IFRS 15 Transfer of Control

[Sonia333]

Hi

I have a query on the transfer of control under IFRS 15 for a scenario I have not come across before.

One performance obligation of a contract is to procure an asset for a customer. We will invoice the customer as soon as we have the asset.

We will then use the asset as part of providing a service to the customer for a set period, for example 18 months. Then after this period (and the service is complete) we will transfer the physical possession of the asset to the customer to do what they like with.

When we initially invoice the customer for the asset, the accept the asset by signing an acceptance. We still obtain physical possession. The customer then immediately 'gifts' us the assets for free for the period of the contract (the 18 months) mentioned. Again this is through a signed document. At no time does the customer physically possess the asset, until the end of the service. We are responsible for the asset throughout the service and bare the risks should the asset be damaged.

We can we recognize revenue? When is control passed? Initially on 'acceptance', although this is a temporary arrangement for minutes if you like. Or once they actually gain physical possession at the end of the services?

Any help would be greatly appreciated.

Thanks

[Marek Muc]

Hi,
an interesting arrangement

see this part of our knowledge base linked below and let us know how you see it applied to your case ok?

https://ifrscommunity.com/knowledge-bas ... nt-in-time

[Sonia333]

Hi Marek

Thank you for your reply.

I do not believe the guidance directly addresses the scenario I have, hence why I have asked the question.

I am comfortable that this is point in time, just struggling to assess when that point in time is. Should it be straight away when invoiced and 'accepted' by the customer. Or if we look at substance over form here, is it later once the customer actually possesses the assets and we are as the supplier are no longer involved.

Thanks

[Marek Muc]

No guidance can specifically address a complex scenario

What I meant is that the first assessment against this guidance be yours - don't be afraid to have a go a post back what you arrive at

For example , I would like to understand what are the economics of the contract, what are the cash flows, why you receive this asset for free (why can't you just use this asset), what is this asset's economic useful life etc. What recognition would best depict this contract and why?

For example , I'm not so sure that you should recognise any revenue relating to this asset, maybe you're just an agent ?