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Under a franchise, an entity promises to grant a license to use its intellectual property to a customer.

In addition to a promise to grant a licence to a customer, an entity may also promise to transfer other goods or services to the customer

If the promise to grant a licence is not distinct from other promised goods or services in the contract in accordance, an entity shall account for the promise to grant a licence and those other promised goods or services together as a single performance obligation.

If the promise to grant the licence is distinct from the other promised goods or services in the contract and, therefore, the promise to grant the licence is a separate performance obligation, an entity shall determine whether the licence transfers to a customer either at a point in time or over time. Continue reading “FRS 115 – Specific Area: Franchise”

Previously under FRS 18 illustrative example, when the buyer is acting, in substance, as an agent, the sale is treated as a consignment sale.

Under FRS 115, this determination is based on whether control of the inventory has passed to the consignee upon delivery.

Indicators that an arrangement is a consignment arrangement include, but are not limited to, the following:

(a) the product is controlled by the entity until a specified event occurs, such as the sale of the product to a customer of the dealer or until a specified period expires;

(b) the entity is able to require the return of the product or transfer the product to a third party (such as another dealer); and

(c) the dealer does not have an unconditional obligation to pay for the product (although it might be required to pay a deposit). Continue reading “FRS 115 – Specific area: Consignment Arrangements”

A company may give discount to a customer whether explicitly stated in the contract or implicitly where the customer a valid expectation arising from past business practices.

Depending on the jurisdiction, industry or customer this offer may be referred to as a discount, rebate, refund or credit.

FRS 115 deems this to be an variable consideration and the company shall estimate an amount of variable consideration by using either of the following methods, depending on which method the entity expects to better predict the amount of consideration to which it will be entitled:

(a) The expected value—the expected value is the sum of probability-weighted amounts in a range of possible consideration amounts. An expected value may be an appropriate estimate of the amount of variable consideration if an entity has a large number of contracts with similar characteristics.

(b) The most likely amount—the most likely amount is the single most likely amount in a range of possible consideration amounts (ie the single most likely outcome of the contract). The most likely amount may be an appropriate estimate of the amount of variable consideration if the contract has only two possible outcomes (for example, an entity either achieves a performance bonus or does not. Continue reading “FRS 115 – Specific Area: Price Concessions”

An entity shall recognise a refund liability if the entity receives consideration from a customer and expects to refund some or all of that consideration to the customer. A refund liability is measured at the amount of consideration received (or receivable) for which the entity does not expect to be entitled (ie amounts not included in the transaction price). The refund liability (and corresponding change in the transaction price and, therefore, the contract liability) shall be updated at the end of each reporting period for changes in circumstances. Continue reading “FRS 115 – Specific Area: Sales With Rights To Returns And Refund liabilities”

FRS 115 supersedes INT FRS 113 Customer loyalty programs.

Similar to INT FRS 113, an entity should determine that whether the loyalty program is a performance obligation.

If the program is a performance obligation, the entity should allocate the transaction price to the program based on a relative stand-alone selling price basis. If the stand-alone selling price for a customer’s option to acquire additional goods or services is not directly observable, an entity shall estimate it. Continue reading “FRS 115 – Specific Area: Customer Loyalty Program”

Under FRS 11 Construction Contracts , both contract revenue and contract costs that are accounted for using the POC method are recognised with reference to the stage of completion.

Under FRS 115 Revenue from Contracts with Customers, revenue is recognised using a measure depicting performance using an input or an output measure. A contractor applying the input measure excludes the effect of inputs that do not depict its performance in transferring control of goods or services to customer (e.g. unexpected amounts of wasted materials, labour and any uninstalled materials).

Costs on the other hand, are expensed as incurred unless they qualify to be capitalised as an asset under another standard (e.g. inventory, property, plant and equipment) or they relate to incremental cost to obtain the contract or future performance. Continue reading “FRS 115 – Specific Area: Differences between “Output method” per FRS 115 vs “surveys of work performed”/ “Surveyor method” per FRS 11”

FRS 115 Revenue from Contracts with Customers was issued on 19 Nov 2014 but the effective date was delayed until 1 Jan 2018. It supersede FRS 11 Construction Contracts and FRS 18 Revenue.

FRS 115: Five-Step Model

FRS 115 applies a five-step model to determine whether a contract falls within its scope, and also the timing and quantum of revenue recognition.

1. Identifies whether there is a contract with a customer.
2. Identifies the separate performance obligations.
3. Determines the transaction price.
4. Allocates the transaction price to the separate performance obligations.
5. Recognise revenue when (or as) the entity satisfies a performance obligation.

Continue reading “FRS 115 Revenue from Contracts with Customers”

The following example is extracted from FRS 116 – Illustrative Examples : Example 13 Continue reading “Financial Reporting Standard – FRS 116 Leases – Examples”

This standard is released on 30 June 2016 and is effective for annual periods beginning on or after 1 January 2019.
This standard removes the concept of operating and finances lease for lessee and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. Continue reading “Financial Reporting Standard – FRS 116 Leases”