IFRS 15 Contract Liability

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danioyal
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IFRS 15 Contract Liability

Post by danioyal »

Dear All,

In IFRS 15 Contract liability, let suppose contract liability is partially utilized keeping in view that obligation have been fulfilled. The excess amount in liability shall be reversed as other income or it can be part of revenue

Kindly advice.
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Marek Muc
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Re: IFRS 15 Contract Liability

Post by Marek Muc »

Hi, what does this amount of excess contract liability represent?
Asnake E
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Re: IFRS 15 Contract Liability

Post by Asnake E »

Hi,

As per IFRS 15, a contract liability is an entity’s obligation to transfer goods or services to a customer for which the entity has received consideration (or the amount is due) from the customer. Excess contract liability might arise from errors in allocating the transaction price to performance obligations resulting the understatement of revenue. I think you might need to reconsider the measurement of revenue before concluding on the reversal of the contract liability. The performance obligations might also include clauses on refund liabilities to the customer.
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Marek Muc
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Re: IFRS 15 Contract Liability

Post by Marek Muc »

It may be that the 'excess' contract liabilty simply relates to already satisfied performance obligations which probably results from wrong allocation of transaction price as you suggested. Anyway, more information from OP will be useful :)
danioyal
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Re: IFRS 15 Contract Liability

Post by danioyal »

Thanks for briefing. In my scenario customer paid $ 1,000 for the future obligation, however in actual the billing done for $ 800 Only. The $200 shall be considered as revenue or it shall be treated as other income.
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Marek Muc
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Re: IFRS 15 Contract Liability

Post by Marek Muc »

If you billed only 800, then shouldn't you refund the remaining 200? The customer is aware that you owe them 200 right?

Generally I believe that these provisions apply:

https://ifrscommunity.com/knowledge-bas ... -breakage/
JRSB
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Re: IFRS 15 Contract Liability

Post by JRSB »

Perhaps it is a scenario where the 200 is held on account against future bills?
Sibyteo
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Re: IFRS 15 Contract Liability

Post by Sibyteo »

How can the provision of breakage apply, isn't the breakage only applicable when there is a non-refundable prepayment?
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Marek Muc
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Re: IFRS 15 Contract Liability

Post by Marek Muc »

No, in some instances payments effectively become non-refundable when customers cease their purchases from the company entirely
Sibyteo
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Re: IFRS 15 Contract Liability

Post by Sibyteo »

Hi Mark, thanks for this answer.

I believed that if the company has refundable prepayment on uncalimed credits this falls under IFRS 15.15 and the breakage only recognised at the end of the contract. The company has essentially a debt to the customer, hence no breakage should be recognised based on a redemption pattern. Hence para b45, 46 and B47 should be all met in order to apply breakage based on a redemption pattern.
Sibyteo
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Re: IFRS 15 Contract Liability

Post by Sibyteo »

Just to clarify, I am asking this as all the examples in IFRS 15 only refer to breakage recognised on a redemption pattern only when there is a non- refundable prepayment.
I am just very curious to understand if an unexercised right of delivering good and services in the future with a refund policy can recognise breakage if para B46 only is met. Possibly I would love to understand the thinking process behind this concept.
Last edited by Sibyteo on 25 Jan 2024, 14:31, edited 1 time in total.
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Marek Muc
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Re: IFRS 15 Contract Liability

Post by Marek Muc »

IFRS 15.15 is applicable only in contracts not meeting IFRS 15 criteria.

B45 and B46 acknowledge that "customers may not exercise all of their contractual rights" and require entities to estimate the breakage and recognise it as revenue
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