or Highly Interrelated. . . . . . . . . 62 5.4 Series of Distinct goods and services that are Substantially the same and have the Same Pattern of Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 5.4.1 Meaning of ‘Substantially the same’ . . . . . . . . . . . . . . . . . . . . . . . . 66 5.4.2 Series requirement and consecutively transferred goods or services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 xii

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5.5 5.6 5.7 5.8

Licence of Intellectual Property constituting a Performance Obligation . . . . . 68 Perfunctory or Inconsequential. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Pre-production activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Principal vs. Agent Considerations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 5.8.1 Identification of Specified good or service. . . . . . . . . . . . . . . . . . . . 72 5.8.2 Control of the specified good or service. . . . . . . . . . . . . . . . . . . . . . 75 5.8.2.1 Principal indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 5.8.2.2 Revenue recognition – principal vs. agent. . . . . . . . . . . . 82 5.8.2.3 Practical Examples: Principal vs. Agency assessment . . 83 5.9 Customer Options for additional goods and services . . . . . . . . . . . . . . . . . . . . 87 5.10 Sale with a Right of Return. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 5.11 Typical stand-ready obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 5.11.1 Do all contracts with a stand-ready element include a single performance obligation that is satisfied over time?. . . . . . . . 89 STEP 3 Chapter 6 Determine the Transaction Price . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 6.0 Determining Transaction Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 6.1 Presentation of Goods and Service Tax (GST) and other taxes. . . . . . . . . . . . . 92 6.2 Variable Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 6.2.1 What constitutes Variable Consideration. . . . . . . . . . . . . . . . . . . . . 94 6.2.2 Liquidated damages, penalties or compensation from similar clauses: variable consideration or warranty provision?. . . . 96 6.2.3 Transactions with unknown number of tasks or undefined number of output, but fixed price per unit of task/output. . . . . . . . . 96 6.2.4 Contract denominated in a foreign currency, whether accounted for as variable consideration?. . . . . . . . . . . . . . . . . . . . . 97 6.2.5 Implicit price reductions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 6.2.6 Cash discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 6.3 Estimating variable consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 6.3.1 Consider all facts and circumstances when selecting estimation method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 6.3.1.A Customer Rebates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 6.3.2 Expected value method need not estimate all possible outcome for an individual contract. . . . . . . . . . . . . . . . . . . . . . . . . 104 6.3.3 Use of Combination of methods. . . . . . . . . . . . . . . . . . . . . . . . . . . 105 6.3.4 Experiences from Early Adopters: Variable consideration estimation method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 6.4 Applying the Revenue Constraint. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 6.4.1 Index-based pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

xiii

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6.4.2

Considering the Constraint in the probabilities used for expected value method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 6.4.3 Revenue Constraint applied at contract level or at performance obligation level? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 6.4.4 Reassessment of variable consideration. . . . . . . . . . . . . . . . . . . . . 112 6.5 Refund Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 6.6 Right of Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 6.6.1 Restocking fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 6.7 Significant financing component. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 6.7.1 Practical expedient. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 6.7.2 Determining significant component. . . . . . . . . . . . . . . . . . . . . . . . 121 6.7.3 Significant financing arising from advance payments. . . . . . . . . . 122 6.7.4 Determining transaction price when there is significant financing component. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 6.7.5 Practical Examples: Significant financing component. . . . . . . . . . 124 6.7.6 Presentation of Financing Component. . . . . . . . . . . . . . . . . . . . . . 131 6.8 Non Cash Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 6.8.1 Applying Constraint when the variation is due to the form of non-cash consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 6.8.2 Measurement date non-cash consideration. . . . . . . . . . . . . . . . . . . 134 6.9 Consideration paid or payable to a customer. . . . . . . . . . . . . . . . . . . . . . . . . . 135 6.9.1 Classification of the different types of consideration paid or payable to a customer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 6.9.2 Timing of recognition of consideration paid or payable to a customer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 6.9.3 Payments made to grantor by an operator in a service concession arrangement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 6.9.3 Customers outside the distribution chain of an entity . . . . . . . . . . 143 6.9.4 Can there be “negative revenue�? . . . . . . . . . . . . . . . . . . . . . . . . . 144 6.10 Non-refundable upfront fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 STEP 4 Chapter 7 Allocate the Transaction Price to the Performance Obligations. 151 7.1 Estimation of stand-alone selling prices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151 7.2 Estimating a stand-alone selling price that is not directly observable. . . . . . . 154 7.2.1 Adjusted market assessment approach. . . . . . . . . . . . . . . . . . . . . . 156 7.2.2 Expected cost plus a margin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156 7.2.3 Residual approach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158 7.3 Allocation of discount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 7.4 Allocation of Variable consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 7.4.1 Subsequent changes in Variable consideration. . . . . . . . . . . . . . . . 167 xiv

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7.4.2 7.4.3

Variable consideration allocation applied before the on allocating discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169 Allocation of transaction price to components outside the scope of Ind AS 115. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169 STEP 5

Chapter 8 Recognising Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 8.1 What is ‘control’? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 8.2 Performance obligations satisfied over time. . . . . . . . . . . . . . . . . . . . . . . . . . 173 8.2.1 Customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175 8.2.2 The entity’s performance creates or enhances an asset that the customer controls. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 8.2.3 Entity’s performance does not create an asset with alternative use to the entity and the entity has an enforceable right to payment for performance completed to date. . . . . . . . . . . . . . . . . . . 180 8.2.3.1 Asset with no alternative use. . . . . . . . . . . . . . . . . . . . . 180 8.2.3.2 Enforceable right to payment for performance completed to date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183 8.2.4 Criterion 1 Vs. Criterion 3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188 8.2.5 Application for service concession arrangements . . . . . . . . . . . . . 189 8.2.6 Will revenue recognition over time be permissible in real estate contracts in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189 8.2.7 Revenue recognition in real estate contracts – international discussion under IFRS 15. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191 8.3 Measuring progress. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194 8.3.1 Output methods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196 8.3.2 Input methods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197 8.3.2.1 Input methods based on cost incurred. . . . . . . . . . . . . . 199 8.3.2.2 Uninstalled material. . . . . . . . . . . . . . . . . . . . . . . . . . . . 200 8.3.2.3 Time based input method. . . . . . . . . . . . . . . . . . . . . . . . 202 8.3.3 Right to invoice practical expedient. . . . . . . . . . . . . . . . . . . . . . . . 203 8.3.4 Inability to estimate progress. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205 8.4 Control transferred at a point in time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206 8.4.1 Control transferred at a point in time. . . . . . . . . . . . . . . . . . . . . . . 207 8.4.2 Customer has Legal title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208 8.4.3 Customer has physical possession. . . . . . . . . . . . . . . . . . . . . . . . . 208 8.4.4 Customer has significant risks and rewards of ownership. . . . . . . 209 8.4.5 Customer has accepted the asset. . . . . . . . . . . . . . . . . . . . . . . . . . . 209

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SPECIFIC ISSUES DEAL WITH BY IND AS 115 Chapter 9 Contract Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213 9.1 Costs to obtain a contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213 9.1.1 Practical expedient for costs to obtain a contract. . . . . . . . . . . . . . 215 9.1.2 Application to various types of commission payable. . . . . . . . . . . 215 9.2.1 Can learning curve cost be capitalised. . . . . . . . . . . . . . . . . . . . . . 221 Can cost in excess of constrained cost be capitalised. . . . . . . . . . . 222 9.2.2 9.3 Amortisation of capitalized costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223 9.3.1 Balance sheet presentation of capitalized costs. . . . . . . . . . . . . . . 225 9.4 Balance sheet presentation of capitalized costs Impairment of capitalised costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225 Chapter 10 Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229 10.1 Assurance-type warranties Vs. Service-type warranties. . . . . . . . . . . . . . . . . 229 10.2 Defective products returns for compensation. . . . . . . . . . . . . . . . . . . . . . . . . 235 10.3 Liquidated damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236 Chapter 11 Repurchase Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239 11.1 Forwards and call options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240 11.2 Put option held by the customer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243 Chapter 12 Customer Options to Acquire Additional Goods or Services. . . . 247 12.1 Customer options that provide material right . . . . . . . . . . . . . . . . . . . . . . . . . 247 12.2 Material right for Performance Obligations satisfied over-time. . . . . . . . . . . 251 12.3 Determining stand-alone selling price of a customer option. . . . . . . . . . . . . . 252 12.4 Initial Estimation of the Likelihood of Exercise of the Option. . . . . . . . . . . . 254 12.5 Consideration of Past and Future transactions . . . . . . . . . . . . . . . . . . . . . . . . 254 12.6 Accumulating rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254 12.7 Should qualitative factors be considered for the material right evaluation? . . . 255 12.8 Options granted through Free Coupons. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255 12.9 Breakage and prepayment for future goods or services . . . . . . . . . . . . . . . . . 255 12.10 Gift cards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258 12.11 Significant financing component considerations. . . . . . . . . . . . . . . . . . . . . . . 258 12.12 Customer loyalty award programmes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259 12.12.1 Points redeemed solely by the issuing entity. . . . . . . . . . . . . . . . . 260 12.12.2 Points redeemed solely by others . . . . . . . . . . . . . . . . . . . . . . . . . 262 12.12.3 Points redeemed either the issuing entity or by others. . . . . . . . . . 263 Chapter 13 Licenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265 13.1 Identifying performance obligations in a licensing arrangement . . . . . . . . . . 267 13.2 Nature of the licensing arrangement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270 13.3 Factors that do not impact the nature of the license . . . . . . . . . . . . . . . . . . . . 275 xvi

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13.4 Exception for Sales-based or usage-based royalties on licences of intellectual property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276 13.5 Recognition of royalties for a licence that provides a right to access intellectual property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280 Chapter 14 Other Practical Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283 14.1 Bill-and-hold arrangements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283 14.2 Consignment arrangements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286 14.3 Onerous Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288 14.3.1 Interaction with the requirement for impairment of capitalised cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291 14.4 Shipping and Handling Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292 14.4.1 Out-of-pocket Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294 PRESENTATION AND DISCLOSURES Chapter 15 Presentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295 15.1 Presentation requirements for contract assets, receivables and contract liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295 15.2 Contract liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300 15.3 Presentation of contract assets and contract liabilities in case of multiple performance obligations and in case of combined contracts. . . . . . . 302 15.4 Can an entity offset contract assets and liabilities against other balance sheet items (e.g., accounts receivable)?. . . . . . . . . . . . . . . . . . . . . . . 303 15.5 Contract assets arising from contract modification. . . . . . . . . . . . . . . . . . . . . 303 15.6 Presentation in statement of profit and loss. . . . . . . . . . . . . . . . . . . . . . . . . . . 303 15.7 Presentation of Return asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303 15.8 Presentation of Significant financing component . . . . . . . . . . . . . . . . . . . . . . 304 15.9 Current vs non-current presentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 304 Chapter 16 Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305 16.0 Main Disclosure changes from current Ind AS. . . . . . . . . . . . . . . . . . . . . . . . 307 16.1 Information about Contracts with Customers. . . . . . . . . . . . . . . . . . . . . . . . . 308 16.2 Disaggregation of Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309 16.3 Disclosure of Contract balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312 16.3.1 Disclosure of Contract balances: Real-life examples. . . . . . . . . . . 314 16.3.1.1 FIFA (Extracts from 2016 IFRS financial statements) . . . 314 16.3.1.2 Aldar Properties PJSC (Extracts from 2015 IFRS financial statements). . . . . . . . . . . . . . . . . . . . . . . 315 16.4 Performance obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316 16.4.1 Disclosure of Performance obligations: Real life practical examples. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322 xvii

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16.5

16.6

16.7 16.8

16.4.1.1 European Energy Group (Extracts from 2016 IFRS financial statements). . . . . . . . . . . . . . . . . . . . . . . 322 16.4.1.2 FIFA (Extracts from 2016 IFRS financial statements) . . . 324 Disclosure of significant judgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326 16.5.1 Disclosure of significant judgement: Real-life example. . . . . . . . . 329 16.5.1.1 Emaar Properties PJSC (Extracts from 2016 IFRS financial statements). . . . . . . . . . . . . . . . . . . . . . . 329 Costs to obtain or fulfill a contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330 16.6.1 Disclosure of Costs to obtain or fulfil a contract: Real-life example. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330 16.6.1.1 FIFA (Extracts from 2016 IFRS financial statements) . . . 330 Practical expedients. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331 Transition disclosure requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331 TRANSITION

Chapter 17 Effective Date and Transition Methods. . . . . . . . . . . . . . . . . . . . . 333 17.1 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333 17.2 Transition Method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333 17.3 Full Retrospective Transition method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 17.3.1 Practical expedient for contracts that are started and completed in the same annual reporting period. . . . . . . . . . . . . . . 339 17.3.2 Meaning of ‘Completed contracts’ for the purpose of the practical expedients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341 17.3.2 Practical expedient from applying the variable consideration requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342 17.3.3 Practical expedient from applying contract modification requirements before the earliest period presented . . . . . . . . . . . . . 342 17.3.4 Practical expedient from certain disclosures . . . . . . . . . . . . . . . . . 343 17.4 Modified retrospective method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343 Chapter 18

First-time Adoption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347 SECTOR SPECIFIC ISSUES

Chapter 19

Possible impact on companies in Pharmaceutical and Life Sciences sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351 19.1 Collaborative arrangements in pharmaceuticals sectors. . . . . . . . . . . . . . . . . 351 19.2 Assessing distinct promises. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352 19.3 Determining standalone selling price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354

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19.4 19.5 19.6 19.7

Variable consideration and the constraint on revenue recognition . . . . . . . . . 355 Right of Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 357 Rebates and customer incentives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358 Free products distributed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359

Chapter 20 Possible impact on companies in Telecommunication sector. . . . 361 20.1 Identification of distinct promises. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361 20.2 Customer options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363 20.3 Upfront fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363 20.4 Contract acquisition cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364 Chapter 21 21.1 21.2 21.3 21.4 21.5

Possible impact on companies in Technology and Software sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 367 Bundled service offerings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 367 Unspecified software upgrades. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370 Variable consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370 Inormation Technology services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371 Considerations for cloud services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372

Chapter 22 Possible impact on companies in automotive sector. . . . . . . . . . . 373 22.1 Tooling equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373 22.2 Customised part. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 374 22.3 Customer incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375 22.4 Accounting for Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375 22.5 Contract modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375 Chapter 23

Possible impact on companies in Consumer goods and retail sectors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377 23.1 Customer incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377 23.2 Customer loyalty programs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382 23.3 Gift cards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383 Chapter 24 24.1 24.2 24.3 24.4 24.5 24.6

Possible impact on companies in Media and entertainment sectors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 385 Accounting Licenses or intellectual properties (IP) . . . . . . . . . . . . . . . . . . . . 385 Distinct performance obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387 Accounting for options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 388 Variable consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 388 Non-cash consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389 Principal Vs. Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 390

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Chapter 25 Possible impact on companies in Leisure and Hospitality sectors . . . 393 25.1 Distinct performance obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393 25.2 Principal Vs. Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394 25.3 Membership fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397 25.4 Variable consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398 25.5 Customer loyalty programs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398 Chapter 26 Possible impact on companies in Mining and Metals sectors . . . 401 26.1 Production sharing contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401 26.2 Provisionally priced revenue contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402 26.3 Shipping terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 403 Chapter 27 Possible impact on companies in Industrial products sector. . . . 405 27.1 Timing of revenue recognition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405 27.2 Accounting for Contract manufacturing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405 27.3 Impact of shipping terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 406 27.4 Long-term maintenance contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 406 27.5 Accounting of Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407 Chapter 28 Possible impact on companies in Power and utility sector. . . . . . 409 28.1 Identifying distinct performance obligations. . . . . . . . . . . . . . . . . . . . . . . . . . 409 28.2 Service concessions arrangements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410 Chapter 29 29.1 29.2 29.3 29.4 29.5 29.6 29.7 29.8 29.9 29.10

Possible impact on companies in engineering and construction sectors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 413 Combining contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 413 Contract modifications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 414 Series of distinct goods and services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 418 Principal vs. agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 418 Variable consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419 Customer-furnished materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421 Significant financing component. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421 Performance obligations satisfied over time. . . . . . . . . . . . . . . . . . . . . . . . . . 423 Measuring progress. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 424 Contract costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 425 INTERNATIONAL PERSPECTIVES AND EXPERIENCE

Chapter 30 Possible impact on companies in Real Estate sector. . . . . . . . . . . 427 30.1 Identify the performance obligations in the contract. . . . . . . . . . . . . . . . . . . . 427 30.2 Variable consideration: Penal interest on delays. . . . . . . . . . . . . . . . . . . . . . . 428

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30.3 30.4 30.5 30.6 30.7

Measurement of variable consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 429 Significant financing component. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 430 Performance obligations satisfied over time. . . . . . . . . . . . . . . . . . . . . . . . . . 431 Measuring progress. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 434 Contract costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 435

Chapter 31 Experiences of International Companies on IFRS 15 . . . . . . . . . 437 31.1 Disclosures made by International companies on future impact on IFRS 15. . . . 437 31.1.1 Nestle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 437 31.1.2 Tieto Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 438 31.1.3 Vodafone Group Plc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 440 31.1.4 Telefonica. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 442 31.1.5 Deutsche Telekom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 443 31.1.6 British Telecom. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444 31.1.7 Telecom Italia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448 31.1.8 China Mobile Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 449 31.1.9 Sanofi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 449 31.1.10 ThyssenKrupp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450 31.1.11 Siemens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 452 31.1.12 Philips. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 452 31.1.13 A.P. Moller. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 455 31.1.14 Volkswagen Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 455 31.1.15 Diamler Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 456 31.1.16 Enel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 456 31.1.17 Iberdrola Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 457 31.1.18 Continental. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 458 31.1.19 Metso . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 458 31.1.20 Quantas Airways Limited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 459 31.1.21 Air Canada. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 460 31.1.22 British Airways Plc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 461 31.1.23 Diageo Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 462 31.1.24 Centrica Plc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 462 31.1.25 SSE Plc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 463 31.1.26 E.ON Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 464 31.1.27 Statoil. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 466 31.1.28 RWE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 467 31.1.29 National Grid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 468 31.1.30 Konecranes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 470 31.1.31 Airbus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 472

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Chapter 32 Learning from Early Adopters of IFRS 15. . . . . . . . . . . . . . . . . . 475 32.1 European Energy Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 475 32.2 Emaar Properties PJSC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 491 32.3 Aldar Properties PJSC (Extracts from 2016 IFRS financial statements). . . . . 495 Chapter 33 Case Study Illustrating the Requirements and Checklists. . . . . . 501 33.1 Case Study Illustrating Ind AS 115. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 501 33.2 Ind AS 115 Checklist. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 507 Key Terms Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 519 Annexure: Indian Accounting Standard (Ind AS) 115, Revenue from Contracts with Customers (Notified vide MCA Notification G.S.R. 310(E) dated 28 March 2018). . . . . . . . . . . . . . . . . . . . . . . 523

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List of examples CHAPTER 3 SCOPE Example 3.1: Identifying a customer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 CHAPTER 47 IDENTIFY THE CONTRACT WITH THE CUSTOMER Example 4.1: Oral Contracts:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Personal computer security services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Example 4.2: Oral Contracts:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Supply contract to contractors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Example 4.3: Collectability of the consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Example 4.4: Assessment of collectability at a portfolio level. . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Example 4.5: Master Service Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Example 4.6: Arrangements that do not meet the criteria. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Example 4.7: The effect of wholly unperformed contract and termination clauses on duration of the contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Example 4.8: Contracts cancellable by the customer with termination penalty. . . . . . . . . 32 Example 4.9: Partially cancellable contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Example 4.10: Two separate agreements with related parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Example 4.11: Unapproved modification of a contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Example 4.12: Modification of a contract for goods resulting in separate contract. . . . . . . 42 Example 4.13: Modification of a contract for goods not resulting in separate contract. . . 43 Example 4.14: Modification resulting in a cumulative catch-up adjustment to Revenue. . 45

Example 5.1: Example 5.2: Example 5.3: Example 5.4: Example 5.5: Example 5.6: Example 5.7: Example 5.8:

CHAPTER 5 IDENTIFYING PERFORMANCE OBLIGATIONS Implicit promises in a contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Administrative task – not implicit performance obligation. . . . . . . . . . . . . . . 52 Goods capable of being distinct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Goods not capable of being distinct. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Significant integration service present in a construction contract. . . . . . . . . 59 Significant integration service not present in a construction contract. . . . . 60 Hardware and installation services – separate performance obligations. . . 61 Significant modification or customisation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 xxiii

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Example 5.9: Sale of software and implementation services – separate performance obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Example 5.10: Promised services that are Highly interdependent. . . . . . . . . . . . . . . . . . . . . . . . 62 Example 5.11: Promised services/goods Highly interrelated. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Example 5.12: Series of distinct goods treated as single performance obligation . . . . . . . . . 65 Example 5.13: Series of distinct IT outsourcing services treated as single performance obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Example 5.14: Series of distinct transaction processing services treated as single performance obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Example 5.15: Series of distinct hotel management services treated as single performance obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Example 5.16: Perfunctory obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Example 5.17: Restaurant/hotel coupon services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Example 5.18: Airline agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Example 5.19: White branding Re-seller – Gross Vs. Net presentation. . . . . . . . . . . . . . . . . . . 79 Example 5.20: Re-seller with a right to return – Gross Vs. Net presentation. . . . . . . . . . . . . . 80 Example 5.21: Advertising aggregator:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . principal v/s. agent– Gross Vs. Net presentation. . . . . . . . . . . . . . . . . . . . . . . . . . 80 Example 5.22: E-commerce retailer– Gross Vs. Net presentation . . . . . . . . . . . . . . . . . . . . . . . . 82 Example 5.23: Electronic wholesaler– Gross Vs. Net presentation . . . . . . . . . . . . . . . . . . . . . . . 83 Example 5.24: Office management services – Gross Vs. Net presentation. . . . . . . . . . . . . . . . 84 Example 5.25: Principal vs. Agent assessment – Travel company. . . . . . . . . . . . . . . . . . . . . . . . . 85 Example 5.26 Stand-ready element in a supply contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 CHAPTER 6 DETERMINE THE TRANSACTION PRICE Example 6.1: Variable consideration – consideration is constrained. . . . . . . . . . . . . . . . . . . . 95 Example 6.2: Consideration is not the stated price – implicit price reduction. . . . . . . . . . . 98 Example 6.3: Estimate of variable consideration – Expected value. . . . . . . . . . . . . . . . . . . . . 102 Example 6.4: Estimate of variable consideration – Most likely amount . . . . . . . . . . . . . . . . 103 Example 6.5: Estimate of variable consideration – Most likely amount . . . . . . . . . . . . . . . . 103 Example 6.6 Variable consideration- applying revenue constraint. . . . . . . . . . . . . . . . . . . . . 108 Example 6.8: Refund obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 Example 6.9: Sale with a right to return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 Example 6.10: Restocking fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 Example 6.11: Significant financing component . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 Example 6.12: Significant financing component – payment in arrears. . . . . . . . . . . . . . . . . . 126 Example 6.13: Significant financing component – payment in arrears transfer of control over service over a period of time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128 xxiv

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Example 6.14: Retention balances on a long-term contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 Example 6.15: Advance payment and determination of discount rates . . . . . . . . . . . . . . . . . 130 Example 6.16: Non-cash consideration from customer- Media company. . . . . . . . . . . . . . . 134 Example 6.17: Consideration payable to a customer – Slotting fees. . . . . . . . . . . . . . . . . . . . . 138 Example 6.18: Consideration payable to a customer – Advance rebate scheme to dealers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 Example 6.19: Consideration payable to a customer – GST compensation to dealers . . . 139 Example 6.20: Consideration payable to a customer – Price protection. . . . . . . . . . . . . . . . . 140 Example 6.21: Consideration payable to a customer – Co-advertisement services. . . . . . . 140 Example 6.22: Consideration payable to a customer – E-commerce companies. . . . . . . . . 143 Example 6.23: Non-refundable upfront fees – club membership fees. . . . . . . . . . . . . . . . . . . 146 Example 6.24: Non-refundable upfront fees – telecomm operator . . . . . . . . . . . . . . . . . . . . . 147 Example 6.25: Non-refundable upfront fees – cable services. . . . . . . . . . . . . . . . . . . . . . . . . . . 147 Example 6.26: Non-refundable upfront fees- installation fees. . . . . . . . . . . . . . . . . . . . . . . . . . . 148 Example 6.27: Non-refundable upfront fees- Clinical research entity . . . . . . . . . . . . . . . . . . . 148 CHAPTER 7 ALLOCATE THE TRANSACTION PRICE TO THE PERFORMANCE OBLIGATIONS Example 7.1: Allocating transaction price – stand-alone selling prices are directly observable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154 Example 7.2: Allocating transaction price – stand-alone selling prices not directly observable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 Example 7.3: Estimating stand-alone selling price – residual approach . . . . . . . . . . . . . . . . 159 Example 7.4: Allocating transaction price – allocating a discount. . . . . . . . . . . . . . . . . . . . . 162 Example 7.5: Allocation of discount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 Example 7.6: Variable consideration allocated entirely to one performance obligation in the contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 Example 7.7: Allocating variable consideration – distinct goods or services that form a single performance obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167 Example 7.8: Allocating transaction price – change in transaction price. . . . . . . . . . . . . . . 168 Example 7.9: Arrangements with components outside the scope of Ind AS 115 . . . . . . . 170 CHAPTER 8 RECOGNISING REVENUE Example 8.1: Assessing if another entity would need to re-perform the work completed- transportation services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176 Example 8.2: Assessing if another entity would need to re-perform the work completed- payroll processing services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176 Example 8.3: Assessing if another entity would need to re-perform the work completed- Consulting services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176 xxv

Example 8.4: Customer controls work in process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178 Example 8.5: Customer controls work in process- telecom enterprise contract. . . . . . . . 178 Example 8.6: Customer controls work in process- Government defence contract. . . . . . 179 Example 8.7: Customer does not control work in process – commercial vehicles. . . . . . 179 Example 8.8: Sale of specialized equipment – no alternative use. . . . . . . . . . . . . . . . . . . . . . 182 Example 8.9: Sale of truck– asset with an alternative use. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182 Example 8.10: Assessing alternative use and right to payment. . . . . . . . . . . . . . . . . . . . . . . . . . 186 Example 8.11: Assessing alternative use with right to payment and contract modification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187 Example 8.12: Output method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196 Example 8.13: Measuring progress – input method - cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199 Example 8.14: Uninstalled Materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200 Example 8.15: Stand-ready obligation not recognized on straight-line basis. . . . . . . . . . . . . 202 Example 8.16: Right-to-use method – legal services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203 Example 8.17: Right-to-use method – power supply contract. . . . . . . . . . . . . . . . . . . . . . . . . . 204 Example 8.18: Legal title retained as a protective right. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208 Example 8.19: Sale of goods with resale restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209

Example 9.1: Example 9.2: Example 9.3: Example 9.4: Example 9.5: Example 9.6: Example 9.7: Example 9.8: Example 9.9:

CHAPTER 9 CONTRACT COSTS Incremental costs of obtaining a contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214 Commission payable on renewal of contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . 216 Fulfilment cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219 Abnormal fulfillment costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220 Learning curve costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221 Cost in excess of constrained transaction price. . . . . . . . . . . . . . . . . . . . . . . . . . 222 Amortisation period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223 Amortisation period with expected renewal . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224 Impairment of contract cost assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227

CHAPTER 10 WARRANTIES Example 10.1: Sale of product with warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230 Example 10.2: Sale of product with assurance-type warranties and service-type warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231 Example 10.3: Warranty protection against customer-inflicted damages. . . . . . . . . . . . . . . . 232 Example 10.4: Lifetime warranty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234 Example 10.5: Compensation for damaged goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235 Example 10.6: Compensation for damaged goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235 xxvi

CHAPTER 11 REPURCHASE RIGHTS Example 11.1: Repurchase agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242 Example 11.2: Repurchase rights – put option accounted for as a right of return . . . . . . . 245 Example 11.3: Repurchase rights – put option accounted for as lease . . . . . . . . . . . . . . . . . . 245 Example 11.4: Sale with residual value guarantee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246 CHAPTER 12 CUSTOMER OPTIONS TO ACQUIRE ADDITIONAL GOODS OR SERVICES Example 12.1: Option that provides the customer with a material right (discount voucher). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249 Example 12.2: Customer options that do not provide a material right. . . . . . . . . . . . . . . . . . 250 Example 12.3: Exercise of material right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251 Example 12.4: Customer loyalty programme - retail. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256 Example 12.5: Customer loyalty programme – hotel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257 Example 12.6: Breakage – sale of gift cards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258 Example 12.7: Customer loyalty points redeemed solely by the issuing entity. . . . . . . . . . . 260 Example 12.8: Customer loyalty points redeemed solely by others . . . . . . . . . . . . . . . . . . . . . 263 Example 12.9: Customer loyalty points redeemed by the issuing entity or by others . . . . 263 CHAPTER 13 LICENSES Example 13.1: License that is distinct. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269 Example 13.2: License that is not distinct. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269 Example 13.3: Access to intellectual property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273 Example 13.4: Right to use license for intellectual property. . . . . . . . . . . . . . . . . . . . . . . . . . . . 274 Example 13.5: Sales-based royalty for a licence of intellectual property. . . . . . . . . . . . . . . . . 278 Example 13.6: Application of the royalty exception to a milestone payment. . . . . . . . . . . . 279 Example 13.7: License contract with a declining royalty rate . . . . . . . . . . . . . . . . . . . . . . . . . . . 280 CHAPTER 14 OTHER PRACTICAL ISSUES Example 14.1: Bill-and-hold arrangement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284 Example 14.2: Bill-and-hold arrangement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285 Example 14.3: Consignment arrangement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287 Example 14.4: Revenue contract not onerous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289 Example 14.5: Onerous contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290 Example 14.6: Onerous test with impairment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291 Example 14.7: Shipping service in a FOB contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293 xxvii

Example 14.8: Principal versus agent – shipping and handling fees. . . . . . . . . . . . . . . . . . . . . 293 CHAPTER 15 PRESENTATION Example 15.1: Distinguishing between contract asset and receivable. . . . . . . . . . . . . . . . . . . 297 Example 15.2: Contract liability and receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299 Example 15.3: Contract liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300 CHAPTER 16 DISCLOSURES Example 16.1: Disaggregation of revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311 Example 16.2: Disclosure of the transaction price allocated to the remaining performance obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319 Example 16.3: Disclosure of the transaction price allocated to the remaining performance obligations–qualitative disclosure. . . . . . . . . . . . . . . . . . . . . . . . . 321 CHAPTER 17 EFFECTIVE DATE AND TRANSITION METHODS Example 17.1: Completed contracts at the date of initial application. . . . . . . . . . . . . . . . . . . 334 Example 17.2: Contracts not completed at the date of initial application. . . . . . . . . . . . . . . 334 Example 17.3: Full retrospective method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337 Example 17.4: Applying practical expedient for completed contracts under full retrospective transition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340 Example 17.5: Applying practical expedient for variable consideration requirements . . . 342 Example 17.6: Applying practical expedient for disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343 Example 17.7: Modified retrospective transition method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345 CHAPTER 18 FIRST-TIME ADOPTION Example 18.1: Application of Ind AS 115 by a first time adopter of Ind AS. . . . . . . . . . . . . . 348 CHAPTER 19 POSSIBLE IMPACT ON COMPANIES IN PHARMACEUTICAL AND LIFE SCIENCES SECTOR Example 19.1: Assessing distinct promises in bioscience sector. . . . . . . . . . . . . . . . . . . . . . . . . 352 Example 19.2: Determining stand-alone selling price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354 Example 19.3: Determining the transaction price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356 Example 19.4: Sale with a right to return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 357 xxviii

Example 19.5: Rebates and customer incentives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358 Example 19.6: Free products distributed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359 CHAPTER 20 POSSIBLE IMPACT ON COMPANIES IN TELECOMMUNICATION SECTOR Example 20.1: Determining distinct goods or services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 362 Example 20.2: Options that do not provide a material right. . . . . . . . . . . . . . . . . . . . . . . . . . . . 363 Example 20.3: Installation services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364 Example 20.4: Cable entity, activation services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364 Example 20.5: Contract acquisition cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365 Example 20.6: Contract acquisition costs, identifying incremental costs. . . . . . . . . . . . . . . . 365 CHAPTER 21 POSSIBLE IMPACT ON COMPANIES IN TECHNOLOGY AND SOFTWARE SECTOR Example 21.1: Sale of ERP software with implementation services. . . . . . . . . . . . . . . . . . . . . . 368 Example 21.2: Sale of software and customization services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 368 Example 21.3: Sale of hardware and installation services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369 Example 21.4: Sale of software license and post contract services . . . . . . . . . . . . . . . . . . . . . . 369 Example 21.5: Unspecified upgrades. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370 Example 21.6: Variable consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371 Example 21.7: IT services – performance obligation satisfied over time. . . . . . . . . . . . . . . . . 371 Example 21.8: Sale of specialized software – performance obligation satisfied over time. . . . 372 CHAPTER 22 POSSIBLE IMPACT ON COMPANIES IN AUTOMOTIVE SECTOR Example 22.1: Sale of customized auto-component. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376 CHAPTER 23 POSSIBLE IMPACT ON COMPANIES IN CONSUMER GOODS AND RETAIL SECTORS Example 23.1: Rebate scheme. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378 Example 23.2: Customer discount coupons. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379 Example 23.3: Product rebate offer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 380 Example 23.4: Product rebate offer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 380 Example 23.5: Accounting for Slotting fees from manufacturer and retailers perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 381 Example 23.6: Price protection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 381 Example 23.7: Advertisement provided by retailers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382 xxix

Ind AS 115 Revenue from Contracts with Customers

Example 23.8: Loyalty points. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383 Example 23.9: Accounting for gift cards breakage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383 CHAPTER 24 POSSIBLE IMPACT ON COMPANIES IN MEDIA AND ENTERTAINMENT SECTORS Example 24.1: Distinct performance obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387 Example 24.2: Non-cash consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389 CHAPTER 25 POSSIBLE IMPACT ON COMPANIES IN LEISURE AND HOSPITALITY SECTORS Example 25.1: Principle vs. agent- airline agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394 Example 25.2: Principle vs. agent- Restaurant/ hotel coupon services. . . . . . . . . . . . . . . . . . . 395 Example 25.3: Non-refundable upfront fees – club membership fees. . . . . . . . . . . . . . . . . . . 397 CHAPTER 27 POSSIBLE IMPACT ON COMPANIES IN INDUSTRIAL PRODUCTS SECTOR . . . 405 Example 27.1: Long-term maintenance agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 406 CHAPTER 28 POSSIBLE IMPACT ON COMPANIES IN POWER AND UTILITY SECTOR Example 28.1: Measuring progress toward complete satisfaction of a performance obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409 CHAPTER 29 POSSIBLE IMPACT ON COMPANIES IN ENGINEERING AND CONSTRUCTION SECTORS Example 29.1: Unapproved Change in Scope and Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 414 Example 29.2: Modification of construction contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 416 Example 29.3: Variable consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419 Example 29.4: Retention balance on a long-term contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 422 CHAPTER 30 POSSIBLE IMPACT ON COMPANIES IN REAL ESTATE SECTOR Example 30.1: Separate performance obligation in real estate. . . . . . . . . . . . . . . . . . . . . . . . . . 427 Example 30.2 Measurement of Variable Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 429

xxx

Comparison of Ind AS 115 with IFRS and US GAAP This chapter provides a broad comparison of Ind AS 115 with IFRS 15 Revenue from contracts with customers and ASC Topic 606 Revenue from contracts with customers under US GAAP. At an overall level, the three standards are similar in that providing a five-step model to implement the core ‘transfer of control’ principle that is used to determine when to recognise revenue, and at what amount.

Ind AS 115

IFRS 15

ASC 606

Effective date

Effective from financial Effective from year commencing from 1 annual periods April 2018. beginning on or after 1 January 2018.

Effective for annual periods beginning after 15 December 2017 for public business entities, or, after 15 December 2018, for other entities.

Identification of the performance obligations in the contract

An entity assesses the Similar to Ind AS goods or services 115. promised in a contract with a customer and identifies as a performance obligation either a good or service (or a bundle of goods and services that is distinct); or a series of distinct goods.

A good or service is ‘distinct’ if both of the following criteria are met: – The customer can benefit from the good or service on its own or together with other readily available resources; and

US GAAP explicitly permits an entity not to identify promised goods or services that are immaterial in the context of the contract as performance obligations. When an entity opts for this practical expedient, it does not need to evaluate whether the financial statements, considered as a whole, are materially affected.

Whilst, this is a difference in drafting, in practice, this may not emerge as a difference in practice.

xxxi

Ind AS 115 Revenue from Contracts with Customers Ind AS 115

IFRS 15

ASC 606

–

The entity’s promise to transfer the good or service is separately identifiable from other promises in the contract.

Ind AS does not provide specific guidance on immateriality of goods or services and therefore the general materiality guidance applies.

Shipping and handling activities undertaken

Shipping and handling Similar to Ind AS activities undertaken after 115. the customer has obtained control of the related goods may represent a performance obligation.

US GAAP includes an accounting policy choice of treating shipping and handling activities performed subsequent to the customer having obtained control of the related goods as a fulfilment activity instead of treating them as separate performance obligation.

Determination of transaction price

An entity includes an Similar to Ind AS. estimate of variable consideration in the transaction price to the extent that it is ‘highly probable’ that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

An entity includes an estimate of variable consideration to the extent it is ‘probable’ that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

While US GAAP uses ‘probable’ rather than ‘highly probable’, it is not expected that the two terms will be interpreted differently in practice.

xxxii

Comparison of Ind AS 115 with IFRS and US GAAP Ind AS 115

IFRS 15

ASC 606

Non-cash consideration

Non-cash consideration Similar to Ind AS. received from a customer is measured at fair value.

There is no specific guidance with respect to the measurement date for non-cash consideration and the measurement date is a matter of judgement.

The measurement date for non-cash consideration is the date of the contract inception.

Determination of transaction price

The transaction price is Similar to Ind AS. 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).

US GAAP is similar to Ind AS and IFRS. However, there is an accounting policy choice to exclude all taxes assessed by a government authority imposed on and concurrent with specific revenueproducing transaction and collected from customer from the measurement of transaction price.

Reversal of Impairment loss on contract costs capitalised

An impairment loss is Similar to Ind AS. reversed, limited to the carrying amount, net of amortisation, that would have been determined if no impairment loss had been recognised when the carrying amount is no longer impaired.

Under US GAAP, an impairment loss is not reversed.

Licensing of intellectual property

The nature of an entity’s promise in granting a licence is a promise to provide a right to access the entity’s intellectual property (IP)if all of the following criteria are met:

Under US GAAP, in order to determine whether an entity’s promise to provide a right to access or a right to use, an entity considers the nature of IP to which the customer will have rights. IP is classified into either the following.

Similar to Ind AS.

xxxiii

Ind AS 115 Revenue from Contracts with Customers Ind AS 115

IFRS 15

(a) the contract requires, or the customer reasonably expects, that the entity will undertake activities that significantly affect the intellectual property to which the customer has rights; (b) the rights granted by the licence directly expose the customer to any positive or negative effects of the entity’s activities; and (c) those activities do not result in the transfer of a good or a service to the customer as those activities occur.

ASC 606 – Functional IP: IP that has significant standalone functionality (e.g. the ability to possess a transaction, perform a function or task, or be played or aired – Symbolic IP: IP that is not functional IP.

Onerous contracts

Onerous contracts are accounted for under the Ind AS 37.

Similar to Ind AS.

Onerous contracts are accounted for under Codification topics.

These guidance differ from Ind AS and IFRS.

Disclosures

Ind AS 115 contains Similar to Ind AS. extensive disclosure requirements designed to enable users of the financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts from customers.

Entities that are not public business entities may elect to present more simplified disclosures that are specified in the Topic.

xxxiv

Comparison of Ind AS 115 with IFRS and US GAAP

Disclosure of reconciliation of the amount of revenue recognised in the statement of profit and loss with the contracted price

Ind AS 115

IFRS 15

ASC 606

Ind AS 115 requires an entity to reconcile 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.

No such disclosure requirement

No such disclosure requirement

xxxv

Ind AS 115 Revenue from Contracts with Customers

xxxvi

Chapter 1

Introduction The Ministry of Corporate Affairs (MCA) has notified Indian Accounting Standard 115 Revenue from Contracts with Customers w.e.f. 1 April 2018, vide Notification No. G.S.R 310 (E) dated 28 March 2018. All the companies applying Indian Accounting Standards (Ind AS) shall apply Ind AS 115 for accounting periods beginning on or after 1 April, 2018.

Ind AS 115 is intended to remove inconsistencies and weaknesses in the previous revenue recognition requirements, provide a robust framework and improve comparability of revenue recognition practices. It is intended to provide more useful information to users of financial statements through improved disclosure requirements and to simplify the preparation of financial statements by reducing the number of separate documents to which an entity must refer.

The standard does have a bit of a history. It was originally notified by the Ministry of Corporate Affairs (MCA) vide Notification No G.S.R 111(E) dated 16 February, 2015 along with other Ind ASs. Ind AS 115, along with all other Ind ASs, was to be effective from financial year commencing from 01 April 2017, or financial year 2016-17, for phase-I Ind AS companies.

Ind AS 115 corresponds to IFRS 15 Revenue from Contracts with Customers and Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers (created by Accounting Standards Update (ASU) 2014-09), issued in May 2014 by the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) respectively.

Due to certain implementation issues requiring amendments in the IFRS 15, in September 2015, the IASB deferred the effective date of IFRS 15, by one year to 1 January, 2018.This meant that IFRS 15 would be effective for annual reporting periods beginning on or after 1 January 2018, with an early adoption option.

In India, the effective date of Ind AS 115, along with all other Ind ASs for phase-I Ind AS companies was 1 April 2017. However, there were concerns amongst various quarters over Ind AS 115 being applied in India before elsewhere in the world. Also, the international deliberations over the implementation issues around IFRS 15 and ASC 606 meant that the standard was still effectively a work-inprogress, at that point in time, although finalised. Therefore, several stakeholders in India demanded for deferral of Ind AS 115. Resultantly, in March 2016, the Ministry of Corporate Affairs issued a notification deferring indefinitely the effective date of Ind AS 115 and notified Ind AS 18 Revenue and Ind AS 11 1

Ind AS 115 Revenue from Contracts with Customers

Construction Contacts, along with appendices containing interpretations, in place of Ind AS 115.

Ind AS 115 is now effective for all the companies covered under Ind AS applicability from the accounting periods beginning from 1 April, 2018. This is irrespective of whether the company was covered in phase I or Phase II of the Ind AS roadmap. Also, if an entity is applying for the first time in the accounting year beginning 1 April, 2018, it must apply Ind AS 115 since the transition date.

Generally, early adoption is not permitted for standards notified by MCA. Therefore, a company would not be permitted to apply Ind AS 115 in its financial statements for financial year ended 31 March 2018.

Ind AS 115 notified in March 2018, contains certain changes as compared to the version that was originally notified in February 2015.These changes have been highlighted and dealt with in subsequent chapters.

1.1

BACKGROUND OF IND AS 115

Revenue is a crucial number to users of financial statements in assessing an entity’s financial performance and position. However, prior to IFRS 15 and ASC 606 becoming effective, revenue recognition requirements in US GAAP differ from those in IFRS, and both sets of requirements needed improvement. US GAAP comprised broad revenue recognition concepts and numerous requirements for particular industries or transactions that can result in different accounting for economically similar transactions. Although IFRS had fewer requirements on revenue recognition, the two main revenue recognition standards, IAS 18, Revenue, and IAS 11, Construction Contracts, were not very comprehensive and did not encompass many business aspects that have emerged over a period of time.

IAS 18 provided limited guidance on important topics such as revenue recognition for multiple-element arrangements.

Accordingly, the FASB and the IASB had initiated a joint project to clarify the principles for recognizing revenue and to develop a common revenue standard for US GAAP and IFRS that would: ●

Remove inconsistencies and weaknesses in existing revenue requirements.

●

Provide a more robust framework for addressing revenue issues.

●

Improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets.

●

Provide more useful information to users of financial statements through improved disclosure requirements.

●

Simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer.

2

Chapter 1: Introduction

As a result of this joint project, in May 2014, the IASB and the FASB respectively issued largely converged new revenue standards: IFRS 15 Revenue from Contracts with Customers and Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers.

Internationally, these new revenue standards supersede virtually all revenue recognition requirements in IFRS and US GAAP, respectively. The standards provide comprehensive accounting guidance for all revenue arising from contracts with customers. They affect all entities that enter into contracts to provide goods or services to their customers, unless the contracts are within the scope of other IFRS or US GAAP standard, for example, the leasing standard under the respective GAAP. Although, the standards deal with accounting for revenue from contracts with customers, the standards also specify the accounting for costs an entity incurs to obtain and fulfil a contract to provide goods and services to customers and provide a model for the measurement and recognition of gains and losses on the sale of certain non-financial assets, such as property, plant or equipment and intangible assets.

In September 2015, the IASB issued Effective Date of IFRS 15, which deferred the standard’s effective date by one year. IFRS 15 is effective for annual reporting periods beginning on or after 01 January 2018, with early adoption permitted, provided that fact is disclosed.

Subsequent to the issuance of the standards under IFRS and US GAAP, the Boards created the Joint Transition Resource Group for Revenue Recognition (TRG) to help them decide whether additional application guidance would be needed on their new revenue standards. TRG members include representatives from industry, auditors and users from various industries. TRG met six times in 2014 and 2015. In January 2016, the IASB announced that it did not plan to schedule further meetings of the IFRS constituents of the TRG, but said it will monitor any discussions of the US GAAP group, which met in April 2016 and is scheduled to meet again in November 2016. The Boards amended their respective standards to address several implementation issues discussed by the TRG. The subsequent IFRS amendments have been incorporated in Ind AS 115 as a result of the exposure drafts that the Institute of Chartered Accountants of India (ICAI) has been periodically rolling out in the intervening period.

This book looks into the requirements of Ind AS 115 and highlights significant differences from existing revenue standards under Ind AS- Ind AS 18 and Ind AS 11 along with the ICAI’s Guidance Note on Real Estate Transactions. It also contains the author’s views on certain contentious topics. The views expressed in this book may evolve as implementation continues and additional issues are identified. The conclusions described in the illustrations are also subject to change as views evolve. The conclusions in apparently similar cases may differ from those reached in the illustrations provided in the book due to differences in the underlying facts and circumstances.

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Ind AS 115 Revenue from Contracts with Customers

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