Customer contracts under IFRS 3
Posted: 29 Jun 2021, 21:33
Dear All,
According to IFRS3 - business combinations, customer contracts (open orders) may be recognized during the transaction as arising from contractual rights.
Example: revenue 50, cost (30) -> fair value of customer contract is 20 which may be recognized as customer contract.
Considering that 50% of revenue is down payment (completion yet 0%), the future cash flow may result in negative value. Is it possible to recognize this during the PPA?
Example: revenue 50, from which 25 is advanced payment; cost (30), completion 0% -> future cash flow will be (5)
In case of down payment, how do you recognize negative future cash flow of open orders?
Is it going to be customer contract, contingent liability, contract liability or something else?
If available, referring the related sources would also be appreciated.
Thanks Peter
According to IFRS3 - business combinations, customer contracts (open orders) may be recognized during the transaction as arising from contractual rights.
Example: revenue 50, cost (30) -> fair value of customer contract is 20 which may be recognized as customer contract.
Considering that 50% of revenue is down payment (completion yet 0%), the future cash flow may result in negative value. Is it possible to recognize this during the PPA?
Example: revenue 50, from which 25 is advanced payment; cost (30), completion 0% -> future cash flow will be (5)
In case of down payment, how do you recognize negative future cash flow of open orders?
Is it going to be customer contract, contingent liability, contract liability or something else?
If available, referring the related sources would also be appreciated.
Thanks Peter