Ifrs 15

IFRS 15
Revenue:
The five step
model
September 2017
Why is this important?
▪ Revenue is a key metric for many entities.
▪ IFRS 15 introduces a new five step model for the timing and
amount of revenue.
▪ Your stakeholders/investors will want to understand the impact
on your business.
© 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 2
Agenda
1. Overview and scope
2. The five step model
3. Key points to remember!
Overview and
scope
Overview
Effective date Annual report

IFRS 15 Clarifications to
1 January 2018 31 December 2018
issued IFRS 15
2014 2016 2017 2018 Mar Jun Sep Dec
Early adoption permitted Interim report
What’s changed
Pre IFRS 15 IFRS 15
Sale of goods or services Sales to customers
IAS 18, IFRIC 13, 15 Consolidation Consolidation

IFRS 15
IAS 11 guidance guidance
Gains and losses Sales to non-customers
Consolidation Consolidation
IAS 16 IAS 40 IAS 16 IAS 40
guidance guidance
▪ IFRIC 15 type requirements removed and replaced by new over time criteria.
▪ More guidance on separating goods and services bundled in a contract.
▪ More guidance on measuring transaction price.
▪ No IAS 11 equivalent to guide accounting when revenue is recognised over time.
The five step model overview
STEP
Identify the contract with a customer
1
STEP
Identify the performance obligation
2
STEP
Determine the transaction price
3
STEP
Allocate the transaction price
4
STEP
Recognise revenue
5
Some key sectors impacted
Telecommunication Real estate and Software Licensors – pharma,

and cable construction film and entertainment
franchisors
Aerospace and Asset managers Contract

defence manufacturers
Scope
Part of a contract Portfolio of contracts
Other Contract 1 De-recognition of
IFRS 15 Contract 2
IFRS non-financial assets
✓ ✓ ✓
Contract 3
Contract 4
Certain types of non-

Insurance contract
 
Contractual rights monetary exchanges
and obligations in the
Lease contract
 
scope of another
IFRSs
Applying IFRS 15 to part of a
contract Contract for a loan and safety deposit box
IFRS 9 IFRS 15
Apply IFRS 15 to residual after transaction price has been allocated to loan in
accordance with IFRS 9.
The five step
model
STEP
1
STEP
2
STEP
3
STEP
4
STEP
Recognise revenue
5
Identify the contract STEP
1
... collection of consideration is ... rights to goods or services

considered probable. and payment terms can be
identified.
A contract
exists if...
... it is approved and the parties

are committed to their
... it has commercial substance. obligations.
Combining contracts STEP
1
Contracts may be combined and accounted for as a single contract.

IFRS 15
Contract 1 Contract 2
Contracts are combined if entered into at or near the same time with the
same customer and one or more of the following criteria are met.
Goods and services

Negotiated as Consideration in one
are a single
package with a single contract depends on
performance
commercial objective. the other contract.
obligation.
STEP
1
STEP
2
STEP
3
STEP
4
STEP
Recognise revenue
5
Identify performance obligations STEP
2
Performance obligation (PO) = promise to deliver good or service that is
Criterion 1: Criterion 2:
Capable of being distinct Distinct within context of the contract
Can the customer benefit from the good + Promise to transfer the good or service is
or service either on its own or together separately identifiable from other
with readily available resources? promises in the contract?
Yes No
Not distinct – combined with other

Distinct performance obligation
goods and services
Identify performance obligations - STEP
2
series exception
A series of distinct goods or services is treated as a single performance obligation if the
criteria below are met.
+ + =
Distinct goods or Each distinct good or Same pattern of Single performance
services are service is satisfied transfer obligation
substantially the same over time
Single performance obligation? STEP
2
= + + +
Contract to Bricks Windows Fittings Construction
build a house service
Criterion 1 – Benefit on its Criterion 2 – Good or service

own or with other resources is separately identifiable
✓
Do the goods and
services individually
meet the criteria? Each material could be used with Entity is providing a significant
another readily available item. integration service.
Multiple performance obligations? STEP
2
Contract
Installation services are also

offered by third party providers.
+
Machine Standard installation
Criterion 1 – Benefit on its Criterion 2 – Good or service

own or with other resources separately identifiable
✓ ✓
Does the machine
meet the performance
Machine can be used with other
obligation criteria? No significant integration service;
available inputs (such as third
installation is a standard service.
party installation).
Goods or services provided to a STEP
2
customer’s customer
Car manufacturer provides an End customer receives
incentive to dealers for each car they
purchase:
▪ Dealer can offer two free services to +
any customer who purchases a car.
Car Free servicing
Is the offer of two free services a performance obligation of the car manufacturer?
Yes, because:
▪ Car meets the definition of a performance obligation; and
▪ Right to offer free services can be used with an asset that the dealer has already obtained
(i.e. the car).
STEP
1
STEP
2
STEP
3
STEP
4
STEP
Recognise revenue
5
Determine the transaction price STEP
3
Variable consideration and the Consideration payable to a

constraint customer
…reduction to the transaction price

unless it’s a payment for a distinct
Transaction good or service.
Price
Non-cash consideration Significant financing
component
…measured at fair value unless it

cannot be reliably measured.
Exception: Variable consideration is not estimated for sales- or usage-based royalties

on licences of intellectual property.
Variable consideration STEP
3
Variable consideration can be
Performance Many
Discounts Credits Incentives
bonuses more...
Variable consideration is estimated using most appropriate method of either:
Expected value Most likely amount
Estimating variable consideration STEP
3
Transaction price
Contract to Fixed amount: Completion bonus: Performance bonus:

build a jet CU100 CU100 CU0 – CU100
Fixed Completion Performance

How would the amount bonus bonus
entity estimate
variable Most likely Expected
Not variable
consideration? amount value
Constraint on variable STEP
3
consideration
Estimate of variable
consideration …included in
transaction price
Amount that is ‘highly probable will

CU100 not result in significant reversal’… CU75
Qualitative ▪ The risk of a reversal arising from an uncertain future event.

Assessment ▪ The magnitude of the reversal if the uncertain event occurs.
Applying the constraint indicators STEP
3
Estimate variable consideration

▪ First model of this jet type
constructed and put into
service.
▪ Expected delivery of first jet:
five years from inception.
Contract to Completion bonus Performance bonus
build a jet CU100 CU80
At contract inception, how much variable consideration is included in the transaction price?
Likely nil because…
Use of jet is Significant period

No experience with Large range of
outside entity’s before uncertainty
similar contracts. possible amounts.
control. will be resolved.
Significant financing component STEP
3
Interest expense Practical expedient available Interest income

– no adjustment required
Payment in advance t0 Payment in arrears

t -12 t +12
months Performance months
To make the assessment all relevant factors are considered – in particular the:
▪ Difference between the transaction price and the cash selling price of the goods or services;
▪ Combined effect of the length of time between payment and performance and the prevailing interest rates;
▪ Other reasons for the payment terms.
Discount ▪ Rate that would be used in a separate financing transaction between the entity
rate and customer.
Significant financing component STEP
3
Contract to Contract price: Expected delivery date: Cash price: CU100 if

construct CU80 paid on 2 years from contract payment on delivery.
equipment contract inception inception
Does the Yes because…

transaction
price include a Significant period Cash price is No indicators
significant between delivery different from advance is for
financing and payment. transaction price. another reason.
component?
STEP
1
STEP
2
STEP
3
STEP
4
STEP
Recognise revenue
5
Allocate transaction price to STEP
4
performance obligations
Allocate based on relative
stand-alone selling prices
Determine stand-alone selling prices
Best evidence If not available

Performance obligation 1
Observable price Estimate price
Performance obligation 3 Adjusted market

Expected cost plus

assessment
a margin approach
Fair value measurement approach
Residual approach only if

selling price is highly variable or
uncertain
Estimating the selling price STEP
4
Two year contract – CU650 Entity sells phone and plan separately
Phone Data, calls and CU350 12 month plan for CU15 per
texts plan month – CU360 (24XCU15)
Methods for
estimating Observable Adjusted
Cost plus Residual
 
stand alone price market
selling price
Transaction price allocated to phone = CU650 x (CU350/CU710) = CU320

Transaction price allocated to plan = CU650 x (CU360/CU710) = CU330
STEP
1
STEP
2
STEP
3
STEP
4
STEP
Recognise revenue
5
Performance obligations satisfied STEP
5
over time
An performance obligation is satisfied over time if either:
Customer simultaneously receives and

Routine or recurring
1 consumes the benefits as the entity
services.
performs.
The customers controls the asset as the Asset built on

2
entity creates or enhances it. customer’s site.
The entity’s performance does not create an

3 asset with an alternate use and there is a Asset built to order.
right to payment for performance to date.
Over time criteria STEP
5
Contract to build Customer can cancel Right to payment to Quarterly payments

specialised with 30 days' notice cover costs incurred arrangement
equipment if contract cancelled
Do the terms meet

the no alternate
No alternate use Right to payment
use and right to
payment criteria? ✓ 
Payment needs to approximate selling price of goods and services transferred
to date (i.e. payment amount should include a profit margin)..
Measuring performance over time STEP
5
For each performance obligation an entity chooses a method that depicts its performance.
Output method Input method
▪ Surveys ▪ Costs incurred

▪ Milestones reached ▪ Labour hours
▪ Units delivered ▪ Machine hours
▪ Units delivered and similar methods not appropriate if work in progress is material.
▪ Adjustments required for wastage and uninstalled materials when cost method used.
Performance obligations satisfied STEP
5
at a point in time
Recognise revenue when customer obtains control of the promised asset.
Indicators that control has transferred include the customer has…
A present
Physical
obligation to Legal title
possession
pay
Risks and
Accepted the
rewards of
asset
ownership
Exception: Separate requirements for distinct licences of intellectual property.
Key points to
remember!
Some key sectors impacted
Telecommunication Real estate and Software Licensors – pharma,

and cable construction film and entertainment
franchisors
Aerospace and Asset managers Contract

defence manufacturers
Key points to remember!
▪ New guidance on separating goods and services in
contract.
▪ Variable consideration recognition constrained.
▪ Transaction price allocated using selling prices not fair
value.
▪ New guidance on recognising revenue over time.
▪ Requires new estimates and judgements.
IFRS 15
Revenue:
Application
guidance and
disclosures
Agenda
1. Application guidance
2. Contract modifications
3. Contract costs
4. Presentation and disclosures
Application
guidance
Licences of intellectual property
STEP
2
Is the licence distinct from other goods or services in the contract?
No Yes
Apply revenue
recognition criteria to the Assess nature of licence
combined bundle
Provides right Provides

to access right to use
STEP Revenue recognition
5 depends on items in the
bundle
Over time Point in time
Right to access to intellectual
property (IP)
A customer has a right to access to IP (i.e. over time) if all of the following criteria are met:
1. Entity expects to undertake activities that significantly affect the IP.

2. Customer is directly exposed to positive or negative effects of the entity’s activities
that affect the IP.
3. The activities do not transfer a good or a service to the customer.
If all the criteria are not met, the licence provides a right to use the entity’s IP that is
satisfied at a point in time.
Assessing the nature of a franchise
licence
▪ Franchisor M licences the right to operate a fast food outlet in a specified location to Franchisee D.
▪ The outlet will bear M’s trade name and D will have the right to sell M’s products for 5 years for an
up-front fixed fee of CU250,000.
What is the nature of the franchise licence and when should M recognise revenue?
Provides a right to access the IP, recognise revenue over the 5 year term because…
M will undertake
The franchise licence The activities to be
activities to maintain its
requires D to implement provided by M do not
brand, including product
any changes that result transfer a good or
improvements, marketing
from M’s activities. service to D.
campaigns, etc.
Assessing the nature of a software
licence
▪ Company X licenses software on a non-exclusive basis to Customer Y for 3 years for a fixed fee of
CU50,000.
▪ Post-contract support (PCS) service X will provide is identified as a separate performance obligation.
What is the nature of the software licence and when should X recognise revenue?
Provides a right to use the IP, recognise revenue at the point in time the software is provided to Y
because…
X will not undertake any further actions that significantly affect Y’s ability to use
the licence.
Licences with sales- or usage-based
royalties Consideration for sales- or usage-based royalties on licences of intellectual
property is recognised at the later of:
▪ Subsequent sale or usage; and
Exception ▪ Satisfaction (or partial satisfaction) of the performance obligation to which the
royalties relate.
The exception also applies when a licence of intellectual property is the

predominant item to which the royalty relates.
▪ P (movie distributor) licenses the right to show Movie XYZ in cinemas for 6 weeks to C (movie theatre).
▪ In exchange for the licence, P is entitled to 20% of the ticket sales by C. Under the contract, P is
responsible for advertising and promotion of Movie XYZ.
P recognises revenue as movie tickets are sold by C.
Licences of intellectual property –
change and impact
New criteria – right to use versus access to intellectual property
▪ New concept.
▪ Applying the criteria could be highly judgemental.
Pattern of revenue recognition may change
▪ Revenue currently recognised over time may be recognised at a point in time, or

vice versa.
▪ Limited impact on distinct licences with sales- or usage-based royalties.
Sales with a right of return
Revenue entity
Recognise An asset – right to
expects to be A refund liability
initially: returned products
entitled to
With the
following Revenue is Refund liability is Asset is
subsequent reassessed remeasured remeasured
effects:
An entity applies the variable consideration guidance when determining the amount it expects to
be entitled to.
Sales with a right of return
▪ Company B sells 50 tablet devices @ CU200 each to a customer, total CU10,000.
▪ Customer can return undamaged devices within 30 days for a full cash refund.
▪ Cost of each device is CU150.
▪ Based on its past experience, B estimates that 3 tablets will be returned (most likely approach).
Debit Credit
Cash (or receivable) 10,000
Refund liability (CU200 x 3 tablets to be returned) 600
Revenue 9,400
Asset (CU150 x 3 tablets to be returned) 450
Cost of sales 7,050
Inventory 7,500
Sales with a right of return –
change and impact
Gross presentation
▪ Allowance for returns is presented gross:

‒ as a refund liability; and
‒ an asset for recovery of transferred goods.
End result is broadly similar to today’s practice
▪ New judgements required for estimating variable consideration and applying the
constraint.
▪ Portfolio level estimates may be required.
Repurchase agreements: forwards
and call options Forward Call option
(i.e. a seller’s obligation to (i.e. a seller’s right to
repurchase the asset) repurchase the asset)
The customer does not obtain control of the asset
Asset repurchased for less than original selling price?

Yes No
Lease arrangement Financing arrangement
Change from risk and rewards approach to transfer of control approach
Repurchase agreements: put
options Put option
(i.e. a customer’s right to require the seller to repurchase the asset)
Repurchase price higher than original selling price?

Yes No
Repurchase price > expected Customer has significant

No economic incentive to
market value of asset? exercise the put option?
Yes Yes No
Sale with a
Financing arrangement Lease right of
return
‘Significant economic incentive’ is a new threshold
Call option
▪ Company X enters into a contract to sell equipment to Customer Y for CU250,000 on
1 January.
▪ The contract includes a call option that gives X the right to repurchase the equipment for
CU225,000 on or before 31 December.
How should X account for the transaction?
As a lease arrangement because…
The equipment can be repurchased by X for less than the original

selling price.
Warranties
Does the customer have the option to purchase Yes
the warranty separately? STEP
No
STEP
Are services in addition to assurance that the Yes
(i.e. service warranty) 4
product complies with agreed specifications
provided as part of warranty?
No
Not a separate performance obligation

(i.e. assurance warranty) Apply
IAS 37
Factors to consider when making the assessment:
Is it required by law? Length of the warranty? What tasks are performed?
Warranties – example
Car manufacturer N sells to Customer A
Car Standard warranty: Extended warranty:

3 years or 36,000 miles extra 3 years or up to
70,000 miles for CU5,000
How many performance obligations are there in the contract?
Warranties – example solution
Performance obligations
AND
Car and standard warranty Extended warranty
▪ The customer has the option to

Standard warranty is an purchase the extended warranty
assurance type warranty separately.
Apply ▪ The extended warranty provides

IAS 37 additional services to the customer.
Warranties – change and impact
‘Service’ warranties accounted for as a performance obligation
▪ Rather than evaluating whether risks and rewards of ownership have passed to the
buyer, assess whether additional services are provided.
▪ Presence of a warranty does not preclude revenue recognition.
Revenue recognition may be accelerated
▪ Allocation of the transaction price to a performance obligation.
Principal versus agent
An entity is principal in a transaction if it controls the specified goods or services in advance of
transferring them to the customer.
Indicators that an entity is principal in the transaction include:
Discretion to Primary
establish prices responsibility to
for specified
goods or services ✓ provide specified
goods or services ✓

Inventory risk Credit risk
✓
Customer options and unexercised
rights
Customer options for Does the option provide a material right the customer would
STEP
additional goods or otherwise not receive? 2
services
Yes – account for as a performance obligation. Revenue STEP
(e.g. sales incentives, loyalty recognised when future goods or services transferred or 4
points, contract renewal option expires.

options)
Expect to be entitled to breakage amount?

Customers’ unexercised STEP
rights (breakage) Yes – recognise breakage No – recognise as 3
amount as revenue in revenue when likelihood STEP

(e.g. gift vouchers, non- proportion to pattern of of customer exercise 5
refundable tickets)
rights exercised. becomes remote.
Non-refundable fees and customer
acceptance Does the fee relate to the upfront transfer of a promised good or
Non-refundable upfront service? STEP
2
fees
STEP
(e.g. joining fees, activation No – advance payment for future goods or services. 5
fees, setup fees)
Can the entity objectively determine that control of a good or

Customer acceptance STEP
service has been transferred in accordance with the contract? 5
(e.g. trial period, cancellation

clauses or remedial action that Consider the entity’s experience with similar contracts,
can be taken by a customer) remaining performance obligations.
Consignment and bill and hold
arrangements
Consignment Is delivered inventory still controlled by the entity? (e.g. control
STEP
arrangements not transferred until sale or expiry of a specified period)? 5
(e.g. delivery to a dealer or

Yes – revenue is not recognised on delivery of the
distributor prior to sale end to
customer)
products to the intermediary.
Consider whether: STEP
Bill and hold arrangements ▪ The reason for arrangement is substantive. 5
▪ The product is separately identified.

(i.e. entity bills customer but ▪ The product is ready for physical transfer.
retains physical possession) ▪ The entity does not have the ability to use the product or
direct it to another customer.
Contract
modifications
Contract modifications
Is the contract modification No Do not account for contract
approved? modification until approved
Yes
Does it add distinct goods or

No Are the remaining goods or
services that are priced
services distinct from those already
commensurate with their stand-
transferred?
alone selling prices?
Yes No
Yes
Account for as
Account for as termination of existing Account for as part of
separate contract contract and creation the original contract
of new contract
Contract costs
Contract costs
Costs to obtain a contract Costs to fulfil a contract
Capitalise incremental costs if: Capitalise as fulfilment costs if:
Incurred only as result

✓
Not in the scope of
of obtaining the contract
✓ another standard
✓ Recovery is expected
✓ Directly related
Generate or enhance
(e.g. sales commission)
✓ resources
✓
Practical Amortisation period < 1 year? Recovery is expected
expedient Expense costs as incurred
Costs to fulfil a contract
✓ 
Direct costs that are eligible for Costs to be expensed when incurred
capitalisation if other criteria are met
General and administrative costs –
Direct labour (e.g. employee wages) unless explicitly chargeable under
the contract
Costs that relate to satisfied performance
Direct materials (e.g. supplies)
obligations
Allocation of costs that relate directly to

Costs of wasted materials, labour, or
the contract (e.g. depreciation and
other contract costs
amortisation)
Cost that are explicitly chargeable to the

customer under the contract
Costs that do not clearly relate to
Other costs that were incurred only unsatisfied performance obligations
because the entity entered into the
contract (e.g., subcontractor costs)
Amortisation and impairment
Amortisation period
▪ Systematic basis consistent with the pattern of transfer.
▪ Considers anticipated contracts (e.g. renewal options).
Impairment
Remaining Costs directly

Carrying
amount
 consideration − related to providing
amount expected to goods or services
be received
If conditions improve, impairment can be reversed
Presentation and
disclosures
Presentation
Contract asset or contract liability is recognised when the:
▪ Entity performs by transferring goods or services; or
▪ Customer performs by paying consideration to entity.
(net) contract asset (net) contract liability

Rights and obligations
if rights > obligations if obligations > rights
Receivable Capitalised contract costs
Unconditional Distinguished Presented Separate

right to from contract according to presentation from
consideration assets nature or function contract assets
Disclosure
Objective: help users understand the nature, amount, timing and uncertainty of
revenue and cash flows arising from contracts with customers.
Significant judgements and changes

Contracts with customers
in judgements
Determining the timing of satisfaction of
Disaggregation of revenue
Changes in contract assets, liabilities

Determining the transaction price
and costs
Determining amounts allocated to
Performance obligations
Assets recognised from the costs to obtain or fulfil a contract
Disclosure prior to effective date
Pre-adoption disclosures (IAS 8.30) considerations:
▪ Focus area for regulators.
▪ More detailed as the entity’s application date approaches.
▪ Meeting external stakeholder expectations.
Key points to
remember!
▪ New revenue standard will impact all entities, in
different ways.
▪ Specific application guidance in addition to the
requirements of the 5-step model.
▪ New requirements to capitalise costs of obtaining a
contract.
▪ Extensive disclosure requirements.
▪ Process of assessing impact and transition options
should start now.
IFRS 15
Revenue:
Transition
options
Why is this important?
▪ Deciding how to transition to IFRS 15 is a key step in the
implementation process.
▪ The decision can have a major impact on your financial
statements and costs of implementation.
▪ The transition options are complex and require careful
analysis.
Transition option differences
Revenue and
Restate all No need to
certain expenses
revenue or only estimate
could be
revenue for the variable
presented twice
current period Mixed consideration
reporting in
comparative
periods
Required to
Option to record disclose revenue
adjustments in under IAS 18 for
equity at start of the current period
current period
...the transition option selected may significantly affect the look of revenue presented on
application of IFRS 15.
Agenda
1. Transition options
2. How the options affect the accounting
3. Additional factors to consider
Transition
options
Retrospective method at a glance
Recognise the effect of applying IFRS 15 at the
start of the earliest period presented.
Apply IFRS 15 at the start of the earliest

presented period to:
▪ all contracts; or
▪ only open contracts at that date.
Elect to use practical expedients to avoid

restating certain types of contracts.
Retrospective method with
practical expedients
For completed contracts, no For modified contracts, no separate
PE#1 restatement of contracts that begin and PE#3 evaluation of contracts modifications
complete in the same annual reporting before the beginning of the earliest period
period. presented.
For completed contracts, with variable For periods before the date of initial
PE#2 consideration, use the transaction price PE#4 application, exempt from providing
at the date the contract was completed. disclosures for remaining performance
obligations.
Completed contract: a contract in which the entity had transferred all of the goods and services identified
under IAS 18/IAS 11 to the customer.
Example – Completed contract
▪ M sells C a piece of machinery and delivers it to C on 31 December 2016.
▪ C has the right to return the machinery within one month from the date of delivery.
▪ Under IAS 18, M did not recognise any revenue on the delivery date due to the uncertainty of return.
▪ M is applying IFRS 15 from the mandatory effective date of 1 January 2018 and presents 1 year of
comparatives.
Does the contract meet the definition of a completed contract?
▪ Yes, because the goods and services identified under IAS 18, i.e. the machinery, have been delivered
before the start of the earliest comparative period presented.
▪ Revenue from the sale would be recognised in accordance with M’s existing accounting policies.
Cumulative effect method at a
glance Apply IFRS 15 as of the date of initial application, with
no restatement of comparative period amounts.
Apply IFRS 15 at the date of initial application to:

▪ all contracts; or
▪ only open contracts.
Elect to use contract modifications practical

#3 expedient.
Disclose the effect on each financial statement line item

in the current period as a result of applying IFRS 15.
Weighing up the options
All or only Avoid recreating
incomplete facts and
contracts? circumstances
Restate
comparatives? Mixed reporting
Cost and for a period of
Comparability Transition options time
effort
Transition options
Date of equity
Approach 2016 2017 2018 adjustment
Full retrospective – no
IAS 11/18 IFRS 15 IFRS 15 1 January 2017
practical expedients
Full retrospective – Mixed

IAS 11/18 IFRS 15 1 January 2017
practical expedients requirements
Cumulative effect IAS 11/18 IAS 11/18 IFRS 15 1 January 2018
Cumulative effect method: entity also needs to disclose revenue amounts that would have been
presented under IAS 11/18.
How the options
affect the
accounting
Example 1 – Change in
measurement of performance
▪ X, a contract manufacturer, has a 10-month contract to produce 10 units per month at CU2 per
unit. Contract commences on 1 May 2017.
▪ Under IAS 18, X recognised revenue using the units-of-production method.
▪ Under IFRS 15, X determines revenue recognised would be CU175 in 2017 and CU25 in 2018
using the cost-to-cost method.
2017 2018
Revenue (IAS 18) 160 40
Revenue1 (retrospective method) 175 25
Revenue (cumulative effect method) 160 25
Adjustment to equity (CU175 – CU160) 15
1 – No adjustment to equity because contract commenced after adjustment date.
Example 1 – Change in
measurement of performance
Q: Would the practical expedients apply to example 1?
Contract is not completed before Contract is not completed

PE#2
start of current period. before start of current period.
PE#1
What if the contract completed

on 31 December 2017?
Could apply practical expedient – PE#3 Contract was not modified.
does not apply IFRS 15 to the
contract.
PE#4 Exempt from disclosure

requirement for 2017.
Example 2 – Additional
performance obligation identified
▪ X enters into a contract to a provide a software term licence (installed on 1 July 2016) and two
years telephone support for CU400.
▪ Under IAS 18, revenue is recognised straight line over 2 years.
▪ Under IFRS 15, CU300 allocated to licence (recognised at a point in time) and CU100 to
telephone support (recognised over time).
▪ Under IFRS 15, X calculates revenue would have been CU325 in 2016, CU50 in 2017 and CU25
in 2018.
2016 2017 2018

Revenue (IAS 18) 100 200 100
Revenue (retrospective method) 325 50 25
Adjustment to equity (CU325 - CU100) 225
Example 2 – Additional
performance obligation identified
Q: Would the practical expedients apply to example 2?
Contract is not completed before

PE#1 PE#3 Contract was not modified.
start of current period.
Contract is not completed Exempt from disclosure

PE#2 PE#4
before start of current period. requirement for 2017.
Example 3 – Contract includes
variable consideration
▪ X agrees to provide advertising services for 20 months from 1 August 2016. The consideration is
CU100 plus an additional CU125 if certain performance levels are reached by 1 February 2018.
▪ Under IAS 18, X recognised CU100 straight line over the 20 months, but did not recognise any
performance fee until 2018.
▪ Under IFRS 15, X determines that CU125 is included in the transaction price from at inception
and therefore recognises CU225 over time.
▪ Revenue (based on labour hours): CU56 in 2016, CU135 in 2017 and CU34 in 2018.
2016 2017 2018

Revenue (IAS 18) 25 60 140
Revenue (retrospective method) 56 135 34
Example 3 – Contract includes
variable consideration
Q: Would the practical expedients apply?
Contract is not completed before

PE#1 PE#3 Contract was not modified.
start of current period.
Includes variable consideration but

PE#2 not completed before start of the
PE#4 Exempt from disclosure
current period.
requirement for 2017.
What if the contract completed
on 31 December 2017?
Could apply practical expedient –
use closing revenue under IAS 18
of CU225 from inception.
Example 4 – Contract modifications
expedient
▪ M agrees to manufacture and sell a piece of machinery to C for fixed consideration CU1,000.
▪ The contract commenced on 1 April 2014 and is complete by 31 December 2018.
▪ The contract was modified numerous times, changing both the scope of work and amount of consideration.
▪ At 1 January 2017, M determines the contract includes two performance obligations the item of machinery
and repair and maintenance services.
▪ The modified consideration is a fixed amount of CU5,000 and variable amount of CU15,000.
Retrospective method Practical expedient 3

▪ Apply IFRS 15 to the original contract at inception – ▪ Apply IFRS 15 (using hindsight) to the contract at
i.e. a single performance obligation with a 1 January 2017.
transaction price of CU1,000.
▪ Apply IFRS 15 contract modification guidance to
▪ Apply IFRS 15 contract modification guidance to contract modifications that occur after start of
each modification up to the end of the contract. earliest period presented.
▪ Equity adjustment date: 1 January 2017. ▪ Equity adjustment date: 1 January 2017.
Additional
factors to
consider
Additional factors to consider
Significance of
change in
Comparability accounting Availability of
of information historical
and investor information
perceptions
Systems and Contract structure

processes and volume of
contracts
Disclosure
requirements
Next steps
Evaluate Consider
potential information
population of needs to restate
contracts contacts
Perform initial Identify other

gap analysis key
considerations
relevant to the
entity
Use information to evaluate transition options
Timeline for implementation
Effective date Annual report
Today 1 January 2018 31 December 2018
2016 2017 2018 2019

Evaluate existing IFRS 15
contracts and Maintain new systems and processes
Retrospective design new systems
method
Maintain existing systems and Continue for completed
processes contracts?
IFRS 15
Evaluate existing contracts and design
Cumulative new systems and processes Maintain new systems and
effect method processes
Maintain existing systems and processes ?
First-time adopter
First-time adopter timeline
IFRS 15 (unless practical

Legacy GAAP IFRS 15
expedients applied)
Comparative Year of adoption
Equity adjustment date Date of initial application
▪ Option 1 – Apply IFRS 15 on a full retrospective basis or with practical expedients.

▪ Option 2 – Restate only contracts open under legacy GAAP at the start
of the earliest presented comparative period and apply practical expedients to
comparative periods presented.
Key points to
remember!
▪ Full retrospective method provides comparability.
▪ Use of practical expedients results in mixed reporting.
▪ Revenue presented can vary significantly under each
option.
▪ Important to consider all factors when evaluating the
options.
Thank you
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although
we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that
it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough
examination of the particular situation.
©2017 KPMG Limited, a Cyprus limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG
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IFRS 15

Effective date Annual report

2014 2016 2017 2018 Mar Jun Sep Dec

Early adoption permitted Interim report

IAS 18, IFRIC 13, 15 Consolidation Consolidation

Gains and losses Sales to non-customers

Telecommunication Real estate and Software Licensors – pharma,

Aerospace and Asset managers Contract

Certain types of non-

... collection of consideration is ... rights to goods or services

... it is approved and the parties

Contracts may be combined and accounted for as a single contract.

Goods and services

Performance obligation (PO) = promise to deliver good or service that is

Not distinct – combined with other

Criterion 1 – Benefit on its Criterion 2 – Good or service

Installation services are also

Criterion 1 – Benefit on its Criterion 2 – Good or service

Variable consideration and the Consideration payable to a

…reduction to the transaction price

…measured at fair value unless it

Exception: Variable consideration is not estimated for sales- or usage-based royalties

Variable consideration can be

Variable consideration is estimated using most appropriate method of either:

Expected value Most likely amount

Contract to Fixed amount: Completion bonus: Performance bonus:

Fixed Completion Performance

Amount that is ‘highly probable will

Qualitative ▪ The risk of a reversal arising from an uncertain future event.

Estimate variable consideration

Likely nil because…

Use of jet is Significant period

Interest expense Practical expedient available Interest income

Payment in advance t0 Payment in arrears

Contract to Contract price: Expected delivery date: Cash price: CU100 if

Does the Yes because…

Best evidence If not available

Performance obligation 3 Adjusted market

Residual approach only if

Transaction price allocated to phone = CU650 x (CU350/CU710) = CU320

Customer simultaneously receives and

The customers controls the asset as the Asset built on

The entity’s performance does not create an

Contract to build Customer can cancel Right to payment to Quarterly payments

Do the terms meet

Output method Input method

▪ Surveys ▪ Costs incurred

Indicators that control has transferred include the customer has…

Exception: Separate requirements for distinct licences of intellectual property.

Telecommunication Real estate and Software Licensors – pharma,

Aerospace and Asset managers Contract

Provides right Provides

1. Entity expects to undertake activities that significantly affect the IP.

The exception also applies when a licence of intellectual property is the

P recognises revenue as movie tickets are sold by C.

Pattern of revenue recognition may change

▪ Revenue currently recognised over time may be recognised at a point in time, or

▪ Allowance for returns is presented gross:

End result is broadly similar to today’s practice

The customer does not obtain control of the asset

Asset repurchased for less than original selling price?

Lease arrangement Financing arrangement

Change from risk and rewards approach to transfer of control approach