IFRScommunity.com

Hi guys,

There is one thing that isn't crystal clear to me.

Imagine there is our company specialized in the rental of data servers (in order to store data) with installation fees that are invoiced to the clients upfront.

Our auditors analyzed this contract under IFRS16 first. Their conclusion was that this type of contract should fall within the scope of IFRS16. The revenue should be recognized over time. In our annual financial report, we should disclose that type of revenue stream as IFRS16 and not IFRS15.

My first question here is, for me, all revenue (Top line in the P&L) is in the scope of IFRS15, did I missed something here?

Furthermore, We are asked by them to analyze the installation fees. They have told us that the installation fees should be analyzed as a single distinctive performance obligation ???

But for me, if the main contract is in the scope of IFRS16, I can't argue that the installation fee is IFRS15, could I? Because for me, performance obligations are only defined by IFRS15. Am I right?

So, if the contract is in the scope of IFRS16 (from my understanding if it's IFRS16, it isn't IFRS15 both can't exist at the same time), I can't argue that the installation fees is a single performance obligation am I right?

Did you know whether it's possible to have, from a lender's view, IFRS15 inside IFRS16?

Sorry if I'm not clear.

Thank you for your help !

BR

all revenue (Top line in the P&L) is in the scope of IFRS15, did I missed something here?

not exactly right, there are revenue streams outside of the scope of IFRS 15 and leasing is a great example

it is possible that one contract will be a composite of a performance obligation in the scope of IFRS 15 and a leasing under IFRS 16, and your case sounds like a good example

what are these installation services exactly?

Once again Marek, you are fantastic !!!


Thank you so much !!!

So now I understand better, the rental revenue should be recognized under IFRS16, over time.

The installation fees (access fees) are single performance obligations that should be recognized at the point in time at the moment when the service will be rendered am I right?

We call them access fees because we have two types of clients :

1. clients subscribing to our data rental services without engagement (1st month + renewal at wish): we charge access fees only to this type of clients in order to cover the costs that they might stop our service one month later and we have to look for another client.
2. Clients subscribing to our rental services with 12 or 24 months engagements: we offer them the access fees, free of charge.

And why do you believe the access itself to be a lease under IFRS 16 and not a service under IFRS 15?

Because I was wrong, I didn't know that if one contract is IFRS16, we still could look into it in detail, and analyze some component of the contract under IFRS15.

I thought that if it's IFRS16, all goes into IFRS16, with recognition over time even for some upfront costs we have to recognize as straight line.

I'm asking about the part that you believe to be a lease - why do you think it's a lease and not a service contract under IFRS 15

Because the assets are identifiable, the client has control over the machine and each one is only dedicated to one client who has the exclusive usage rights. And the client can decide which data should be stored and has the last words on how the machine could be used.

I see, and those installation services are more like setting up the server or rather some work done on client's equipment or premises?

It's more like setting up the server.

It's only invoiced for one month contract without further engagement.
For a long period contract (12-24months) it's often offered free to the client.

So it's just standard preparation of the leased asset for use, nothing distinct for the client, so it's not in the scope of IFRS 15 IMO. Just an upfront lease charge

Do you mean that it should be recognized over time along with the rental income?

Yes

Would you please tell me in which case do I have to distinguish the fees from the lease and treat the fees under IFRS15 as a single performance obligation?

When the service is distinct from the lease

https://ifrscommunity.com/knowledge-bas ... r-services

Than you Marek,

But from my understanding, when a service is distinct, it could be easily done and performed by another supplier. That's why I think the upfront installation fees are distinct because everyone can do it.

But you wrote that this is more like a set up of the leased server, so the service itself has no use to the client without the lease

I mean, this set up service won't work with server provided by another telco company as I understand

So currently you recognise this fee immediately in revenue in full amount?

Yea, actually we book it full amount at the beginning.

And I want it to stay like this.

Well, then you need to argue that this is a service distinct from the lease

Any tipes?

Leo wrote: ↑09 Jan 2021, 18:18 That's why I think the upfront installation fees are distinct because everyone can do it.

Is it really the case? Can the client do the set up and installation themselves without paying you?

Hi Marek,

Of course, they can. It's not rocket science, any supplier can do it.

So is that OK to say that it's distinct?

Thank you

Yes then I think you can treat it as non lease distinct service under IFRS 15