IFRS 15-Performance Obligations

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ramneek
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Joined: 19 Feb 2020, 12:05

IFRS 15-Performance Obligations

Post by ramneek »

HI Experts,

In India, we follow Indian Accounting Standards (Ind-As) which are mirror image of IFRS. As per, Ind-As 115/IFRS 15, transaction price is allocated over the performance obligations (PO) and revenue is recognized as and when POs are satisfied at a point in time or over a period, as the case may be.

Facts:
Suppose, our company has been awarded FWD (Falling Weight Deflctometer) Survey. We collect data, analyse it and submit our report. Payment terms are Mobilization Advance (20%), 40% after completing traffic survey and field investigation, 20% after submitting report and remaining 20% after the report is approved.

Queries:
1) In the above case how many performance obligations are there ?. I feel, there is a single PO of conducting survey and submit a report. But my confusion is that IFRS 15 says that PO is distinct when customer can benefit from it individually or with other readily available resources and it is separately identifiable from other promises in the contract. In our case, if we complete the survey and and for any reason, fails to analyse and submit our report, customer shall pay us upto that milestone. So, whether conducting survey and analyzing/submitting the report are separate POs.

2) How to spread Mobilization advance of 20% over the other POs.i.e. on what basis. I feel advance can be spread equally over other POs in the contract.

3) Since, we are eligible for payments upto the work done ie. upto the milestones achieved, can we recognize revenue over a period in time. Further, we are not incurring substantial overheads over this project, so whether instead of input method, can we use payment terms as the basis for recognizing the revenue.
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Marek Muc
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Re: IFRS 15-Performance Obligations

Post by Marek Muc »

1. To me it also seems that there is only one PO, remember that the context of the contract also matters
2. You don't 'spread' the advance, this is not a separate PO, it will be transferred to revenue when the first PO is satisfied
3. Yes this seems to be PO satisfied over time. Re. using payments to recognise revenue - not really, you receive 20% before any work is done
ramneek
Posts: 4
Joined: 19 Feb 2020, 12:05

Re: IFRS 15-Performance Obligations

Post by ramneek »

Thanks Marek for your valuable guidance.

For third point, using input method doesn't seem to be correct because it doesn't depict the real progress of the project. As we are not incurring any variable cost for the project. You also said that milestone basis may also not be suitable.

So, could you give some insight on what basis revenue can be recognised. Can we allocate revenue in 60:40 ratio I e. 60% after completing the survey (20% advance and 40%) and remaining 40% after completing 2 activities commulatively. (Submitting and approving the survey report)
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Marek Muc
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Re: IFRS 15-Performance Obligations

Post by Marek Muc »

output method seems more suitable, i.e. the work done
ramneek
Posts: 4
Joined: 19 Feb 2020, 12:05

Re: IFRS 15-Performance Obligations

Post by ramneek »

Thanks Marek for the valuable inputs :D
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