Fulgaon, Raine Benedict M.
BSA-2
06-24-24
Reflection Paper on PFRS/IFRS 15
“Develop a passion for learning.If you do, you will never cease to grow.”
- Anthony J. D’Angelo
According to the video I have watched, in 2014 there was a huge change in
the IFRS related to revenue recognition guidance because before the change, the
guidance on revenues will spread all over the standards and there are various
interpretations like IAS 18 Revenue; IAS 11 Construction contracts; IFRIC 13
Customer Loyalty Programmes; IFRIC 15 Agreements for the Construction of Real
Estate; IFRIC 18 Transfers of Assets from Customers; and SIC-31 Revenue –
Barter Transactions Involving Advertising Services. Looking at all these
standards, my eyes really hurt because that’s a lot of interpretations and I
assume that it was quite difficult to choose a standard in specific situations and
there is possible conflict or confusion when applying them. It was in May 28,
2014 that IFRS 15 was issued, and it should be applied for the period starting on
or after January 1, 2018.
PFRS 15/ IFRS 15 applies to ALL CONTRACTS with CUSTOMERS except for
leases, insurance contracts, financial instruments and other contractual rights or
obligations within the scope of IFRS 9, 10, 11 and IAS 27 and 28, and non-
monetary exchanges between entities within the same business to facilitate
sales.
The standard introduces a revenue model in which the core principle is that
an entity should recognize revenue to depict the transfer of promised goods or
services to the customer in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods or services.
We already read the topic but, sometimes, watching videos also help us
understand more about certain topics. Here are some key points that are
completely new to me (or something I didn’t quite understand when I was
reading my book):
1. There are 2 basic issues related to the identification of contract:
Combination of contracts where 2 or more contracts that might need
to be accounted for as one because they are interrelated and that
there are rules when you need to take separate contracts and
account for them as for one contract where substance over form
applies in this situation.
Contract Modification or in other words modification, amend, or
change existing contract either in its price, scope, or things in need
to deliver under the contract- you may have to account them as for
separate contract or as for some combinations or as for some catch-
up adjustment or some combination depending on what the
modification is about.
2. Performance obligation can be both explicit (sated in the contract) and
implicit (based on practice or policies like guarantees). And if there is no
transfer to customer, then there is no performance obligation.
3. If a contract contains a variable amount, the entity will estimate the
amount to which it will be entitled under the contract. The consideration
can also vary if an entity’s right to consideration is contingent on the
occurrence of a future event. The variable consideration is only included in
the transaction price to the extent that it is highly probable that a
Fulgaon, Raine Benedict M. BSA-2
06-24-24
significant reversal in the amount of cumulative revenue recognized will
not occur when the uncertainty associated with the variable consideration
is subsequently resolved.
4. Where a contract has many performance obligations, an entity shall
allocate the transaction price to the performance obligations in the
contract by reference to their relative stand-alone selling prices. If a
standalone selling price is not directly observable, an entity will need to
estimate it. (Shoes and socks example)
5. Performance obligation can be satisfied where you need to recognize
revenue gradually over the contract period and not as a single amount
when a contract is completed.
6. Performance obligation can be satisfied at the point of time with
revenue recognized at the point of time and IFRS 15 sets 3 criteria to
recognize revenue over time and if one of them is met, then it’s overtime,
otherwise it’s at a point of time.
Of all the new things I have learned, these are the ones I like the most since it is
about the steps on when and how to recognize revenue. If I could master all
these topics, I assume that it would make me understand the following topics
easier. With the help of those tutorial on YouTube, it became easier not only for
me but also to every one of us who are enrolled in this subject.
