IFRS 15

Question 1

General Principles

IFRS 15

Answer 1

• Consider Commercial substance in the contract
• Good is capable of being distinct (IFRS 15 step 2)
• A good is distinct if you can benefit and there is a value placed on it.
• Revenue cannot be measured on a cash basis
• List all the promised goods in the contract
• Don’t just consider the 5 steps, consider other parts in the standard
• Different PO, difference in terms of time
• If something is longer than one year consider TVM & upfront payments: DR: Bank CR: Contract liability
• If revenue is recognized over time, there is no significant financing
• If promised consideration is more than stand alone SP no discount
• Separate PO if regularly sold separately
• Discount exists if SP stand alone > promised consideration (PV)

Question 2

Contract Cost

Answer 2

1. Consider capitalized costs and if there is amortization on the costs
   - Consideration received less costs = Net amount
   - Impairment: (Capitalized cost impairment less net from above )
   - Total impact on P/L (Amortization + Impairment)

• Construction cost/ Cost to complete * Contract price
• Consider significance of costs relative to total costs
• A deposit, question significant financing

Question 3

Step 3 IFRS 15

Answer 3

• If a customer pays at a later date, question significant financing and conclude
• If there is a deferred payment of consideration assess practical expedient
• Discount is not included in transaction price
• Guarantee is not a separate performance obligation

Question 4

Step 1 IFRS 15

Answer 4

• X is a customer of Y. They have contracted with Y to purchase….. which are outputs of Y’s ordinary activities in exchange of a consideration

Question 5

Recognizing points

Answer 5

• when you recognize points: CREDIT contract liability
• when points are redeemed:
  Dr contract liability
  Cr revenue

Question 6

Identifying P. O

June Exam

Answer 6

• The customer can benefit from the offline licence because the customer can use the access to the game contained in the offline licence to play the game offline. There is significant offline functionality and therefore the offline licence player does not need the online functionality benefit from the offline access to the game. The access to the offline functionality is therefore distinct
• The online functionality can be played with the software licence which is readily available and sold in the same contract as the online functionality. The online functionality generally operates to support the additional features and functionalities of the game that are only available online, not the offline license and therefore the online functionality can be used on its own and is therefore distinct
• The entity neither provides a significant service of integrating the inputs to provide one single output nor does one or more of the goods or services significantly modify or customise the other and the goods or services are not highly interdependent or highly interrelated and therefore are separately identifiable within the context of the contract
• The option to renew the online functionality and purchase virtual goods represents a separate performance obligation and the entity should assess if both options provide a material right to the customer that it would not receive without entering into the contract. IFRS 15 B39
• The option to renew the subscription to the online functionality for another service period represents a material right to the customer that it would not receive without entering into the contract because the 50% discount is not available to all customers only current users who have already purchased the product.
• Therefore the option to renew is a separate Performance obligation
• The option to obtain virtual goods is not an additional po because it is simply the right to purchase the additional good at the same price as the other players and at a price that represents the stand-alone selling price of the virtual good (IFRS15.B41)
• Therefore even though the right to purchase the virtual currencies can only be exercised by entering into the first transaction it is not a separate Performance Obligation because the option does provide the customer with a right to purchase virtual goods at market prices available to all World of Witchcraft users.
• The option to purchase additional virtual currencies and finishing moves should only be accounted for when the customer exercises the option.
• Therefore there are three separate performance obligations. The offline functionality and the online functionality and the option to renew

Question 7

Allocating Transaction Price

June Exam

Answer 7

-Allocate the transaction price

• To meet the allocation objective an entity shall allocate the transaction price to each performance obligation on a relative stand-alone selling price basis.
• The stand-alone selling price is the price at which the entity would sell a promised good or service separately to a customer. A contractually stated price or list price for a good or service may be the stand-alone selling price of that good or service
• If the stand-alone selling price is not directly observable an entity shall estimate the stand-alone selling price at an amount that would result in the allocation of the transaction price meeting the allocation objective. Therefore Naartjie should use the selling price of other offline prices to allocate the transaction price to the offline functionality
• The transaction price of world of( war) Witch craft on the Naartjie platform is R1 056. However the contract contains three performance obligations. AB should allocate the transaction price to each performance obligation on a relative stand-alone selling price basis.
• There is no observable evidence of a stand-alone selling price for world of witchcraft for either the online functionality nor the offline licence.
• Therefore AB should estimate the stand-alone selling price at an amount that would result in the entity recognising revenue that the entity expects to be entitled to.
• Because the entity regularly sells other products that contain online functionality only they should estimate what the market would pay for the World of Witchcraft game by using the adjusted market approach.
• The entity also has significant data regarding the cost to satisfy both the online and offline functionality and could therefore use an expected cost and add an appropriate margin
• Paragraph B42 requires that an entity also estimate the stand-alone selling price for a customers option to acquire additional goods. The estimate must reflect the discount that the entity would obtain when exercising the option adjusted for any discount that the entity would receive without exercising the option and the likelihood that the option will be exercised.
• There is a practical expedient because this is a contract renewal and is issued under the same terms as the original contract. B43
• Once the stand-alone selling prices were determined the entity should allocate the R1 056 relative to the stand-alone selling prices.
• The stand alone selling price of the renewal right can be determined by AB as 50% of the R1 056. The entity should determine the probability of renewal based on past information and this probability should be taken into account

Question 8

Significant Financing

Answer 8

Allocated cost: Significant financing
DR: Contract asset
CR: Revenue

DR: COS
Cr: Inventory

DR: Bank
CR Contract asset (balancing)
CR Maintenance cost
CR Finance income 1:1